Money Q and A from College Graduates
1) Just coming out of school, I have $10,000 in student loans. Should I put as much as I can a month to the loans to get them done?
It depends. It depends on what the interest rate is on your student loans. If you have a low interest rate on your student loan debt (i.e. 4%), it may be in your best interest if you continue to pay the minimums on your student loan debt. If you can save every month, invest that money and earn a rate of return greater than 4%, it may be more advantageous for you to pay the minimums on your student loan debt and save and invest the rest.
2) My new job as an assistant at an agency allows me to put away for a 401k. I make less than Starbucks barista but this is still a great career start. Should I put away for this 401k or keep the money that I can?
First, you want to find out if your company matches your contribution? If so, then you definitely want to contribute to your 401k to take full advantage of the match! This is just free money your company is offering you. So even though you make less than Starbucks barista, it's like your company is giving you a raise just by saving for your future.
3) If I'm trying to budget my expenses, where is the first place I should cut? First thing I should prioritize?
As for budgeting, one thing you want to keep in mind is "It doesn't matter how much you make, what matters is how much you save!" So in terms of where you should cut first, it will differ person to person but chances are most people can save money by cutting back on entertainment. That is going out to eat, drinks, movies, etc. As a financial adviser, I do not tell people what they can and cannot spend their money on. As a general rule of thumb, I recommend everyone save a minimum of 10% of their gross (before taxes) income. So if you're monthly gross income is $3,000 a month, you want to pay yourself FIRST and save a minimum of $300 a month. Then you pay the bills and you make do with what is left over after you have saved.
4) What are the easiest things I can cut from my spending?
The easiest things to cut from your spending - Again, this will vary person to person but in my opinion the easiest things to cut back on are:
Your morning coffee - Research "The Latte Effect"
Going out to eat lunch everyday - The difference in spending $3-$5 a day on lunch vs $8-$10 a day on lunch can add up to saving about $100 a month, that's over $1,000 a year. Small changes in your day to day spending can have a huge effect on building your wealth.
Gym memberships - We live in Los Angeles, the weather is beautiful for a majority of the year. Get out there and go for a run, go to the park and use the pull up bars.
Ultimately, it all comes back to budgeting. In many cases, as long as you are able to save a minimum of 10% of your gross income every month, the way you spend the other 90% is completely up to you.
5) Should I use a credit card? What's the best credit card to get?
As for credit cards, YES you should use a credit card. However, there are a couple of VERY IMPORTANT rules to keep in mind when getting a credit card.
First - Pay off your credit card bill in FULL EVERY MONTH NO MATTER WHAT! It does not matter if your credit card limit is $1,000 or a $1,000,000. You only put things on your credit card that you can afford to pay off in full at the end of the month. This is the first and most important rule when it comes to using a credit card!
Second - Go back and re-read rule #1!!! I cannot tell you how important this really is. Carrying a balance month to month on your credit is a good way to give yourself financial cancer. Due to the extremely high interest rates credit cards carry, this may be one of the easiest ways to lose your hard earned money. So again only put things on your credit card that you can afford to pay off in full at the end of every month, never carry a balance month to month!!!
Third - There are hundreds of different credit cards out there. In terms of the type of credit card you should get, first make sure there is no annual fee for the card. It does not matter if the gold, platinum and black credit card had a baby credit card with an annual fee, stay away from it. Next, you want to get a card that has rewards. Now there are a lot of rewards cards out there with everything from airline miles to shopping credits but at the end of the day, I personally feel there is nothing better than cash! So look for a credit card without an annual fee and that gives you cash back, the higher percent cash back the better the card.
For more questions, you can contact financial adviser Elijah Souza at firstname.lastname@example.org.
Investment Advisor Representative, Gerber Kawasaki Wealth & Investment Management
Investment Advisor, SagePoint Financial, Inc.
2716 Ocean Park Blvd Ste # 2022
Santa Monica, CA 90405
T: (310) 399-6397
F: (310) 392-4018
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The information presented is not intended to be a substitute for specific individualized financial advice.
This material contains forward looking statements and projections. There are no guarantees that these results will be achieved. Investing involves risk including potential loss of principal.
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