Money! Money! Money!

Money! Money! Money! Hard to believe July is nearly gone eh? Yup in just a few short months all of you prefrosh will shed the pre (presumably through the use of prease if Biology has taught me anything) and finally become fully fledged frosh and other alliterations! Want to eat ice cream on toast for breakfast? Go for it! Dont want to go to class? You wont get in trouble! Want to give me a plasma screen TV for free? Be my guest! Remember, youre adults now and that means you get to make choices. Of course that also means youre adults now, and you have to make choices. Some are trivial, like what color sheets you want for your bed, others are important, like where you want to live; some are easy like would you like to go skiing? and others are hard like deciding if your relationship with a person you said you love is still a healthy one. Yes in the course of one year at MIT you will make exactly 7,873,456,235.834 decisions varying both in magnitude and speed at which their magnitude is clear. And in true MIT fashion, here comes one of those decision moments before you even have time to comprehend it: Youre going to have to start paying for things. Now everyone has a different monetary relationship with their parents that I wont even dwell on except to say that personal finance WILL become more important to you very fast, maybe to different degrees but it will. And it can seem overwhelming when you get an email saying your account was just billed for tuition and you owe MIT 5 numbers before the decimal. But fear not worrisome frosh, thats what this entry is truly about (after a wordy introduction). Its about personal finance and some tips Ive got for you (get it? tips? in a finance blog? eh? ok nevermind). So heres some tips and ideas Ive come up with or gathered from various sources to maximize your meager money monthly (ok, no more alliteration I promise). No particular order: 1. Make a budget: Save for the pigs sake Its not really a hard concept, just hard to apply : Spend less than you make. Easier said than done though (where do you think the credit crisis came from?) Nevertheless, its a good skill to have and it will serve you both in business and life. Your first one doesnt have to be high tech with tables and charts in excel etc. In fact, to avoid being overwhelmed Id reccomend just a simple paper and pencil one to start. Some sample categories are things like: Entertainment, Food, Clothing, Bills, and Savings. Tally up how much you make in a month, subtract out anything you HAVE to pay for, put some in savings, and budget the rest as you feel fit. Its a good feeling knowing that youre spending money you planned on spending instead of just spending willy-nilly on anything that looks shiny and cool and this way youre constantly making money that you can use later for important things, like investing, buying a car or a house etc. 2.Cook Green fire will impress the ladies. Dining is a hot topic for a lot of students at MIT, and thats because everyone has something that works really well for them. Some people cook all their meals, some eat on campus for all their meals, and lots of people do everything in between. Nevertheless, it is generally cheaper (and potentially healthier!) to cook for yourself. Nearly all dorms have at least a community kitchen that you can use to cook food in, and if you get a few friends together you can split grocery bills and cook for each other. Not to mention one day youll have to cook for yourself, and you might as well learn now. For the summer, I cook all the meals for myself and my two roommates in the apartment, and I spend about $100 a week on groceries. Thats 21 meals for 3 people, averaging out to $1.58 per meal. Compared to the ~$8 it costs to eat out for an average meal, I save around $400/mo. Not bad. Youd have to eat a lot of dollar menu burgers or ramen to beat that. 3.Buy Reusable Instead Of Disposable: Do your plates have cupholders? didnt think so Buy rags instead of paper towels, real or plastic plates instead of paper. Being able to reuse things will make them pay for themselves uber-fast. Not to mention its just good practice to throw less away. Not too long ago, some friends of mine over on Conner-2 went through some number crunching for how much theyd save investing in rechargeable AA batteries instead of buying them en masse to feed their Rock Band addiction. Savings add up. 4. ReUse Hey! Its not impossible, and if this ever shows up on reuse This is something MIT specific, but theres a mailing list called reuse where people post things theyre getting rid of for people to come and take what they want. Some AMAZING things show up on reuse, and if you get email pushed to your phone, you can get some sweet stuff. Some of the stuff Ive received for free include:A fridge A couch A road bike A TV Hangers Awesome Office Chairs Skis and Ski Boots and thats just what Ive received! there are frequently old laptops, computer bits and pieces, furniture, utensilsyou name it! Most notably I once saw a Cintiq Wacom Tablet, which goes for around $550 used. I also once contributed half a subway sandwich ( I bought a footlong, but only ate half). ReUse is amazing. 5. Mint.com Alright so now youre saving tons of money, youve got a budget, youre wooing girls with your mad cooking skills and all the free stuff youve acquired from ReUse. Now to bring it all together, use some kind of financial management software. You can use Quicken or Microsoft Money if you want, but my favorite is Mint.com. apparently you spend more on orange than you do on green If youve never heard of it, its an online financial management solution that does all the same things that quicken or MM do, BUT its totally free! Its a cinch to set up with your banks if you do online banking (and who doesnt? this is 2009), and you can access it from any computer (they even have an iPhone app). You can set up your budget, view your spending habits based on card transactions, and even set up alerts to remind you of things like when youre over budget, when your accounts are low, and when bills are due. Mint.com can also suggest bank accounts, investments, and credit cards that can save you money by matching your spending habits. Which brings us to. 6. Credit Cards Thats a scary word for a lot of people, and with good reason. Uncontrolled credit card use has made lots of peoples lives really difficult. BUT they are a financial tool that, if used correctly, can give you some great benefits. For one thing, if youre like most people youre going to have to eventually take out a loan to buy a house or a car or something like that. When you do, they look at something called your credit score to determine what kind of interest rate you can get, (or if you can get the loan at all!). Well the only way to get a credit score is to have had credit history, and one of the easiest ways to do that is to use a credit card. A credit card is a HUGE responsibility though, and all the sort of rules and responsibilities you should be aware of before making the decision is kind of outside the scope of this entry. Nevertheless, some benefits to having a credit card include: building a good credit score, rewards for your spending, flexibility with how much money you h ave. If at this point youre sold and rushing off to sign up for the first credit card you get an offer for, slow down. You should find a card that matches your spending, and our good friend Mint.com can help! After doing a bit of research, Mint.com helped me find a card that offered 9% interest, 5% rewards on purchases for restaurants, gas, movies, and books, and 1% on all other purchases. I also get a bonus for maintaining a high GPA throughout the school year. It was the perfect card for me and I use it all the time in place of my debit card, then just pay it off every month. So all in all, Im not spending more money than I normally do, Im establishing credit, Im still not in debt, and I get 5% of everything I spend back. Works for me! I have to reiterate though that credit cards are a massive financial responsibility and an advanced financial tool, and you really shouldnt pick one up until youre absolutely positive you can manage its use well. Its like Uncle Ben said With great power comes great responsibility. (yes that is a Spiderman quote.) Peter I want to talk to you about your credit card. 7. Investment Despite what it may look like, a tree made out of money is a poor investment. So the whole point of all this money saving and budgeting is to start making yourself financially secure. As a reward for not spending it, money you save can earn you interest in your savings account (you make money.for having money? Whats not to like?) and once you collect a fair amount you can invest it in stocks, bonds, IRAs and the like. Investment is a complicated topic, but the gist of it is that you get compounded interest on what you invest. As a simple example lets say you invested $5000 up front, and then $1000/year after that (not as much as it seems). At 10% return (a fairly reasonable estimate), in 50 years your investment would be worth $1,659,754.00. That means completely separate from the income you make from your career, minus a measly $1000 you invest every year, you could retire in 50 years on over a million dollars. Subtract out the $55,000 you invested in total (and ignoring taxes) and you made $1.6 million doing nothing. Thats because the most important factor with investing isnt the amount, its the time. Thats good for you and me because time is something that you have on your side whereas abundant money isnt so much. To make about the same amount in 40 years (like if you waited 10 years to invest), youd have to invest $33,000, plus the $1000 annual investment. Clearly there is a huge benefit to investing early. Our friend Mint.com can help you find good investments, as well as any investment firm like Charles Schwab etc.So there you go, theres more information than you probably care to know about what its like managing your income in college. Its intimidating, liberating, exciting, and a host of other -ing words.