Mike Jones has been one of my best friends since we were in High School. We don’t see eye to eye on everything, and certain areas of money management fall under that. However, he’s been winning with money longer than most people our age. I think he’s got great ideas about helping young people do the same. This is the first in a three part series from Mike, so make sure you stay tuned over the next three Tuesdays. You can follow Mike on twitter, or get a hold of him through e-mail Michael.firstname.lastname@example.org.
Hello everyone! First, let me set your expectations by stating that I am NOT a writer. That’s not to say that I don’t have my moments of writing genius, but I don’t have a particular voice and I’m not going to win any awards. Now that you won’t be disappointed, let’s jump into a discussion about being young and managing your finances.
I won’t call myself an expert in managing finances, but I’ve been balancing a checkbook and investing since I was 15. From an early age, I was fascinated with building wealth and making sure that I had plenty of money. For me, money is a way to keep score in life – particularly in business. Now, that clearly conflicts with several messages in the Bible, such as
“No one can serve two masters. Either he will hate the one and love the other, or he will be devoted to the one and despise the other. You cannot serve both God and Money.” (Matthew 6:24)
“Do not store up for yourselves treasures on earth, where moth and rust destroy, and where thieves break in and steal. But store up for yourselves treasures in heaven, where moth and rust do not destroy, and where thieves do not break in and steal. For where you treasure is, there you heart will be also.” (Matthew 6:19-21).
It’s been difficult for me to balance over the years, but I think that I’m starting to get the hang of it.
In addition to managing my finances as a hobby, I am a Certified Public Accountant, CPA, and a licensed residential mortgage loan originator. Those two titles mean that I deal with personal finances on a daily basis and I’ve seen both the good and bad side.
You’ve probably heard this before, but God has placed you as a steward over the finances that he has provided to you. As such, it is your responsibility to make sure that you handle his gift wisely. Over the next few weeks we are going to look at a few key areas of finances: the basics of financial management, debt and and taxes, and some practical steps for young people to take with their money.
So You Graduated And Got A Job
Managing your finances for the first time out of college can be a scary and exciting prospect. If you were able to snag a job right after graduating, congratulations! You are now likely receiving more money than all of your pre-college graduation years combined. And, if you’re like most young people, you have a lot of pent up spending to take care of.
One of the first, and possibly the worst, purchases is a vehicle. A vehicle is not a wise choice for several reasons, but the most important is that it is a depreciating asset. The moment that you drive a car off the lot and sign the papers, it immediately loses several thousand dollars in value.
If you absolutely must purchase a car after graduating, get a used, but reliable vehicle that will take care of you for roughly 5 years. After 5 years, you will likely be getting married and starting a family which means that your vehicle choice may need to change. If you can keep the vehicle longer, more power to you.
Most college graduates are also dealing with student loans. Luckily, most student loans are deferred for at least 6 months, which means that you get a bit of a breather once you start out. But, it is important for you to consider those payments in your budget up front. By setting this money aside, hopefully into savings or paying down other debt, you will already account for this money and it will not be a shock when you start making the payments a few months down the road.
Unless absolutely necessary, don’t opt to have the “graduated” payment plan. This payment plan allows for your student loan payments to be less initially, but the monthly payments increase substantially over time to make up for lost ground. I would not recommend this because you are only robbing Peter to pay Paul and who knows what your financial needs will be down the road. Be disciplined and pay the standard amount each month, if not more.
Don’t Get Caught Without A Cushion
An absolute necessity is creating a cushion of savings. Most financial experts will agree that you need at least 6 months of savings in order to be financially secure. This means that you have enough saved in the bank that you could cover your rent or mortgage, your student loans, car payment, and pay your monthly grocery and utility bills in the event that you lost your job or became unable to work. The more that you aggressively save up front, the less you have to worry over time.
Let’s briefly discuss medical/health insurance. Only you know your preferences and prior medical history, but you could be making a life altering decision depending on the type of coverage that you choose. If you do not obtain enough coverage, a disease or accident could literally ruin your financial future. On the flip side, if you’re paying too much each month, you could be missing on opportunities to save and invest.
There are many individuals that are independent of the big agencies like Blue Cross Blue Shield, etc. These individuals have access to a number of carriers and will let you shop for the best policy. Another coverage to consider is accident or critical illness coverage like Aflac. Insurance coverage like this will provide you with additional financial security if you hurt yourself or you are diagnosed with cancer; the monthly payments are usually fairly cheap and can save you a substantial amount of money in the long run.
A Final Word
No discussion on Christian budgeting would be complete without covering tithing. This is one area that I have always struggled with. This is a shame, because I know that God provides me with the success that I do experience and He will bless me (non-financially) by giving with a joyful heart. When budgeting, especially for the first time, be sure to factor your 10% (or more) into your budget up front. This will allow you financial freedom by not having to find a place down the road for giving – it will already be established.
That pretty much covered the basics. As a summary, creating a manageable and effective budget will not only allow you to be successful, but it will give you peace of mind.
Grace & Peace,