Tips for Recent College Grads

It's the wonderful time of year when lots of college students graduate and join the ranks of the "real world". For most, it probably means paying student loans and getting a full time job. Here are some articles of interest.

• This article on blitizing college debts from MSN Money is at least two years old (I found it when I graduated from college two years ago), but the advice is as good as it was the day it was written.
• This article on building your first budget, also from MSN Money, is good in that it suggests practical percentages that are a little more realistic, especially those with lower-incomes.
• When I've gotten a change in pay, I always want to know how much my paycheck is going to be, after all of the various deductions. I always check out PaycheckCity, where you can plug in your pay, input your state/fed allowances, and input all of the deductions like 401(k) contribution, health insurance and get the net amount.

Confession Time: I Buy on Impulse

I have to confess. I have an impulse spending problem. I went to the office on Sunday for a full seven hour shift. Then, two hours after I got off, I promptly spent all of my net overtime pay before I even received it in hand. I bought two pairs of shoes and a handbag on New York's 34th Street. I love all of the stores in that area: Shoe Mania, Ann Taylor, H&M (two, and they have different items in stock, so I always visit both), Old Navy, Steve Madden, not to mention Famous Footwear, Zara, Express and Macy's. Ahhhh. . . the shopper's delight.

I knew I wanted some walking shoes to wear to work and another pair of shoes to wear at work. I took the subway to 34th Street because it was a beautiful day and I just wanted to “look” at my options before I actually bought something. I certainly didn't think I'd end up buying everything that I did. At first I ended up buying a pair of $70 Puma sneakers. I knew as I was handing over my credit card that I was doing something I shouldn't be doing. Even though I always pay my credit card off every month, I end up charging a good $5-600 a month! If I can get control of that I will be a master of my spending. Okay, okay, maybe it's not that serious, but it will definitely help the financial "leak" before it starts.

Back to the Pumas. I like them a lot, they're very comfortable, cute, not to mention trendy, but I really, really don't need them. I have to admit that I already own three other pair of shoes in good condition (although not nearly as trendy) that can serve the exact same purpose. I also bought $70 Steve Madden pointy-toe shoes that I can wear at work, wear out at night and dress up or dress down and a $20 hot black leather handbag (on sale of course).

On my way home, I was thrilled about my Steve Madden shoes but I realized the Puma shoes weren’t necessary. If I kept all three purchases, I would have pretty much negated my whole reason for coming into work on my normal day off. The Puma shoes still sit in my living room unopened and unworn. I feel too guilty to wear them, because I know that the short term good feeling of something new won't help me with my long-term goals. I am taking the Puma shoes back to Foot Locker this week. I don't want to but as long as I get to keep the handbag and the pointy-toe shoes, I'll get over it.

Review: Suze Orman's The Money Book for the Young Fabulous and Broke

This week, I finally made it to the top of the list at the library and borrowed Suze Orman's The Money Book for the Young Fabulous and Broke. I've read two of her books in the past, but they were geared to folks around my mother's age. Some of the principle ideas were transferable to my generation, but largely, it wasn't applicable to my needs.

I mentioned in March that I went to one of her very first stops on her book tour at New York's Apple Store. I didn't buy the book then, because at $24.95, I'm too broke to afford it, without knowing for sure I'd like it. Even if I was going to buy it new, I'd get it from Amazon.com for less. At any rate, I chose the try-before-you-buy plan and signed up for the New York Public Library's hold list and, after 2 months, I scored my very own copy on loan.

To put it mildly, Suze's book lives up to the hype. It was very easy to read; I finished it in two days. The layout was very user-friendly, complete with a blue and green theme and bullet points. Each chapter focuses on the important things that make up a young person's financial sphere, like student loans, FICO scores, careers, retirement funds, home/car purchases, love & money, and others. It was the type of book that one could just read straight through, like I did, or skip directly to the relevant chapter(s).

I like that Suze is not at all stuffy in her language or approach. She says things like "get the loan paid off ASAP if you don't want your credit record to become mud" (page 271). At the same time, she's thorough in her advice and doesn't dumb it down. She has a direct Q&A nestled within the book, peppering her advice with relevant situations. Here's a sample from page 100, "Problem: The 21% interest rate on cash advances is crazy, but when I need the cash, what other options do I have? Solution: Charge more on your credit card so you don't need to take a cash advance." In addition to addressing the root of the underlying problem in other parts of the book, she addresses the short-term solution. Now that's real advice.

In The Money Book for the Young Fabulous and Broke, each chapter is followed with "quick playback" pages, where she summarizes what readers should have learned. My favorite part of the book is the glossary. Suze not only explains the term in question, but she gives you the YF&B advice right there, no need to flip through the pages! Right next to the definition of no-load mutual funds (mutual funds with no buy/sell commission), Suze says "YF&B advice: No-loads are the way to go. But you also want to make sure your no-load charges a low annual expense ratio." What a brilliant idea. All in all, even though I've already read the book, I know I will refer to sections of it later. I'm going to buy it.

I rate it a 5.

5-must buy
4-worth it, good reference guide
3-get it from the library or buy it used
2-okay, but nothing original
1-pass

And Now, the Roth 401(k)!

This BankRate.com article Roth 401(k)s reminded me of the newest retirement savings option available beginning January 1, 2006, if your employer decides to offer it. As BankRate.com notes, some of the rules are still being finalized. Here are some of the highlights, so far:

• Like the Roth IRA, contributions to the Roth 401(k) account will be made with after-tax money, but the growth will never be taxed.
• One can contribute up to $15,000 per year to a Roth 401(k), which is much better than the current $4,000 Roth IRA limit.
• Anyone who qualifies for a regular 401(k) can contribute to a Roth 401(k). This is better for higher paid workers who exceed the Roth IRA earnings limits.

And the lowlights:

• If your employer gives a matching contribution, it will only go towards the regular 401(k).
• Since the plan is employer sponsored, you have to stick with their choices.

I definitely hope my employer will offer the Roth 401(k), we'll see.

NY Times series on Class in America

The New York Times has an interesting series called "Class in America: Shadowy Lines That Still Divide". Today's article, the first in the series, discusses the concept of class mobility and moving up. I don't want to ruin the article, so read it if you have time, it's really good.

There's also a cool interactive indicator of "class" with regard to education, wealth, income and occupation. I filled it out using my bachelor's degree, my income (just under $50k base salary), my occupation as legal support staff and my negative net worth. My occupation ranked in the 60th percentile for prestige, my education was the 91st percentile, my income was 69th percentile and my wealth was a 25th percentile. The wealth indicator (net worth) starts at "$0", but my net worth isn't even that high. It's negative. I think that question is a little flawed, but excepting that, I ranked in the 61st percentile in terms of class, but I certainly don't feel like I'm doing that well. I guess I see too many ads reminding me of all of the stuff I can't buy. See how you rank. Don't have the free subscription to the New York Times? No fear, go to BugMeNot first to get a log in code.

Bankrate's Monthly Shopping Guide

Bankrate.com is one of my favorite finance sites. In addition to rates for savings, CDs, credit cards and tons of advice Best of all section, it has tons of fresh content added regularly. That said, check out the month-by-month shopping guide. From TVs in January to outdoor sports equipment in October, you'll be saving money all year long if you follow this guide.

The Numbers: My April 30th Net Worth

Overall, my net worth increased $562.40 since March 30th. First, in April, I worked about the equivalent of one shift extra. I would have liked to get more overtime, but it wasn't available. I contributed an additional $2000 in my Roth IRA, $1000 of which I got from my ING Emergency Savings and the other I got from my mid-April paycheck. Using that much from one paycheck to sock away meant I had to forego a lot of fun things, but it was worth it.

	3/31/05	4/30/05	% change
ING Emergency	4000.53	3008.34	75.20%
ING Other	302.22	2.87	0.95%
Checking	1449.62	1206.17	83.21%
Roth IRA	1432.40	3416.67	238.53%
Stocks	801.55	676.03	84.34%
401(k)	8716.81	8408.71	96.47%
Student Loans	(21285.62)	(21285.62)	100.00%
Credit Card	(542.50)	(260.11)	47.95%
Payable	(935.00)	(700.00)	74.87%
TOTAL	(6089.34)	(5526.94)

Here are some general notes of interest on my net worth:

1) I usually pay off my credit card every month, but there's usually a balance showing. That is the amount posted to my account as of March 30. I need a better system because I charge about $500-600 a month, and even though I pay it off, I would probably use a lot less if I just paid cash.

2) My brokerage and 401(k) accounts are lower than last month; they're not doing very well at all.

3. My student loan is at 100% because the first quarter interest payment hasn't posted yet. When it does, I'll pay it.

C'mon Everyone's Doing It (Why I Shut Off My Home Phone)

Nicole at Budgeting Babe beat me to the punch, but I was going to write about finally shutting off my land line. I've had a cell phone since the late '90s, but I recently decided to chuck my land line. I have to admit this decision was a long time coming, but when I opened my Verizon phone bill and discovered I'd only made three (yes, 3) calls during the entire month, I realized it was time. I was being billed about $40 a month, for a basic line after all of the taxes. I already made the switch from dial-up to DLS in March through my cable company, so the only thing I won't be able to do is use my fax machine. Thanks to pdf files, that won't be that much of a problem.

I have to admit there were two crucial times that my land line came in handy: September 11, 2001 and the Northeast blackout of August 2003, where my land line (and non-cordless phone for the blackout) were my keys to the outside world. Sprint PCS and other cell phone providers simply couldn't keep up with the demand. If another event were to happen, I'd be SOL. It's another thing to think about these days.

Anyway, over the next few months, I'll evaluate my cell phone usage and I may need to upgrade my plan. All I need to do now is transfer the saved income in my savings account.

The Nitty Gritty on the Rush Card

In a recent Generation Debt article, Anya Kamentz discusses Russell Simmons expansion to the financial services industry through the Rush Card, the Visa-logo prepaid debit card. As you may know, Russell Simmons is a cofounder of Def Jam Records. Simmons definetly knows a thing or two about money, he sold Def Jam in 1999 for a whopping $100 million bucks, and built Phat Farm an urban-focused clothing company. Most recently, he began marketing the card as a solution to people who don't have a credit card. He rightfully notes that renting a car, booking a hotel or buying a plane ticket can be greatly inconvenienced by not having a credit card. So, viola the Rush Card appears to fill the gap. At face value, a prepaid debit card seems to be a pretty good to low-income Joes, many of whom are people of color. For no credit check, no security deposit, you can get a Visa card that you can fund with direct deposit, bank transfers, money grams, even a tax refund--but anyone who uses it gets a raw deal.

First, there are activation fees of up to $19.95, per transaction fees of up to $10 per month, telephone balance inquiry fees, overdraft fees, ATM withdrawal fees, and worst of all, inactivity fees. (To see the entire list click here, then go to "Schedule of Fees".) Whew! Second, by funding the card before you need it, cardholders don't earn any interest--to the contrary you get charged for not using the card, further chipping away at any money you have. Third, debit cards don't appear on your credit report, meaning even if you use them well, you won't get a boost to your credit report. I called the general customer service number last night to confirm. After being on hold for 15 minutes, a customer service rep confirmed that the "card has nothing to do with your credit, since it's prepaid."

As Kamentz notes, the average prepaid Visa card costs about the same as a check cashing place, an annual average of $320 per year; Russell Simmons' card is about $180 per year. She also notes that an even better bet might be one of the many banks offering no minimum checking accounts, as they run an average of $36/year assuming no overdrafts.

All things considered, even though the Rush Card claims to offer "financial power and freedom" in reality, it looks like its low-income customers get the short end of the stick, once again if Russell Simmons really wanted to improve financial power and freedom for low-income people, perhaps he might consider offering a secured credit card, attached to an interest-bearing savings account to actually improve credit scores instead of just lining his own pockets and, in the long run, not doing much for his clientele.

The Importance of Keeping Notices (Part 2)

Last October, MBNA sent me a letter informing me that my Visa card would be "upgraded" to an American Express at the end of the month. In the letter they mentioned that, as long as I made $1,000 in purchases by December 31, I would receive a $50 American Express gift card. I made well over the minimum amount of required purchases, so I was certain I'd get my gift card in the mail. When I didn't receive the card by mid-February, I called customer service who informed me the gift card would be mailed by March. By the time the end of April rolled around, and I still hadn't received it I realized that I better give MBNA a call again.

I spoke to a customer service representative who had no record the offer was even made. After being on the phone for over 30 minutes while she called other departments, she finally informed me that I would have to fax a copy of the letter I received. I happened to have kept that letter, but what about the other people who either forgot or didn't keep their letter? Anyway, I faxed MBNA a letter and a copy of their letter. While I await my gift card in the mail, I can't help but to think how frustrating it is to have to ask for it. I'll keep you posted if I ever get it.