Money Tips You Didn’t Learn In College

Many of us loved our college days. We met tons of people, finally had a sense of freedom, and lived life on our own terms. Although our degree(s) were quite expensive, most of us don’t regret the experience.

The only issue with our undergraduate days is that many of us didn’t learn much about money. “Out of sight, out of mind” made college less stressful, but it may not have fully prepared us for life as a young professional. Now is the time to fill in the gaps.

As we continue to master the art of “adulting” we have to:

  1. Be strategic about using credit cards. Having access to credit cards can provide added “protection” during emergencies, but it also can be quite dangerous. I don’t know about you, but knowing I can use a credit card to pay for almost anything I want, tests my self-control in ways I could have never imagined. Seeing cute shoes, a nice dress, or even a good book on sale for a limited time, knowing I can “take advantage” of the deal with my credit card, is a recipe for disaster and never ending debt.

    If you are like me and know that you lack self-control when it comes to purchasing, or thinking of purchasing, certain items that aren’t absolute necessities then I suggest you leave your credit cards at home. Avoid signing up for pre-approved store department credit cards (despite their potential sale discounts) due to the higher-than-normal interest rates and hidden fees that you will inevitably rack up later. Pay cash for everyday items if you can. Use credit cards for travel purposes only and try to payback your balance at the end of each month through automatic withdrawals from your main checking account.

  2. Establish passive streams of income. As high-income professionals, this tip may sound unnecessary, but hear me out. Every day that you continue to work in your job, you are exchanging time for money. You go into work, help your patients/clients, then go home. You are typically paid a salary and may get production bonuses here and there.

    While there is nothing inherently wrong with that, it is an extremely inefficient way to build wealth. Why? Well because in order to make more money you have to either pray that your boss gives you a raise (which is unlikely to be a significant boost), or use even more of your already limited time (by seeing even more patients or helping even more clients). Not only does this decrease the time you could be spending with your family or loved ones, but it also increases the amount of money you will pay in taxes.

    Income tax (or the tax we pay from money we earn in traditional jobs) is the highest form of tax we pay and is by far our largest expense. As high income professionals who may already be in the top tax brackets, we will be paying Uncle Sam nearly 30% of the extra money we worked so hard to earn.

    Passive streams of income from stocks, real estate, side hustles, or merely contracting out our services, will not only bring in additional income but it can also lower our tax rate and increase the amount of money we keep in our pocket each month. Consider having multiple streams of income.

  3. Think twice about where you live and work. Cost of living is a big deal. When you start your career, where you live can play a larger role in your quality of life than you may think. Expensive cities like Boston, LA, NYC, DC, and San Francisco have such high housing and rental prices that you will inevitably spend more money in rent than you may have anticipated or actually be able to afford.

    While it may seem insignificant now, the extra $300-600 you spend each month in rent is $3,600 to $7,200 less that you are putting away for retirement each year and could make a large difference in your overall net worth 10-20 years from now. Ideally you want to:

    • Pick a city that is good for your career (consider the salary, benefits, opportunities, job protection/malpractice). 

    • Pick a place that is good for your family (consider the school districts, proximity to extended family, access to higher education, safety)

    • Pick an area with good intangibles (consider the weather, demographics — age, sex, race, religion, politics, social services, etc)

  4. No new cars! Unless you have already established wealth, you should not be buying new cars or leasing them. The thought of wasting thousands of dollars financing a depreciating asset (something decreasing in value) merely for the “new car smell” or fancy gadgets you can do without, is financially irresponsible (in my outspoken opinion). Although we all have things we like to splurge on, buying new cars should not be one of them, especially early-on in our careers.

    Now I am not suggesting you buy a beater or pay cash for a lemon that barely works. I am simply suggesting that you purchase (in all cash if you can) a reliable car that is 2-4 years old. Cars that are only a few years old have already lost most of their depreciation and will be priced at a better deal for you. Chances are, this slightly used car runs fine, is still under factor warranty, and has low miles. Overall, it’s a better bang for your buck.

  5. Consider renting before you buy. For those who are already established in their careers with a decent nest egg for retirement, it may make more sense to go ahead and buy a home. However, for the vast majority of us young professionals who may be just starting off our careers or who have recently moved to a new area, it usually makes much more sense to rent a home first.

    For those in high cost of living areas, this advice is common sense. The cost of a house is simply too high and renting is cheaper. Renting gives you time save up money for a down payment on a house when you are ready to buy one years later. For those who live in a low cost of living area, you may assume it is better to buy. I strongly caution against that for anyone just starting off their careers for several reasons:

    1.) Buying a home is a lot more than just paying a mortgage. You have to save for a down payment (which is usually 3-20% of the home cost) AND add in high transaction costs that usually cost an additional 3-5% of the total cost of the home. You must also factor in monthly home-owner’s association fees, insurance, and yearly property taxes. Plus, there are inevitable maintenance items you have to cover and furniture you must purchase. Bottom line, it costs a lot more money to buy a home than you may think.

    2.) It is harder to leave. If something changes in your life and you need to move (i.e. you want to get married and live with your spouse, move closer to family, accept a job offer in another location, etc.) it is much easier to get out of a lease from an apartment building than it is to put your home on the market and sell it at a reasonable price.

    Even if you get lucky and are able to sell your home for more than you bought it for, there is still no guarantee that you will actually make a profit from the sale, especially when you consider the transaction costs of selling (usually an added 6% on the price) and time wasted as it sits on the market waiting to sell, vetting potential buyers, closing escrow, etc.  

My point: There are some essential money tips you may not have learned in college. Unless your self-control is at a crazy high level, you need to minimize your use of credit credits. Despite our best intentions they can get us in to trouble from time to time. Simply save money from each check to cover the cost of emergencies. Establish passive streams of income so that you are less reliant on your day job and have an income stream that isn’t taxed as high. Try to live and work in cheaper areas. Buy slightly used cars instead of new ones and consider renting a home/apartment when you start off your career instead of rushing to buy a home. There are so many fees and costs associated with buying a home that make it insanely expensive and inconvenient for anyone who isn’t absolutely ready.

Tell me, are you planning to rent or buy a home? How old is the car you drive and are you on your way to paying it off? Have you started using credit cards less? Are you thinking of other ways to get some added income?  

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