In one scene from the new James Bond movie, Casino Royale, the supervillain Le Chiffre is asked if he believes in God. “No,” he replies coolly, “I believe in a reasonable rate of return.” I hope your plan to become a billionaire doesn’t involve financing international terrorism, as Le Chiffre’s does, but there’s no reason you can’t subscribe to his philosophy of making your money work for you.
Being savvy about managing your money, even at a relatively young age, is essential in order to ensure the quality of life we expect to maintain. The odds are stacked against us. USA Today reported earlier this year that the average college student now graduates with more than $19,000 in loan debt. That doesn’t even take into account the average $2,700 in credit debt the College Board says we have.
Bad spending habits or na’veté contribute to that number – I’m thinking of a good friend who lost $6,000 in an online scam. But even with better discipline, there’s no denying that college students have a lot of expenses. Textbooks, food, gas, rent and recreation are what cost us now. In a few years, there will be big-ticket items like a car and a house. We need to be prepared for that, because I don’t want to be one of those people our age The Wall Street Journal says spends 24 percent of their income purely on debt payments.
Because debt is unavoidable for most of us, what can we do to improve our financial situation? The obvious answer is to save more money. The importance of saving money is common sense, yet many of us act contrarily to that advice. A study by the American Institute of CPAs reports that only 47 percent of us have an interest-bearing savings account.
Saving money is the easiest, but definitely not the only, solution. The other common sense rule is managing your credit cards wisely. Don’t spend what you can’t repay, don’t take out too many credit cards and if possible, try to get a credit card that will reward you with something you actually need. Most importantly, never pay just the “minimum amount due” – unless you want to spend decades paying off what began as even a very small amount.
Everything I’ve mentioned so far is probably what most students on the campus already know and practice. Now I’m going to say to them: Even all that is not enough. I know now seems like way too early to worry about financial planning for life and retirement, but that’s because our generation is in a unique position. Our grandparents never had to worry – they had company pensions. Our parents may worry a little – but they can count on Social Security payments to augment their savings. That’s a benefit we can’t realistically expect to have.
What we can and should expect to take advantage of is the minor miracle of compound returns. Twenty-year-olds investing $1,000 annually until they are 60 will have more than $530,000 assuming a 10 percent rate of return. As always, starting early helps – had they waited until 30 but contributed $2,500 a year, they would still wind up with almost $40,000 less. So although we are still in college, it’s not too early to start learning about the stock market, mutual funds and other kinds of investments. You can open a small, low-commission account at sites such as Scottrade.com or Zecco.com. Start stashing money there in broad indices or funds, resist the urge to trade frequently, and you’ll be well on your way.
Thanks to planning ahead and starting early, you can ensure yourself a secure financial future. Years from now, when you are a content billionaire, you can thank me by buying me a drink. I’ll have a vodka martini – shaken, not stirred.
Jay Nargundkar is a junior finance major. He can be reached at terpnews@gmail.com.
