Learning About Finance 101: 15 Lessons Every Student Needs to Know 1

People say that money makes the world go ‘round and with good reason. But that also makes finances one of the most troublesome topics out there. A “rule of thumb” is that you learn about finances as you go, meaning that you learn by growing up and making mistakes that you might regret making in the first place. That’s why nobody really bothers to give you heads up. However, the sooner you learn about finances the better. Therefore, here are a few lessons every 20-year-old needs to know about finances.

Create a budget plan

Having a budget plan is the essential basic when learning about finance. It gives you insight on how much money you actually own, which you later break down on how much you have to spend and where. That way, you’ll be able to spend your budget accordingly and cover all the essentials, maybe even have a little saved up at the end of the month.

Try to cut costs

Every 20-something is careless, especially when it comes to finances. If you try to cut costs as much as possible, you will be able to save that money for something more important. Ask yourself, do you really have to buy frivolous things just to stay trendy or can you spend that money more wisely and buy things that you actually do need?

Avoid debt

Debt is one of the worst enemies of your financial plans. Young adults that get their hands on credit cards don’t really care where they swipe them and or why, as long as they pay the monthly minimum, everything will be fine. It won’t, actually. What you may not know is that the longer it takes to pay off your debt the more money you’ll waste on interest rates that feed the banks. If you can’t avoid debt altogether, then at least try to regulate your spending and pay it off as soon as you can.

Credit score

A lot of adults don’t know much about the personal credit score, but that doesn’t mean you shouldn’t be either. A credit score determines your creditworthiness. That means that lenders take your credit score into consideration when you’re looking for a loan. A bad credit score results in loans being denied or being charged extra-high interest rates by the lenders.

Read your credit report

Learning about finance means that you’re aware of your financial status. You could be paying your bills on time, making sure there’s no outstanding debt on your credit cards and still have a bad credit score because of a simple mistake in your credit report. That’s why you need read it regularly, because that way, you can spot if there is in fact a mistake or if someone else is using your social security number making you a victim of an identity theft.

Personal insurance

Insurance is one of the key elements in finance. Everything you have built up until now or everything you’re trying to build could be compromised by a simple accident. Investing in personal insurance is always a good way to protect yourself, as well as your assets in case something goes terribly wrong. That’s why you should always consider insurance as part of your financial planning.

Insurance bonds

Understanding surety bonds is also one of the important financial elements. You may ask what is a surety bond? Simply put, it’s an insurance bond that guarantees that all agreed upon obligations will be met. For example, if you’re in the construction business and you promise to build a house under certain standards in the agreed-upon amount of time; if you fail to deliver on your promise, then claims can be made against you.

This is important to know because if you’re planning on starting your own business then you may be obligated to obtain a surety bond by the government. On the other hand, you need to know about bonds if you procure services from such companies and make sure you can recover your losses if they fail to deliver as promised.

Retirement plans

Here’s the kicker: you need to start saving now if you want to have enough money to spend when you’re old and retired. The irony may bring tears to your eyes, but the reality is what it is. Nevertheless, understanding retirement plans is essential when you’re learning about finance, because social security won’t be enough to secure a good retirement and you’ll need either an individual retirement account (IRA) or an employer sponsored plan 401(k) to get you settled.

Investments

If you save enough money, you might consider investing it in some way to turn a profit. Understanding how and where to invest is important if you want to have stable finances. For instance, you may choose to invest in the stock market and buy a few shares of some company. Each year you will be paid dividends on the company’s shares you own which you can allocate to your savings account or reinvest them on same terms to grow your profits, which is called a compound interest or compounding.

Understanding the risk

It’s important to know that each investment is a risk. How risky will your investments be depends on you, but you’re always at risk of losing all of your assets. For example, a bank goes bankrupt and you lose your savings, a company goes bankrupt and you lose your shares and so on and so forth.

Liquidity

Another important aspect of investments is understanding liquidity. Liquidity is how fast you can turn your asset into money. How liquid are your assets depends on what you’ve invested in. Therefore, if you invested in a piece of real estate, such as a house, it will take time before you liquefy a property into cash. Only cash, gold and stocks are liquid on their own.

Inflation

Money loses value over time, because as the population grows, more money is printed and it essentially loses value. Just remember that your parents bought a house when they were young, for a significantly smaller price than you’d have to pay for the same house today. What you have now, may be worth less tomorrow.

Have an emergency fund

Emergency funds are essential to have outside your regular finance plan. You never know if something may go bad and being prepared just in case, puts you one step ahead of the danger. Emergency funds come in handy if you’re between jobs or if you need to access the money right away.

Understand taxes

Taxes are those pesky fees you simply have to pay unless you want to get stuck in a perpetual cycle of debt for the rest of your life. Education doesn’t teach us about taxation in most cases, but don’t let that stop you from learning about it as soon as possible. After all, it’s sometimes about 40% of your overall income that goes to taxes and that’s not an amount you can neglect.

Always have a long term plan

This may be the most important lesson you need to learn. Having a long term plan for the future will give you an opportunity to prepare accordingly. As a 20-year-old, you may not think that planning is relevant at your age. However, it’s never too early to formulate a plan. Planning for college, family, buying a car or a property will give you time to prepare, so you won’t have to improvise once you’ve made a decision.

Finance can be a dull and difficult topic but, be that as it may, it’s still very important and you can’t really avoid it. It’s better to learn early on, than it’s to find yourself in a difficult position with no knowledge on how to sort it out.


Emma Miller is a marketer and a writer from Sydney. Her focus is digital marketing, social media, start-ups and latest trends. She’s a contributor at Bizzmark blog and a mother of two.


All views and opinions of guest authors are theirs alone and are not representative of the views of Petersons.com or its parent company Nelnet.

11 Reasons Why Going to an In-State College is Better Reply

application4Deciding whether or not you want to go to college in-state or out-of-state can be a tough decision. Affordability, acceptance, independence, and where your friends go can all factor into your decision. While going to college out-of-state has perks if your budget allows, going in-state can save you a lot of money and headache, especially in the first couple years of school. Consider these tops reasons why you should go to school in your home state.

  1. Consider your budget

In-state tuition is significantly cheaper than out-of-state tuition. In some cases, schools charge more than twice as much if you are coming from a different state. Reducing the amount of student loans you have to take out in order to graduate should be on the top of your list when considering which college you want to go to.

  1. In-state colleges allow you to be close to home

Even if you choose a college that is a couple of hour drive away from your home town, being close to home has its benefits. During breaks, you can easily drive home to be with your family and friends if you go to an in-state college. On top of that, having your family close will allow you to have a greater sense of support when you need to reach out for help — having a free place to do your laundry is huge perk as well.

  1. In-state colleges are typically academically equivalent

In-state colleges often get a bad reputation, especially when you consider them next to ivy league and division one schools, but don’t think that your state’s college won’t offer the same amount of academic value as the other schools. Depending on where you live, your state college might be one of those high-ranking universities anyway, but even if it isn’t, you will still be able to obtain your degree from an accredited institution and find a job after you graduate.

  1. It is often easier to get accepted into an in-state college

Getting accepted into colleges is often not considered as much as it should be when students first apply. Some colleges can be hard to get into if they are out-of-state, especially if you don’t have very high SAT and ACT scores, perfect GPA, and extracurricular activities that show you will bring value to the school. Typically, however, in-state colleges take into consideration that you are from in-state and can be easier to get accepted.

  1. Consider scholarships and additional financial aid benefits to going in-state

Some states offer additional financial assistance to students who go to school in their home state. These types of state programs can help you keep your student loans to a minimum while still being able to achieve a high level of education. Check with your college’s financial aid office to see what types of extra financial assistance might be available to you.

  1. Community college is a great way to save money while getting your generals out of the way

Another decision high school graduates have to make is whether or not to go to a state college or university, or a community college in your home city. While community colleges don’t offer a complete bachelor’s degree, they do often offer two-year technical degrees, certificates, and can be a great way to get your generals out of the way before you go to a state college where tuition is typically higher.

  1. Where you get your bachelor’s degree doesn’t matter as much as you think

Yes, getting a degree from an ivy league school like Harvard or Yale is better when finding a job or applying for graduate school, but this comes with a huge financial burden. For the majority of people who get their bachelor’s degree, what matters most to employers is that you are hard-working and have academic and professional experience.

  1. Consider where you plan on working

If you are planning on finding a job in your home state, employers will value students who graduate close to where the company is located. Especially for entry-level positions, home-town companies often want graduates who have family close because it is a signal to employers that you don’t plan on leaving.

  1. Save money on travel and living expenses

This isn’t something that most students think about. When you go to school in-state, and especially in the same town where your family is located, you can save a lot of money on the little things, like laundry, food, travel, and rent. Even if you decide that you don’t want to live with your parents, you will find that having them close will help you save money in the long run.

  1. Don’t forget about the unexpected

Unexpected situations pop up where you will need help and having family close will make it that much easier. If your car breaks down, you need help moving, or you just simply forgot to bring bring your homework to class, you will find that having family close will help to reduce the stress of the unexpected situations that come up.  

  1. Independence comes in many forms

Going out-of-state may offer a greater sense of independence, but that independence also comes with higher costs and a greater sense of responsibility. If your school doesn’t have dorms, consider renting an apartment with a couple of your friends that are going to the same in-state school as you. This can help you gain independence and save money doing so.