For the high school graduates: If you learn nothing in college, learn to avoid debt.  That single thing will make the rest of your life so much easier.  It allows you to start ahead of every single one of your college peers, and will make it so much easier to achieve the goals that you want in life.

If you’re reading this, and you’re a college graduate that never got the above bit of advice, you’ve likely ended up like I did.  Lots of debt.  Here’s my advice to you (and roundabouts to my past self).

1. Learn how to budget.  Creating and maintaining a budget opened my eyes to the ways that I was spending (and wasting) my money.  Create a budget for yourself and stick to it.
2. Learn how to avoid debt.  Very few of you will be able to completely avoid debt.  Minimize it.  Pretend it’s your leprous uncle.  Instill an aversion to debt.
3. Learn the meaning of appreciation.  If you’re going to add debt, only do so to buy something that you expect to appreciate.  New furniture doesn’t count. Houses sorta count.  Cars absolutely, positively, do not count.
4. Learn the value of shared costs.  Just because you’re a big boy (or girl) now with a fancy diploma (with fancy calligraphy), does not mean that you’re above having a roommate.   In fact, I would encourage it (unless you’re married, because that’s just a bit weird).  It doesn’t even take a calculator to figure out that rent/2 is better than rent/1.
5. Learn the value of patience.  Just because you can get a mortgage or a car loan, or whatever, does not mean you should.  Statistically speaking, you’ll change jobs several times over the first 5 years of  your career.  Do you really want to be tied down to a house if you need to move to another city?  Slow down and ease yourself into your adult life.  It’s not all that it’s cracked up to be anyways.
6. Learn the word Retirement.  Sure, your all excited about your newly earned earning potential and your fancy new career, but, if you’re like every other person on the planet, you’ll want to retire at some point.  Start saving now to make that dream come true later.
7. Remember to have fun.  Just because you’re all grown up and joining the “real world” doesn’t mean you can’t still have fun.  Your hobbies and activities are what make the “real world” worthwhile.
8. Wear sunscreen.  None of you will get this reference as you were probably 8 at the time.  The rest us do and it’s not that important. (in case you’re curious: http://en.wikipedia.org/wiki/Wear_Sunscreen)

The preceding is, by no means, an exhaustive list.  In fact, it can’t even really be considered a quick and dirty list.  It is, merely, a list of a few things that I have come to think of as some tenets for post college life.  Some, I have learned, others I wish I had.

Congratulations on your graduation, and best wishes as you join the rest of us in the real world.

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Beating Broke Rule: Get Dedicated

Get dedicated to your goals.  Get dedicated to your new life being free from debt.  Get dedicated to saving for your retirement.  Get dedicated to saving for a house.  A new car.  A ring.  Just get dedicated.

Dedication to your goals is the only thing that will ensure that you can fulfill them.  If you aren’t dedicated to them, you won’t follow through.  If you aren’t dedicated, you won’t meet your goals.  Without dedication, you will fail.

Make the choice today.  Dedicate yourself to your goals and work every day to fulfill them.  Take a step now to reach your goals.  You’ll reach them before you know it.

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Whether the occasion be a birthday, anniversary, Christmas, or some other special occasion, giving gifts should be fun.  We all know it’s fun to get gifts, but it really should be fun to give them as well.

And it goes without saying that if you’re overspending and blowing your budget that giving gifts can easily become a source of stress instead of joy.  And when that happens, you begin to begrudge the people that you’re giving gifts too.  This happens when you feel forced to give gifts as well.

Bottom line: Give yourself a budget for your entire list and adjust as necessary to fit within your overall budget.

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Beating Broke Rule: You should strive to pay cash for your cars

This rule accomplishes a few things for you.  By paying cash, you don’t have any monthly payments.  By paying cash, you are also forced to buy a car that you can actually afford.  No more $45,000 cars on a $70,000 salary.

Beating Broke Rule: Buy Used.

A new car depreciates in value more in the first few minutes of ownership than it does in the next year.  The second that you sign the paperwork and the dealer hands you the keys, a new car loses a large percentage of it’s value.  In some cases, this can be 10-15%.  By buying used cars, someone else has already paid for that depreciation and now you can enjoy the lower depreciation of the car through the years.  And if you go with a car that’s only a few years old, it’s almost like a new one anyways.

Beating Broke Rule: Don’t Lease.

Why would you want to pay someone several hundred dollars a month to drive their car only to give it back to them in the end with no value back?  And if you think you need to lease so you can have the smaller payment, you should be looking at a cheaper car in the first place.

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Why shouldn’t those same rules apply for your personal finances?

Beating Broke Rule: A budget is a must.

Let’s face it.  Only the Government gets away with an unbalanced budget.  If you or I were to take up similar fiscal actions, we’d be declaring bankruptcy every year.  The bottom line is this; If you want to be fiscally responsible and be in control of your finances, you’ve got to have a budget.  And it must balance.  Must!

Let me finish by finishing the analogy.  Think of your personal finance situation as a “business”.  You and your Wife (or partner and any children you may have) are the shareholders.  When the “business” does poorly (i.e. runs in the red) the shareholders lose value.  Only, instead of being able to sell the stock and find a better performing “business”, you have preferred stock that is non-saleable.  What’s more, you’re the CEO, CFO, CIO, and mail room attendant.  There is nobody you can fire for poor performance and you can’t trim your labor costs with layoffs.

The only way for your “business” to perform well is to have a budget that balances.  If you really want to make your “shareholders” happy, you’ll find a line item in there for savings as well.

Analogies aside, a budget can really help you see where your money goes and helps you get in control of your money.  Instead of trying to find a few dollars at the end of the month to pay bills, you might just find a few extra for an ice cream cone or two.

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CDs, as they are normally called, are a very stable investment.  As such, they make for rather poor returns on the long term and they carry a penalty for withdrawl before the “maturity”.  There are several uses that can make them a valuable part of your financial portfolio.

6 and 12 month CDs can be a great place to keep your emergency fund.  Chances are you won’t need the money, so you might as well invest it.  The key here is that the CD is a save, stable, and easily accessible form of investment.  You’ll still get the high interest rates that you would expect from a high-yield savings and, depending on the term length, sometimes better.

As you get older, CDs can play an important role in your retirement accounts as a small percentage of your portfolio.  Again, the stability and reliability of the nature of CDs makes is the key.  As you age, a growing portion of your retirement portfolio should be in stable cash investments.  Many will recommend something like a money market account or a high yield savings, but CDs are in that same group.  And with a retirement account, you can usually tie the money up a little longer and get better returns.  Look for something in the 2-5 year range for maturity.  Currently, you can get something like 5-6% returns on the longer maturities.

As I mentioned before, one fo the major drawbacks to CDs is the early withdrawl penalty.  In most cases (consult your CD paperwork) the penalty is 3 months interest.  So, if you were to withdrawl the money after only three months, you would only be able to withdrawl the original amount.  If you withdrawl the money at only one month, you would get less than the original amount.  Anytime after 3 months and you get the original amount plus any interest above the three months penalty.

While the penalty can be bad if you need the money early in the term, if you need the money for an emergency, it can be overlooked pretty easily.

Beating Broke Rule: CDs can be an important part of your investment portfolio

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Payday loans are something that I and other financial folks like to call Parasitic Lending.  They tout their convienence and ease all the while (like a parasite) putting you further and further behind with their high fees.  That money that you thought you needed so badly becomes about 25% lighter before you even leave the office and if by some chance the check you wrote them is bad?  You could easily rack up enough fees for that to exceed over 50% of the “loan”.

I cannot say this enough.  Debt is BAD!  And Payday loans are the worst of the bunch.  The only thing that I can think of that is worse would be bookies that take broken fingers and knees as fees rather than money.  Yes, they are that bad.

Do yourself the favor.  If you’re even thinking about using a payday loan service, don’t.  Things will be tight for a while, but if you truly work at it, you can get by without them and you will be much more financially sound without them.

Beating Broke Rule: Don’t touch PayDay Loans

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The purpose of an emergency fund is to give you available funds in case of an emergency.  Your car breaks down and needs repair.  You fall and break an arm and have to take some unpaid leave.  Whatever the emergency is, your fund is there to see you through it.  It’s a great thing, and can take an immense weight off of your mind that you didn’t even know was there.

So where do you put your emergency fund?  A fluid account that you have nearly immediate access to.  I prefer to have it in a secondary account that is separate from my everyday account because that makes it that much harder to spend on silly non-emergencies, but where it’s still available if I need it for an emergency.  At the moment, I keep my e-fund(my pet name for it) in an etrade high-yield savings.  The interest rate is consistently in the top 10 or so and the service has been superb.

How much do you put in it?  Ideally, you’ll keep 3-6 months of expenses in your emergency savings.  If you’re just starting out with your debt plan, try for something between $1000 and 1 month of expenses.

Make your emergency savings a priority.  Until your reach your $1000 balance goal, you should be paying as much as you can into it.  The peace of mind that you’ll get by having the account is well worth the extra interest you’ll pay on your debt while your building it.

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They are a mantra.  Living debt free is a lifestyle and living the Beating Broke lifestyle requires some lifestyle changes.  The Beating Broke Rules are meant to establish some simple guidelines on which to build the foundation of a debt free financial life.

Many people look at their debt and imagine what it would be like to be without it.  The Beating Broke rules can help them get on their way to that new life.  And along the way, we think they’ll experience some life changing things that will make their old lifestyle and financial habits a thing of the past permanently.

So, when you see a Beating Broke rule pop up, read it carefully and consider using it in your everyday financial life.

*I should note that there are no financial planners or financial advisors here at Beating Broke, so none of what we write here can be taken as financial gospel.  Please consider seeking the advice of a qualified financial planner or advisor before making any major financial decisions.

Beating Broke Rules: What Are They? is a post from: Beating Broke, if you enjoy it, please visit us and subscribe to the Feed.

BB Rule: Debt Free means Credit Card Free too!

Destroy as many credit cards as you can.  If you do use a credit card, keep the receipt and then send a payment for that amount immediately.  Our goal is to no longer use any credit cards and only use Debit Cards.  Debit cards will only allow you to spend what you have.  You’re not taking out a personal loan with each purchase as you are with a credit card and as a result, you are not creating more debt.

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