Last week, I outlined six smart moves including the concept of avoiding ‘bad debt’. If you missed it, visit ‘Stewart’s Commentary’ under the Resource Center at Welchgroup.com. Here are the remaining six smart moves:
- Avoid bad debt around owning a car. I once had someone tell me, “I thought you always had a car payment!” He was dead serious and he was also broke! A car, by definition, is a depreciating asset. In fact, when you drive a new car off the lot it depreciates in value about 10% that very day! Most people arrive at the dealership, find their dream car and ask the salesperson, “How much are my payments?” You’re asking the wrong question of the wrong person! Dealers have been asked this question so many times that they figured out the perfect system to sell more cars and more expensive cars. To get payments as low as possible, they’ll now finance a vehicle over as long as eighty-four months! This is a terrible financial strategy for you. Here’s a better approach: If you don’t have cash to pay for a car, decide on how much car you can afford based on payments over twenty-four months. In all likelihood, this will be a used car. Once you pay your car off, continue to make ‘payments’ but now do it in an investment account dedicated as a new car fund. Continue to drive your existing car and fund your ‘next car account’ until you can pay cash for your next car and then keep this cycle going forever. That way you have your money working for you rather than for someone else.
- Embrace the concept of ‘Good Debt’. Good debt is the use of financing to buy things that you expect to appreciate in value. The best example is buying a home. Other examples include borrowing for investing such as buying rental properties or to start a business. Even borrowing to advance your education can be a good use of debt.
- Protect yourself from adversity. Great health may be your greatest asset. There’s an ancient proverb that goes something like this, “A man with good health is a man of a thousand dreams. A man with poor health is a man but with one dream.” Like consistent investing produces wealth, a consistent program of exercise and good nutrition yields good health. This should be one of your top priorities. Believe me; it’s easy to allow other things to seem more important. In addition, build cash reserves in a money market account equal to at least three to six months of your paycheck as a buffer against the unexpected expenses. Also, make sure that you cover the insurance basics including owning disability income insurance, health insurance, diagnostic assessment, auto insurance and life insurance if you have family dependents.
- Prepare every day for retirement. Ninety-seven percent of Americans arrive at retirement pretty close to dead broke. The reason? They felt they could worry about that ‘next year’…only next year never came. Most companies offer some type of retirement plan that you can participate in and some also offer matching contributions. But whether your company does or doesn’t have a plan you should set one up. Your best first choice may be a Roth IRA. To learn more, visit Vanguard.com and type ‘Roth IRA’ into their search engine.
- Cut the parental cord. I just read an article that stated that 30% of millennials live with their parents! Reflecting on my thirty-plus years as a financial advisor, I’ve noticed that the most successful children have been those who had to ‘make it on their own’. More so than at any other time, I see so many ‘helicopter’ parents who insist on helping run their children’s lives well into young adulthood. Yes, it’s time to leave the safety of the nest, spread your wings and fly! You can do this and you’ll be proud of yourself when you succeed. So will your parents!
- Always be learning. Just when you thought you were finished with education, I’m telling you that you are just getting started. There is no greater investment you can make than in yourself. A primary life goal should be to be an insatiable learner. Identify successful people in your chosen field and model what they do. In fact see if they will act as a mentor to you. If you ask, you’ll find most successful people are very willing to offer periodic guidance.
Realize this…as a college graduate, the only limitations you have are the ones that you place on yourself. Create a vision of what you would like to accomplish; develop a written plan; be prepared to ‘correct and continue’ along the way; and focus on continuous improvement. There is nothing you cannot achieve!