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Let me preface this by saying that if you are in the target audience of this blog, I believe you are too young to even contemplate getting married. You simply don’t have the maturity to take care of someone else— most likely you can barely take care of yourself. You are in a time where everything is way more intense for you than it will be in a week, or even a month from now. The person you are sure is “the ONE” today may not even be someone you are speaking to tomorrow. You are going to go through many changes in taste of people between now and when you are actually ready to settle down with someone. That being said, I am a realist, and I know that there are those among you who are in a relationship, and are considering taking the next step. Before you do this, you should consider some basic ideas and evaluate moving forward.
I don’t want to turn this into a morality lesson, but one of good financial management. In addition to all the warm, fuzzy, feelings that you may be feeling towards this person, you should also look at reality. Marriage, or any long term commitment, will eventually cross into a financial arrangement. This is where many young people start making mistakes that too often result in divorce. In fact, money is often listed as one of the causes in divorce cases. Whether it is a difference in philosophy, or a terminal lack of management skills, a household with financial troubles often becomes a broken household.
When you think you have found the one, you should be comfortable enough to talk to that person frankly about finance. If this is not a comfortable topic, that should raise huge warning flags for you. Consider that you are contemplating spending the rest of you life with someone. You should be able to talk to this person about anything. If either you or your prospective can’t do that, take it as a sign that you may still need a little more time to mature. If you are able to talk about finance, you should make sure that your goals and those of your prospective’s are in-line with each other. Do you both want to have the same standard of living? If not, is there some middle ground where you both can be happy? Do you both understand the level of work and commitment to these goals is needed to make them come true? The answers to these questions should help serve as a guide to how ready you are to make any kind of commitment, or if this person is the one you thought they were.
If you have been smart about your own finances, you manage your income well, pay your bills on time, have a positive credit history established, and are working towards financial liberty, you recognize all the hard work that you have put into it. You want someone who has a compatible philosophy about finance, who has done the same amount of work to stay in a positive track. To this end, NEVER, EVER, one more time, EVER assume someone else’s debt because you think this may be “the one”. I’m not making a judgment on the person with the debt, and I’m not questioning your love for the person, but you are not doing anybody any favors if you pay off someone else’s debt as a precondition to being in a relationship. In fact, doing this will usually only end up in hurt feelings if that person isn’t able to pay back the loan, and may make them angry if you even call it a loan. If you call it a gift now, when things are good, you have lost that money if the relationship ever turns sour. There is no way to win here. Once you have made a commitment, any debt incurred should rightfully be paid by both of you, but not before.
Prenuptial agreements are a tricky thing to talk about with some people. Some people try to equate intelligent planning with a lack of trust or love. These people are programmed to believe that you don’t love them if you are protecting yourself from financial harm. Others will tell you that you don’t have anything worth protecting now anyways, and a ‘pre-nup’ is pretentious. I would ask these people if they would like you to believe that you will always be in the same financial situation you are in today. Pre-nup’s are not just for the rich, they are for anybody who wants to avoid a huge messy fight over the least important aspect of a marriage should that marriage ever fail. Some people will tell you that prenuptial agreements are for someone who is planning on getting a divorce. I object to this because I believe that to say that pre-nups are planning for divorce is to say that insurance is planning for an accident, or that a will is planning for death. You are planning on living, but if something does happen that interrupts that plan ever comes up, you are prepared. I believe that knowing you will never have to have a fight about the separation of money takes away some of the stress of marriage, helping to ensure that your marriage will last longer.
When I dealt with consumer loans, I dealt with a lot of people who wanted to buy a car. While each application is unique, there are a few things that always stick out in my mind as “red flags” when somebody is applying for a loan. Since most young people have little or no established credit, if you plan on trying to finance a vehicle, take a look at some of the application mistakes, and avoid them at all costs.
1. Multiple Loan Signers: I expect to see one person applying for a car loan, or maybe even two. As long as I can see a legitimate relationship between the two applicants, I don’t have a problem. Occasionally, there will be three or more people trying to apply for credit to make a vehicle purchase. As a matter of policy, some lenders won’t even look at these types of applications. While others will, there should be extreme circumstances before you try this. When I see three applications, I also look at three credit reports, three sets of income verification, and three stories as to why the third person is needed. What usually happens, is that there is some aspect missing from one or more of the applicants that will cause a denial.
2. Dishonesty in the application process: I know that mistakes happen, but when you are filling out a loan application, you are also telling me that you are affirming that what you said in the application is true and accurate. As soon as I catch a lie, that loan will almost always be denied.
3. Job Hopping: When you are young, you usually don’t stay in a specific job for a while. This is a huge red flag for loan officers. We are going to look for at least two years of steady employment, and when we see several jobs during that period, we question that you will be able to make your payments on time.
4. Be Prepared: If you are shopping for a car, you know that you will usually have to follow some sort of application process. This process almost always includes some form of income verification. The easiest way for you to do this is by applying for your loan at the same place you have your banking. The most common way is by providing copies of pay-stubs or of filed Federal Tax Returns. Some people wind up having to scrap a really good deal because they weren’t prepared for the application process that they were starting. Morale: Always carry your income and work verification when you are doing your shopping. That makes you one step closer to completing the sale.
There are of course, others things to be aware of when you are applying for an auto loan, but this will help you to avoid common mistakes. In the next few posts, I will be going over some more of these common mistakes, so stay tuned.
Some of the young people who have been reading along have asked me this question a lot lately. The conversation usually starts off pleasant enough, but it usually dissolves into a full on rant. And if they ever get to tell me their side, I imagine that it won’t get any better!
I can give you all the advise there is about the difference in financial institutions, I can even pick the right one for you. But the best institution in the world won’t do you any good if you don’t have the discipline needed to set up and stick to a proper budget!
The word budget to teens, acts like garlic on a vampire. Stick with me here because this is going to be an important lesson! The fact of the matter is, nobody wants to think of limiting their enjoyment of the fruits of their labor. I know I don’t, and I’m pretty sure that you don’t either. That being said, I now have to ask, “So What”? Having been in a position where I was a very young man making a very respectable living, (and consequently having blown it on nonsense), I know that there is way more to life than the instant fix we have all been programmed to seek.
So we have to be realistic about what we really want, and what we are willing to work for. When I was a teen living at home, theoretically, I could save every penny I earned, and retire now. In theory that sounds good, but the reality is that I wasn’t willing then, nor am I now, to make that kind of sacrifice. There are some things that I just can’t live without. There are others that, while I could live without them, I choose not too. There are yet others that I really don’t care one way or another about, but I usually wind up getting them anyways. This has always been the case for me, and I’m sure it’s not that different for you.
What worked for me, was writing down my plan. My paycheck rarely changes from period to period, so it’s kind of easy to figure out what I take home on a monthly basis. Since most bills also come on a monthly basis, it’s even easier to figure out what it is that needs to go out. The difficulty comes when I have ran out of incoming, and still have several outgoing still waiting. It is for this reason that I now rank each of my expenditures on a 1-10 scale of importance.
The entire scale is reprinted in my upcomming book, Finance For Youth: The Book, (look for further announcements this year!), but the gist is this; most of what I spend is a “5″. I don’t NEED it, but I’m also not willing to do without. There are some things that are “10’s”, meaning I cannot do without, (food, gas, etc), just as there are a few “1’s”, stuff I really don’t need, and don’t particularly want either. The real secret of how this works, is honesty to myself. I have to ask myself every time I look at my finances, “Do I NEED that thing? Would I feel good about telling my wife I spent as much as I did on that thing?” If the answer to either of those questions is no, I move on to the next bill, downgrading the original, until all my major bills are paid, (on time!) and I still have money left over. This money goes on buying some of those things that fell lower on the list.
What types of things are a “10″ in your budget? Is it really a “10″, or are you trying to justify to yourself your spending a lot of money on something you really don’t need? Once you have started this process, don’t forget to make sure it’s in writing, and don’t forget to stick to it! You’ll be surprised at your success!
I’ve been asked, “But what about me? I’m not ‘youth’, and it’s already too late for me to follow your advise. Where were you when I was young?” To those people, I’m sorry I wasn’t there when you were young. That being said, I’m here now, and most of my advise is as true for a 30 year old or a 50 year old as it is for a 17 year old. While you are the only person who will know your financial picture, the strategies presented here, on my website, and in my upcoming book, (hopefully out before the end of the year, stay posted for details!) will work for almost anybody. The people who taught me weren’t youth, and I’m no longer a youth, and I practice everything I preach!
If that’s not good enough for you, then it’s time for something a little more drastic! Finance For Youth will soon be spawning, Finance For YOU, an off-shoot that will provide tips, strategies, and advice for those who don’t consider themselves to be ‘youth’. If this is you, please email me @ wil@finance4youth.com, and leave any questions, comments, or concerns that you would like to see covered in a future editions! Also, remember to continue to read these pages, as well as my pages on myspace.com, and of course, finance4youth.com.
Thanks
-W
I was recently posted a comment to another ‘blog where online banking was touched on. That prompted me to talk here a little bit about this service, which I feel will become the standard in our lifetime.
Online banking, which should also include direct deposit, ATM, and Debit card, in addition to the traditional, online access to your account, bill payment, and paperless statements and correspondence, is a definite, “win-win” for both you and whatever institution you deal with. They win, because they are able to cut back on some of the expenses that traditional brick-and-mortar branching presents, which can either mean increased profits, (banks) or increased investment into other products or services, (credit unions). A smart consumer wins because they have more convenience and access. How much more convenient can it be when you have access to your account at 4:00 am, on Sunday?
Like anything else, there are some things to be cautious of when dealing with online banking. First, you are putting a lot of your information out there for any identity thieves to be able to find. If you are not extremely careful about where you access your account, as well as what information you make available, you could easily be cleaned out, and because the Internet is widely anonymous, finding the criminal(s), (as well as your money) can be difficult. Additionally, some transactions that are relatively simple when done in an actual branch can become more difficult if the transaction is done online. However, if you are wise, regularly change your online access password, and use standard safety protection when accessing your accounts, you should be fine to use online banking. When using bill payment services, if you, like most of us, are living hand-to-mouth, you could also run the risk of drawing your account negative if you have automatic payments set up. On the other hand, if you don’t have them set up, you run the risk of forgetting a payment, which will also have bad consequences to you.
Personally, once I found the services, and learned how to use them, I have never looked back. The institution that I deal with allows a lot of account control that I like. I have my direct deposit going to one account, where I have a bill payment set up for automatic withdrawals of pre-set amounts into my other accounts. This takes away a lot of busy-work from my life, allowing me to focus on more important things. I also have most of my bills, (the ones that don’t vary in amount) set up to come out automatically. Not only does this save me the time in writing the checks and the price of postage, but it is also easier to track if there is a problem with them receiving payment.
If you decide to join the online banking bandwagon, look for a simple service, where you can easily understand and navigate the portal. Also, you want to make sure that the people who are there to answer your questions are familiar with the product. Do this by calling customer service and asking some questions and deciding how comfortable you are with their answers. Most importantly, make sure that the service you sign up for is free! As I said earlier, the bank or credit union are getting a bargain here too, they shouldn’t get even more by charging additional fees for you to access your own account.
Let me know some of your online banking triumphs and failure. If you have a good story, or a precaution, maybe others may have the same issue and are waiting for a resolution.
-W
