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Dispelling Common College PF Myths

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studenomics_logoToday's guest post comes from Studenomics, a blog that tries to help younger people reach financial independence. It's actually part one of a two part series, so when your done, you'll want to click through to Studenomics to read the rest. If you enjoy reading this guest post then please consider subscribing to RSS Feed.

There are certain assumptions that have been made over the years in regards to a young persons financial situation while attending college. Today I will go as far as to say that these assumptions are nothing more than myths. As a result of this I will go one step further and dispel common college personal finance myths. I feel it's about time someone showed the young people of today that certain assumptions are simply false and that there are more choices than ever.

Myth #1: You must pay for school with student loans.

Sure there are some programs that are extremely expensive (life sciences, engineering, and a few others) and student minimum wage isn't exactly ideal, BUT this does not mean that your education you should be 100% student loan funded. You have the whole summer to work and save up your money to cover the costs of a college education. If that is not enough then you may still work a full time or a part time evening job while in college. If all of the above options are not feasible for you then try an internship in your field of study or even better enroll in a program that has paid work terms. The point that I'm trying to get across is that while some students may have to use a loan to fund their education, most students choose to accept this thinking as a fact instead of getting on their feet and working hard to earn money.

Myth #2:You will earn more money when you complete college, so there's no point to save now.

That is like saying an out of shape person asking, I will be fit one day so what's the point of working out today? The answer is simple, every little bit helps. Yes the money you save from a part time or summer job will not make you rich but it will definitely give you a head start over your friends that will be struggling to pay off their student debt. If you get used to saving a set amount of your income & budgeting at an early age then when you're older you will have instilled in yourself strong fundamental habits. Also as you grow older your income will hopefully increase as will your savings. I have seen so many people my age complete a college program that substantially increases their income and guess what? their savings remained stagnant or non existent.

Let me give you a simple calculation to demonstrate how every dollar matters. A couple of years ago when I started my job I decided to automate my finances. A set amount of my paycheck went to retirement, savings, and into a regular checking account. One little thing that I did was I set up an emergency fund (since I had never read a personal blog in my life at that point I called it "secret money") where I figured I would put $50 every paycheck (biweekly) into a government savings bond. Granted, the interest earned with savings bond is nothing spectacular but there is virtually no risk. Here are my savings without calculating the interest:

$50 x 26 pay checks= 1300$ x 4 years= $5,200

I know that $5,200 won't buy you that dream car or the newest Giorgio Armani suit but I would rather have $5,200 than owe $5,200. This is also not my main savings account, it is simply an emergency/ "Secret money" account which you could use for whatever purpose you desire when you complete college. What will I use the money for? I already made a down payment on a new condo development so who knows? Maybe I will take a month long vacation across Europe before starting my career.

Myth #3: Retirement savings do not start until you complete college.

Actually you should begin saving for your retirement as soon as you start working or earning any form of an income. While I personally wouldn't advise allocating a high amount of your yearly income into retirement savings, I still recommend that you put anywhere from $500-$1000 a year into retirement savings before you even begin your career. I set up a joint retirement savings account with my mom when I was 17 because I wanted to get a head start before I began making real money in my career. Once you begin your career then yes retirement savings will begin to get serious because you will have many different options and benefits, however, this is a topic that Lazy Man has covered extensively with his retirement plan series.

A common question that I receive from people in their 20s is, how are you suppose to motivate a 20 year old to worry about saving for a retirement that won't happen for at least another 40 years? I actually have two answers to this question;

  • Look around you, every time you see a senior citizen well past the age of 60-65 still working (assuming they are not Warren Buffet) a job that they do not particular enjoy just to meet ends meet should make you strive to want to avoid a similar fate. Yes as mentioned above there will be people like Warren Buffet who will probably work forever but that's because they truly live and breathe their job and it's not a simple 9-5 for them. For the rest of us we will work a 9-5 for at least over 35 years of our lives, don't you want to live comfortably in your golden years?
  • Look around you again. You notice all of those supposed "rich people" that are barely over 60 but spend most of their time traveling the world or spending time on activities that they truly enjoy? These people are not luckier than us, they are simply just people that planned for their retirement well in advance.

There you go. I have dispelled the most common myths circulated by young people while attending college. I am living proof that you do not need to be the smartest person to be financially independent. You just need to be the type of person that plans well in advance and goes against the curb in terms of not following common assumptions.

You tired of hearing advice from people that are always pessimistic? You looking for a common sense approach to personal finance issues that confuse many? If so then Studenomics.com is the place for you. Studenomics is one of the fastest growing personal finance blogs out there these days. Come check out the site and find out what all the buzz is about. Do not fear you will not be judged at Studenomics nor will you ever be treated with even the slightest bit of disrespect.

Check out Part 2 of Dispelling Common College PF Myths

[Editor's Note: I've actually been thinking about adding a University of Phoenix (UoP) degree to my resume since I can complete it while I run my businesses from home. The UoP website featuresAll University of Phoenix campus locations and the college degree programs offered in each.]

Last updated on January 27, 2011.

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8 Responses to “Dispelling Common College PF Myths”

  1. Craig says:

    Being a recent grad it’s very difficult to try to establish a retirement fund. You know you have to, you may want to, but you also want to enjoy life now, and don’t have the income to really build all these side savings. I had one straight out of college but am at a new job and currently not contributing. I know I need a new IRA to set up, just not sure if $50 a week is even worth it now. What do you think?

  2. Michael says:

    Some recent college grads rather live now and don’t plan for the future, I think they should dig their wells before they are thirsty!

  3. Michael says:

    Great post, I love it when people bust myths!

  4. Jeff Rose says:

    You’re right, every little bit helps.

    @Craig. You would be surprised on what $50/week would amount to 20-30 years from now. If you have the discipline to invest $200 per month now, you are on the fast track to an early successful retirement.

    It is definitely worth it!

  5. Studenomist says:

    Is $50 worth it? Well it depends, if you plan on adding the money to your other savings then go ahead. If you plan on spending it at a night club or on eating it out then the answer is yes it’s worth saving it. Yes I understand that our generation is not exactly known for patience but just give it a try. Put away $50 every week or biweekly and don’t even think about it. In a few years when you are reviewing your finances you will instantly remember how you have a couple of hundred dollars saved up.

  6. As a school teacher, I can tell you that getting kids to forward think is difficult. You have to show them a real tangible reward. Trick them in to good habits. Match dollar for dollar what they save if you have the means, show them other easy ways to do it. On my site, I advocate finding money within your current budget to “pay yourself” If you made coffee at home rather than buying it at the local coffee shop, “pay yourself” that $4 straight in to your savings account. Read my article (linked here) to read the rest.

    http://www.elementary-finance.com/education/home-finance-tip-pay-2/

  7. I wish someone had told me about retirement planning while at school. I had extra money from my stipend every month, but the thought of saving it for retirement never crossed my mind. Good post – wish you had written it a few years back.

  8. Love this post from @Studenomist!

    I speak to teenagers across the country who are convinced they can’t go to college without student loans. Hopefully posts like this will continue to remind them the long term effects those loans may have…

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