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4 Crucial Financial Lessons College Isn’t Teaching Millennials

4 Crucial Financial Lessons College Isn’t Teaching Millennials

Out of all the reasons that people go to college it seems that two tend to top the list: the love and pursuit of knowledge and a means of upward financial mobility. For institutions so concerned with knowledge and money, you’d think that most graduating students would know all there is to know about their own personal finances, venturing into the world well-equipped to become productive members of society, and get a solid grasp on this “adulting” business. Unfortunately, the numbers don’t seem to reflect as much.

As it sits only 17 states currently require students to take a course in personal finance sometime in K-12 and according to one study, 43 percent of students couldn’t name one difference between a credit and a debit card. With how important tax returns, credit scores, and all other sorts of financial data are to the average adult’s fiscal life, it seems absurd that so many come out of college knowing so little about them. Whether you’re intent on amassing a small fortune or content with living simply and frugally, there are certain financial lessons you shouldn’t leave college without knowing.

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1. No Matter What, You Have to Pay Your Taxes

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    For some people, the fact that you have to pay taxes is a no-brainer–personally, I’ve had to fill out tax returns since I was about 16 years old. However, many of the people I went to college with–particularly athletes and high-performing academics who’d never had the time to hold a job throughout either high school or university–hadn’t the slightest clue about 1040s or 1099s or any of the other tax forms that income-generating Americans should.

    The good news is this: taxes usually aren’t as complicated as people make them out to be. They can be, but at the end of the year, the average citizen will be filling out a 1040EZ which has line-by-line instructions (in fact most tax forms come with a set of instructions). Difficult or not, taxes are time consuming. The Motley Fool estimates that it takes 5 hours for the average 1040EZ filer, so make sure you set that time aside and get it done. Owing the government money is never a good thing. Another reason that tax awareness is as important today as it ever was is that more graduates are going into business for themselves, either as business owners or as part of the gig economy. Without knowledge of the tax code, how do you avoid running afoul of it and owing the government money? Unfortunately, not knowing the rules doesn’t make you exempt from them, so brush up on your tax knowledge. The more you know, the better prepared you’ll be.

    2. Your Credit Score is Probably More Important than You Realize

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      From car loans to home loans, finances are a huge part of everybody’s lives

      Credit scores were invented shortly after the Civil War to indicate how trustworthy a person is in terms of paying back debt, and everybody–unless they’ve never opened a bank account, applied for a loan, or owned a credit card–has one. Your credit score is going to range anywhere from 300 to 850, and the lower the number is, the less likely that somebody will trust you with their money. The higher your credit score, the better chance you’ll get a good deal on your mortgage, car loan, and basically any other major life purchase you might be thinking about. On the other hand, if your credit score is too low, you may be flat-out denied a loan.

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      A better credit score means you have more buying power, but more importantly that you’ll have to pay less interest on those big life-purchases (more on that in a moment). The weird thing here is that you have to use credit to build credit–a slippery slope if I ever saw one myself–and it’s easy to get carried away with all of that unchecked power. It’s good to keep in mind that you’ll build credit quicker by managing your debt more strictly; keeping your credit balance below 30 percent of your credit limit is recommended for building credit. It’s all about balance!

      3. Debt Compounds Quickly–So Pay It Off Just as Quickly

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        You wouldn’t just hand over money would? Only paying the your minimum amount on your installments can cost you big in the long run.

        This is one of those things that I wish I would have realized sooner. Due to rising costs of tuition ($19,548 per year on average for in-state tuition including room and board), many students are taking on massive amounts of debt with the hope that they’ll land a good enough job to pay it all off later. Unfortunately, many of these students take on that debt without fully realizing how debt and interest actually work. Whether it’s credit cards, student loans, or your car payments, it’s almost always worth it to pay off your principle sooner rather than later. Here’s a quick example to illustrate what I mean:

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        Let’s say your loan balance is $40,000 at last year’s current average interest rate of 4.29%. You’d have to pay at least $410.52 a month consistently to pay your loan off in 10 years, and you’d still be paying $9,261 extra in interest–meaning your $40,000 worth of debt is closer to $50,000 when it’s all said and done. If you commit to paying off an extra $100 a month, you’ll save approximately $2,200 overall and pay off the loan in 7.8 years. Bump that up to an extra $200 a month and you’re looking at being debt-free in 6.3 years and saving approximately $3,600 on interest charges. It’s worth noting that certain loans, specifically mortgages, may have penalties associated with paying them off early–however, the overarching lesson is this: if you can pay it off early, do it! You’ll thank yourself later on. Seriously.

        4. It’s Never Too Early to Save for Later

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          Sometimes money is too easy to spend–keep that wallet shut and save!

          Of course, the reason that we take so long to pay off our student loans and other debts is that we’re a culture focused on living in the now. We’re not great at recognizing our future needs over our current needs, and add to that economic strains and pressures and you see why young folks like Millennials put off saving for retirement, let alone drawing up a will or living trust. Beyond taxes and debt, this is probably going to be the least of most students’ concerns–but if there’s anything I’ve learned personally from paying off debt, it’s that it’s easy to underestimate how appreciative your future self will be for the actions of your past self. Any amount put away is better than nothing and will make your later years that much more comfortable.

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          Of course, there are more obscure things that college students might want to know about finances, and this list is by no means definitive–but the lack of rhetoric in high school and university concerning the financial aspects of everyday life is somewhat concerning. At least here you’ve learned the basics, and can take fiscal agency over your own life.

          Featured photo credit: Pixabay via pixabay.com

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          Andrew Heikkila

          Owner-Operator of Earthlings Entertainmnet

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          Last Updated on June 6, 2019

          The Average Retirement Savings and How to Save Wisely

          The Average Retirement Savings and How to Save Wisely

          Are you on track for retirement?

          If not, don’t worry, I’m not sure either. I save each month and hope for the best.

          Fortunately, I’m at an age where most people don’t save so I’m ahead of the curve.

          But, what if you aren’t in your 20s? What if you’re near retirement and are looking to gauge where you stand?

          If so, keep reading. Here’s how to prepare for retirement and save wisely during the process.

          What Does the Average American Have Saved for Retirement?

          Saving for retirement is tricky.

          Tell someone straight out of college to save $10k a year for retirement and it’ll be next to impossible.

          Make the same request to someone decades older and they’d be more likely to be able to save this amount. But, a 20-year old college student can be “financially ahead” of someone saving more than them. Why?

          Age matters in your financial journey. The younger you are, the more time you have to save and put compound interest to work. As you get older and have more saving power, you’d have less time to put compound interest to work.

          Here are the average savings Americans hold by age bracket:

          20’s – $16,000

          During this stage, most people are paying loans and moving up the corporate ladder. Your best bet during this stage is to focus on eliminating debt and increasing your income. Don’t focus only on getting a high-paying job neither.

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          Instead, focus on learning via Podcasts, reading books, and taking specialized courses. Doing this will make you more valuable and give you more career options.

          30’s – $45,000

          At this stage, you’ve hopefully escaped your entry-level salary and work at a career you enjoy. Your earning power has increased but you now have more obligations. For example, marriage, kids, and a mortgage.

          Set a plan to pay off all your debt and focus on eliminating unnecessary expenses. Leverage financial tools like Personal Capital to ensure you’re on track for retirement.

          40’s – $63,000

          This is the stage where you’re at the prime of your career. Top financial institutions recommend you have at least 2 to 4 times your salary saved up. If you’re falling behind, start maxing out your 401K and Roth IRA accounts.

          50’s – $115,000

          During your fifties, you’re close to retirement but still, have time to save. You may be helping your kids pay college tuition and other expenses. Since you’re at the peak of your earning power, max out all your retirement accounts.

          60’s – $172,000

          By this point, you should have about eight times your salary saved up. If not, you’ll depend primarily on social security benefits averaging $1400 per month. Max out all your retirement options as much as possible before retiring.

          Ways to Save Money on a Tight Budget

          The sad reality is that most Americans aren’t saving enough for retirement.

          Even high-earning power isn’t enough to secure one’s financial future. You need to have the discipline to save for retirement while time is in your favor. Don’t wait for you to have a high salary to save, start with having a small budget.

          First, get a clear picture of where you stand. Write down a list of “needs” and “wants.” For example, Netflix and Amazon Prime are “wants” and a “cell-phone” is a need.

          Use tools like Personal Capital to analyze your spending patterns. Personal Capital allows you to add all your financial data in one place–making it a powerful option to gauge where you stand.

          Once you know all your expenses, organize them from highest to lowest expense. When you can’t cut more expenses, call your service providers to negotiate a lower price. If you’re not good at negotiating, use services like Trimm to lower your monthly expenses.

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          How to Save Money Each Month

          By this point, you know the average amount of money you should have saved for retirement based on your age.

          But, breaking this down into monthly goals can be challenging. Here are some rule of thumbs to follow:

          Aim to contribute 10%–15% of your salary each paycheck. Review your progress each week.

          Why so often? The reality is that life gets in our way and you will have many financial setbacks. Your goal isn’t to be perfect but to get back on track instead.

          Reviewing your finances weekly lets you know where you stand with your retirement. This doesn’t have to be a long process either. All it takes is login in Personal Capital to view your net worth and check how much you have saved for retirement.

          Turn saving into a game and aim to save more each month. It will get challenging but you’ll get creative and find more ways to save.

          Top Money Saving Challenge Tips

          To prepare for your financial future and not be another statistic you need to be different.

          How?

          By adopting new habits that’ll help you become a saving machine. Here are some ways you can save more:

          Automatically Contribute Towards Retirement

          If you’re working for a company, you can automatically contribute towards your 401k. If you’re not currently contributing more than 10%, make this your goal. Contribute 1% more today and automatically increase this amount a year from now.

          Odds are that you’re not going to be negatively affected by contributing 1% more. Many times we spend our money on things we don’t need. Contributing more towards retirement is a great way to secure your financial future.

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          Use the Right Tools to Know Where You Stand

          Once you’re contributing more towards your retirement accounts, gauge your progress. Make use of finance tracking apps to help you view the big picture of your retirement.

          When I’d first signed up for the app Personal Capital, I didn’t know I had a negative net worth. Despite saving thousands of dollars, my debt brought my net worth to the negative. Knowing this motivated me to save more and spend less.

          Now, I have a positive net worth. But, it was because I was able to view the big picture using the app. Find out what your net worth is using a finance tracking app and you may surprise yourself.

          Bring in Experts to View Your Blind Spots

          If you have too little or too much money saved, you should consider hiring financial experts.

          Why?

          You may need someone to hold you accountable to help you reach your financial goals. Or, you may need help managing your money as effective as possible.

          Regardless of the reason, getting help may help improve your financial situation.

          Before you hire an expert, find out which areas you need help the most. For example, if you’re constantly overspending, find a debt counselor. If you’re struggling with choosing the best investment options, hire a financial advisor.

          Speed up Your Retirement Contribution

          After learning how to manage your money well, the next best thing is to earn a higher income.

          You’re capped at how much you can save but not much you can earn. Even if your employer isn’t giving you a promotion, you can still take charge of your financial future. How?

          By starting a side-business.

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          This will be something you’d work on after you’ve finished your day job. Once you start earning income from your side-business, you’ll be financially better off.

          The best part is the more work you put into your side-business,[1] the more potential it has to earn more money.

          So start a side-business in an area you’re familiar with. For example, if you enjoy writing, do freelance writing for small e-commerce businesses.

          Once you’re earning a higher income, you can contribute more towards your retirement. Don’t wait for the right opportunity to secure your financial future, create one.

          Reach Financial Freedom with Confidence

          What if you were able to retire tomorrow with no problem, all because you’d have enough money saved up and little to no debt left to pay off? How would you feel?

          My guess is that you’d feel happy and relieved.

          Most Americans are falling behind their retirement goals for many reasons. They’re not prepared, they carry bad money-habits and are thinking short-term.

          For you to retire successfully, you need to work backward and adopt better habits. Contribute more towards your 401K and focus on growing your income.

          If you do, you’ll save money and pay debt faster.

          Don’t beat yourself up if you’re behind your retirement goals. Take the first step today towards a brighter financial future. Isn’t retirement worth the hard work and sacrifice to be at peace?

          Featured photo credit: Huy Phan via unsplash.com

          Reference

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