Going to college is often the first step that a teenager takes towards independence. That is especially the case for those studying far away from home. Some of the decisions they need to make for the first time is how to manage their money and pay their daily living expenses. It doesn’t mean they are suddenly alone but it’s a new experience. Most student’s take out a realistic loan direct and repayments can be deferred until college is over and pay checks start to come in. In the USA, credit cards are available for those reaching 18 years of age. Often students will have a card, which will allow them a certain amount of credit, but under the terms and conditions of those cards, interest is added at the end of each month on outstanding balances. The problems of money management begin for the first time.

Learn Good Habits

Or do they? Parents who take the trouble to teach their children a little bit about money when they are young may have given them a little advantage. Imagine getting a weekly allowance but doing a little chore to earn it. Later perhaps being encouraged to save a little each week towards buying something in the future? In a small way they are being taught good habits about money, which might subconsciously determine how they handle money throughout their lives.

The pressures of college involve passing exams. The future prospects of students increase with a good graduation but it doesn’t mean that they will automatically be good at handling their financial affairs as a student and beyond.

Restraints on Real Freedom

On graduation and getting your first job you will be closer again to independence but if you have financial problems this independence does not equate to real freedom. If you already have a balance on a credit card you are seemingly falling into the same trap as a huge number of Americans of all ages. They are paying a high rate of interest on their debts. As a matter of priority you should try to solve your problems because that will allow you to plan your future and that includes for a time that seems light years ahead, retirement.

Credit Card Debt

The point is that if you can clear harmful debt such as that from cards you can start to put a little away each month. If you take out a personal loan to pay off card debt you will be paying a much lower rate of interest. Your employer could well match one for one contributions you make in a 401K retirement scheme. You will have over 40 years for compound interest to grow the fund. Albert Einstein once said that compound interest was the eighth wonder of the world.

Compound Interest

A monthly figure invested for ten years from mid 20s and then left as a fund without further addition will actually be worth more 30 years later than that same monthly amount put away from mid 30s for thirty years. It is remarkable how even $200 a month will grow if it has time. A figure such as that may be achievable from being more careful with your money and not paying too much for things such as your utilities, insurance and telephone. Perhaps you don’t visit the coffee shop so often; whatever it takes. You can expect that a fund over the really long term will be even approaching three times the actual that you have put in given reasonable and certainly realistic annual growth.

Budget

A simple budget can be your guide, one which you need to adapt as circumstances change. At every point you need to know you are creating a surplus that effectively is the amount that is going into your 401K.

While you are still in your 20s other claims on your finance may well develop. There may be a spouse, a small family and even the possibility of investing in real estate with a long term mortgage. Certainly real estate is a positive and valid way to build your assets. Independence will not be absolute because you will have responsibilities and financial liabilities. However as long as you continue to invest in your retirement your money management skills should carry you through to a long and comfortable life.

We welcome your feedback to our work.

Email:  General Information   |   Dr. Daniel de Roulet   |   Prof. David C. Pecoraro

Thank you!

Daniel & David

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True Independence Needs Financial Freedom