College Graduate Advice

Dear recent college grad,

I would like to offer you one significant piece of advice for you as you enter the "real world."  That advice is to never accumulate credit card debt.  Credit card debt is an absolute killer, and a killer to much of our population.  According to an article by NerdWallet, the average American household credit card debt is $7,193.  This is obnoxious.  There should be zero credit card debt across the nation, because you should only use your credit card if you are certain you have the money in your bank to pay the bill.  If you are the average American who owes the previous amount in debt, imagine if you invested that exact amount ($7,193).  See below

If you invested that amount as a current principal, and never added to it for forty years (earned an average of 8.5% per year), you could make yourself almost $200k.  And hear this, if you only look at American households who have debt, the average credit card debt goes up to $15,418!  In total, American consumers owe $852 billion in credit card debt.  Yes, I said billion.  

There is another debt factor in the States even larger than that of credit card debt, and it is student loan debt.  According to projectonstudentdebt.org, the average American who borrowed money for college owes $26,600 in debt.  However, since you are already graduated and cannot retrace your steps and pick a cheaper college, we'll continue to focus on credit cards.  Credit cards can in fact be advantageous.  Many credit card companies offer special bonuses (such as frequent flyer miles), hoping their users will use the card more (to rack up their flyer miles), while falling deeper and deeper into debt.  So yes, credit cards can be great (offer bonuses and safer than carrying around huge sums of cash), but make sure you only use it if you know you have the money in the bank for what you're buying.  

I found an article that gives some great advice on using your credit card (Credit Card Advice).  I suggest you take a look at it.

Here are some key points I picked up from it:

1) If you are planning on traveling a lot internationally, find a credit card without a foreign interaction fee (can be up to 3%).

2) Pay off the balance of your credit card in full every month.

3) You tend to spend more on debit cards than credit cards, more on credit cards than cash, and more with small bills with large bills. So put some large bills in your wallet and take out the credit cards and you are less likely to spend much.  

I hope this advice will help you out, and I wish you the best of luck in your career!

Tucker Erdmann   

December 11 - Phase V

      For Phase V, the final phase, we covered the costs of our future home (down payment, mortgage, maintenance, and insurance).  Since I will likely be working in NYC when I'm older, I found a house in a nearby county.  http://www.homes.com/listing/172682880/1107_Pondside_Dr_Unit%3A_1107_WHITE_PLAINS_NY_10607.  This house is in Westchester, which is a great area but also expensive.  The house is listed at  $469,000.  But I'm saying that I can get it for $450,000 since the seller rarely gets the price they are asking for.  According to an online mortgage calculator, http://www.ginniemae.gov/2x_prequal/le_detail_estimate.asp, I will need a $81,737 down payment on the house in order to get a loan.  This is a bit under 20%, so it is accurate.  I still haven't used my $19,761 bonus from my first year of work, so I'll put that towards the cost of the house.  To pay off the rest of the down payment will cost $7,080 annually for 8.75 years.  However, my salary will probably increase by then so lets say it will take me six years to pay off my down payment.  For my mortgage, I would definitely get it at the bank I am working at, Bank of America.

According to ginniemae, to pay off my loan will cost $2,825 per month for thirty years.  So it will be paid off by the time I'm about 55.  For insurance, according to http://homeinsurance.com/New-York/County-Westchester.php, the average home insurance costs $694.00 per year.  For maintenance, according to http://www.bankingmyway.com/real-estate/home-equity/estimating-annual-home-maintenance-costs, annual maintenance costs are around $4000, or $333.3 per month. I don't think I need to take this out of my budget because I don't own that house yet.

          I talked to my dad about home insurance and maintenance.  He used USAA for his home insurance on his house in Maine.  He couldn't quite remember how much he paid each year, but he said it was around the average ($694.00).  He thinks home insurance is very important because it's not worth the risk of having all your stuff destroyed/stolen.  For maintenance, my dad was pretty good about keeping this budget low.  He didn't have many damages.  For example, no windows broke and no frozen pipes.  Twice the sewer got backed up, but insurance paid for that.  My dad saved lots of money by painting the house by himself instead of hiring a painter, and he re-stained the deck by himself.  So his annual maintenance costs were under $4000, but I might be too busy with work to do that stuff.

          I am still debating over renters insurance, but I'm pretty sure I'm going to get it.  Zack and I would be in a lot of trouble if there was a theft at our apartment, so we want to play it safe.  The average renters insurance in NYC costs $150-$300 a year, so we'll average that and say $215.  Renters insurance protects you from many things, including fire, hail, explosions, aircrafts, smoke, vandalism, theft, weight of ice, snow, or sleet, water related damages, and electrical surge damage.  That's a lot if you ask me!  I increased my salary by 5%, and this will allow Zack and I to get a 55" HDTV and a nice Bose sound system.  

December 9 - Phase IV

         Before finishing Phase IV, I went back to Phase II to finish up my furnishing section.  Zack and I had to partially work together for this section since some things we won't need individually so we can pay for them together.  I used Ikea to find my stuff.  My mom thinks that our apartment will probably come with a refrigerator, so that is covered.  Zack found a microwave on craigslist $60 total, so $30 each. Also on craiglist we found a dining room table with four chairs that only cost $75 total, so $37.5 each.  For my bedroom, I think I'll need a bed, a nightstand, a lamp, a desk, a chair, and a trash bin.  I might need some other small stuff like a clock and rug, but I can get those at a local cheap place (Goodwill).

Here is some of the stuff I found.  My bed is just a single bed.  For the living room, we also found a coffee table for our couch which costs $90, or $45 total. Zack and I are deciding whether or not we'll need a TV, or we can just use our laptops for TV and movies.  My mom and Mrs. Chaudhry both have extra silverware and plates we can use for eating.  Zack and I also will be eating out a lot, so we won't need much.
         For stage IV, I covered investments, financial freedom, and insurance.  Insurance was super easy. I said that I will be working for Bank of America, and I researched that their employees are covered by Aetna, which covers medical, dental, vision, leaves of absence, disability and life insurance. So my basica necessidies for insurance are automatically covered by my company! I don't need car insurance since I won't be owning one. I am going to ask Mr. Hallam about renters insurance.  For investing, I am definitely going to take advantage of my company's 401(k) plan.  For Bank of America, for every dollar you invest, they will match it (up to $17,000).  I will already have $2,500 to invest by the time I start working, so if I invest $17,000 annually ($32,000 with 401k) I'll make over 4 million by the time I turn 55.

So I'll be financially free by the time I turn 55.  I'll use my 401k for a 2050 Target Retirement Plan with Vanguard.  The rest of my annual salary will be used for my own savings toward a house.

        I had a look at Zarima's blog http://sb-sas33372.blogspot.sg/.  Here she talked about Stage I and II of her project.  Her apartment only cost $840 if she lives with a roommate! That is great for her, but I can't imagine the apartment being of that high quality.  Just like me, Zarima won't be getting a car since she'll live in Boston.  Maybe we'll meet up sometime since we live in nearby cities! Zarima found a nice house she could see herself living at in the future for only $200k.  I'm excited to see Zarima's final project.

December 5 - Phase III

      In Phase III, we covered four different types of costs: Entertainment, Travel, Giving, and Clothing.  This phase was interesting to me because it mostly covered stuff that I would really appreciate.  Living in NYC, there are lots of entertainment outlets, so I had a large budget for it.  Movies: $20 a month; Bars: $100 a month; ITunes: $30 a month; Concerts $30 a month; and finally miscellaneous: $100 a month.  This all came out to $3,360 a year.  For travel, I said I'd take one big trip a year. A calculated the cost of a five day trip to London and it came out to be $3,495 (including airfare and hotels).  A trip to Florida would be $1,058. So that is $4,553 in total.  I understand that being in the upper-middle class, it's important to give back to the community.  I look up to Derek Jeter for the community work he does, and decided that I will donate to his charity, "Turn 2 Foundation."  This charity helps children surrounded by drug and alcohol environments.  I'll donate $50 a month, or $600 a year.  Finally, I had to cover clothing.  I'll be a business man in NYC, so I'll need about three suits.  I found three suits similar to this one (http://www.menswearhouse.com/shop/p_tallia-gray-tonal-stripe-modern-fit-suit_12001_700000935_12751_700288644_-1_700000935_____noSpecialSizes), which are $700 each.  I'll need two pairs of dress shoes similar to these (http://www.menswearhouse.com/shop/p_rockport-black-moc-toe-dress-shoes_12001_700000444_12751_700070556_-1_700000444_____noSpecialSizes), which costs $200 for two pairs.  I'll need two sweatshirts, (http://www.zumiez.com/catalog/product/view/id/359262/category/37/), which will cost $125 total.  Two pairs of Nike sneakers cost about $200, and I'll keep $700 aside a year for other clothing needs.  Let's not forget that I will still have lots of clothes from college.  Clothing costs come to $3,400 my first year.  
        Talking to my father, he said that I will probably need about three nice suits ($700 each) for my type of job, and at least two nice pairs of dress shoes ($100-150 each).  He says not to forget that it gets very cold in the winter, so I will need to buy gloves, a warm overcoat, maybe a hat, etc.  For vacations, he doesn't think I need to go to Europe while just out of college and I should rather pay for cheaper trips across the nation to visit family.  He thinks I'll have about two weeks of vacation my first few years.  Also for clothing, he thinks I'll probably go through two pairs of sneakers a year.  Giving is very important to my father.  Every year since he left college, he has given 10% of his money to various charities and churches.  This will be hard for me because I am probably a little bit more selfish than him, but he has a point.  Plus, giving makes you feel better.
         In my Finances, my most recent large purchases have been a new pair of shoes and a bike.  My mom thinks I'm a shoes addict.  I had a bike already, but it was a bit small for me and made a dreadful squeaking sound whenever I braked.  This new bike cost S$275, but it is in phenomenal condition.  The previous owner used it once a week and also oiled it once a week.  It is a good investment, since I'll use it most everyday until I graduate.

December 3 - Phase II

        Yesterday in class we worked on Phase II of our Real Life Project.  I am really enjoying this project and thankful we are doing it because Mr. Hallam is right, most graduates won't budget and will just buy expensive things with their credit card.  With the help of this project, I will be prepared to face the real world once I graduate.  In Phase II we went over a couple costs: Transportation, Home Savings, and Food.  Transportation will be pretty easy to handle.  Living in New York, I don't really need a car since I'm in a large city with lots of public transportation.  Plus, it's better not to buy depreciating assets.  An MTA (NY subway and bus) unlimited monthly card costs $104 per month, or $1,248 per year.  There will probably be emergencies where I want to take a cab instead of a subway, so I will put aside $160 a month for cabs.  For food, according to http://budgeting.thenest.com/average-grocery-budget-family-two-3421.html, an average NYC couple spent $274 a month on groceries. This was in 2010, so with a 6% interest it would come to $290 per month.  Zack and I would split this, so $155 a month each.  As young single males, we'll probably going out and on some dates, so we would put aside $500 a month for eating out.  Now for housing, I'm not completely sure where I will want to buy a house, but I just said I want a $500,000 house in Westchester, New York.  According to http://www.ginniemae.gov/2x_prequal/le_detail_estimate.asp, I will need a $90,715 down payment in order to receive at 30 year loan at 3% interest.  This is a bit under 20% of the total cost, so it is realistic. I think $15,000 a year is a realistic amount to put aside a year towards the downpayment.
           I had a conversation with my Dad about living on his own after college.  After graduating from Amherst College and before attending Cornell Law School, my father lived a few years with roommates. His first year out of Amherst, he lived near school in Hadley, Massachusetts.  He worked in the office of space management at UMass. He lived with three roommates, and they split the rent.  My father said he had no issues over paying rent, they all paid up every month.  They also split the cost of groceries, and would switch off who would go out and buy them.  My father lived there for one year.  He moved to New London, Connecticut and once again shared a house with four new roommates.  He worked as a systems analyst at United Technologies Research Center for two years. Since Connecticut doesn't have much public transportation, my father bought his own used car.  He had some money from his grandmother to pay for it.  During that time, he bought an engagement ring for my mother.  He put a downpayment on it and took out a loan for it.  My father agrees this project is a great idea.
          Financially, this month is a bit hectic for my family.  Not only is Christmas at the end of December, but my mother and two of my siblings also have birthdays during this month.  My parents save money all year to prepare for buying this month's presents.  Also, my sister in college and another sister and her husband are coming here for Christmas.  Fortunately, my sister and brother-in-law had frequent flier miles on Singapore Airlines from my father's credit card.  That is an example of some perks of using your credit card, but there are no perks if you do not pay off your credit card debt.