By Shay Olivarria –
Check Your Credit Report It’s imperative that each graduate get a print out of their credit report from each of the “Big 3” credit reporting agencies. The government has passed a law that makes our credit reports available once a year for free from www.AnnualCreditReport.com.
This is the only site that will provide a copy of your credit report at no cost to you, from each of the “Big 3”, once a year.
You will not get your credit scores though; scores are computed through separate companies. Tip: Nothing in life is free. Any company offering you a free credit report and/or score is more than likely trying to sell you a monthly credit monitoring service. Read the fine print.
Figure Out How Much College Will Cost
Whatever college you choose, it’s important that you understand how much the total cost of your degree will be. Consider the costs of both tuition and books.
Once you see the costs in terms of tens of thousands of dollars it might make you a little more motivated to be responsible with your money. Apply for as many scholarships and grants as possible because you don’t have to pay those back. When you take out loans not only will you have to pay the money back, you’ll have to pay it back with interest.
Tip: Look for opportunities to make small financial changes that make a big difference. Buying used textbooks can save you hundreds over four years.
Consider the Return on Investment
You are going to make some decisions in the next year or two that will be the foundation for your life. Don’t make decisions based on your emotions or what your friends are doing; look at the return on investment. If you are spending money on something, it’s because you are expecting to get some kind of benefit. If you choose to attend an Ivy League university you expect to command top salary at a major fortune 500 company. If you choose to attend a community college it’s because you want to save a few dollars on your foundation classes. You must consider the return on investment with any purchase.
Tip: If you’re undecided about a purchase, sleep on it. Never make a decision in a hurry.
Create a Spending Plan
Writing things down is good. I’m sure you have a general idea of how much money you’re expecting from jobs, financial aid, etc., but unless you have a written plan to spend it the money will pass through your account and you’ll have no idea what happened to it. Have you ever taken $20 out of the ATM and the next day you have no idea how you spent it? That’s what will happen to your financial aid check unless you create a plan to spend it and cover all the things you need to spend money on.
Tip: making the plan before you actually have the money is the key to putting the spending plan into action.
Move Your Money
Visit www.CreditUnion.coop to find a credit union in your area. Credit unions are financial institutions that offer the same products and services as traditional banks, but they are not-for- profit. The only purpose of credit unions is to serve the community; each credit union member loans money to the other members. Pretty soon you’ll want to purchase a car and in the not-too-distant future, a home.
Credit unions tend to be smaller, offer more personalized service, and offer better rates on loans. Moving your checking and savings account to a credit union could potentially save you thousands of dollars over your lifetime.
Tip: Search for a financial institution that is a good fit for you, don’t just choose whatever your parents have.
Start an Emergency Fund
Ever heard of Murphy’s Law? It states, “Anything that can go wrong, will go wrong”. It’s up to you to make sure that you have at least $500 in an Emergency Fund at your credit union or bank because there will always be something that you need money for unexpectedly.
Having at least $500 in an account that you can have access to when times are rough might be the difference between having to borrow from a family member or take out a cash advance loan or being able to borrow from your stash and go on about life without being a hindrance to anyone.
Start by opening a money market account at your credit union or bank and then add $20 a week to the account until you have at least $500.
Tip: Don’t touch it unless it really is an emergency.
Open a Retirement Account
Did you know that investing $5 a day will make you a millionaire by retirement? You read that correctly, investing just $5 a day in an average performing mutual fund account that returns 9% a year (industry average is 10%) will put $1.3 million in your pocket. The first step is to find a mutual fund company that will let you open a no-load Individual Retirement Account (IRA) with no money as long as you contribute at least $50 a month. Put your money in an account that’s not too risky and not too safe. You have a long time horizon so don’t be scared to invest more in stocks, but you have to be able to sleep at night. A fee-only advisor can help you determine how comfortable with risk you are and suggest some mutual funds to you. The process is as easy as filling out a one page application and sending in your credit union or bank checking account information.
The second step is to commit to adding at least $50 a month to the account. The third step is to watch your account become fatter every month.
Tip: Set up the account so that the money is added to the retirement account automatically every month from your checking account. Add at least $150 per month to reach that million with no sweat.
Shay Olivarria is the most dynamic financial education speaker working today, a foster care alumni, and the author of three books on personal finance including All My Mistakes: Money tips for kids in care, due out in June. She’s been quoted at Bankrate.com, The Credit Union Times, Redbook, and Essence, among others. Visit her at www.BiggerThanYourBlock.com.