Young and Frugal

My wife and I have essentially been living as if we were making mortgage payments on our new house for the last 6 months, but instead of paying a mortgage (and taxes and insurance and Homeowners Association) it’s all been going into savings for our down payment.

We admit that we are stretching ourselves to buy our first house (I think that’s something that most people do), but as we are re-evaluating our budget (less than a month until we move in!) we have found ourselves looking forward to our raises in the fall (even if it just equates to a cost of living raise) because let’s face it…as much as budgeting is important, no one likes sticking to a strict budget, so we look towards the future at what we will be making and what we can spend (or save) at that point in time

I think our problem is that we are always looking to acquire more. We want more and don’t want to make sacrifices to get more.

As Mary and I caught ourselves looking forward at what we will be earning and what will increase in our budget I thought to myself, why not look backwards?

Why not live on last years salary? Say your salary was X last year and it increased to Y this year. If you live on last years salary and budget you inadvertently save Y-X all year. Then when your salary increases to Z you can live on Y and save Z-Y.

This concept allows you to save more and forces you to permanently (ideally) live below your means. It’s simple, but a great and easy way to save!

In college I thought I had learned everything.  I learned finance in and out, I learned economics, marketing, advertising, managing, forecasting, social drinking, networking, and every other aspect of business that I could think of.  I was a badass. 

Nope.  As soon as I started work, I ate my piece of humble pie. 

Why is it that I spent four years in college, graduating with honors and a dual degree, to enter the workforce and immediately be slammed by something that I had never been taught? 

Literally, the first thing I encountered when starting my new job was benefits, and I have never been taught benefits.  What kind of medical coverage do I need?  Should I get the basic plan, or the premium plan? HMO? PPO? Extra life insurance?  Flexible Spending Account?  Use it or lose it? How much will all this cost me? It was a very overwhelming experience.  

Who do you turn to in a situation like this?  It seemed like the benefits lady who talked to me on my first day was in the same boat I was in.  She had no idea what she was doing!  Other people asked questions and she stated the coverage that she elected.  Great.  How is a 40 year old, single mother’s elected coverage supposed to relate to a guy directly out of college?  Thank God I had a week to submit my elected coverage, because that gave me time to research and talk to my Dad.  Now am I confident in my selections?…Absolutely not. 

Having had this experience, I propose a mandatory class for all college seniors, regardless of their major.  This class would be taught jointly between a few different departments and would touch on topics that everyone will face after college:

1. Résumés and cover letters: writing and critiquing
2. Interviews: How to sound like a better you
3. Benefits: The pros and cons of certain coverage
4. Insurance: Life, Car, Home
5. Personal Finance: How to Budget, and Don’t let your ego use your wallet
6. Retirement Planning: Yes, you’re 21, but you won’t be forever

I propose that this class be mandatory for all college seniors because regardless of major, everyone will face these issues after college, and not everyone will have someone close to them bail them out (Thanks Dad!). 

I realize that all of these topics vary by person, but having someone lay out some basic guidelines that you will be tested on is something that I think everyone can agree on.  For instance: If you start out saving/investing 10% in a 401k/IRA/Roth IRA when you are in your early 20’s, you will be set for 80% income replacement when you retire (USAA Magazine), and your housing expense should be a maximum of 30% of your take home pay (many financial professionals).  Basic guidelines like these can educate people and make them more aware of their situations. 

I had great professors in college, but unfortunately only two of them did any sort of rundown on personal finance, and both of them were hurried on the last day of class.  In a few of my classes we worked on our résumés, but everyone thinks their way is the best, and I ended up with a few different versions to appease a few different people.  Interview sessions were offered by Career Development Services.  The key word “offered.”  Few people took them up on it. And I know quite a few people who graduated college with a great deal of debt.  Why?  Because they could pay off all their cards when they got jobs. 

I think a mandatory class along these lines would have a great impact on the future leaders of our country.  And maybe, just maybe, it may help make frugality a virtue again.