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Financial Decisions For College

QUESTION: Justin on Twitter asks what the best financial decision he can make is before he starts his first year of college.

ANSWER: Raise your right hand and swear, “I’m never going to borrow money.” There you go! That’s it.

How do you follow that up? You have a plan, and the plan is you look into the future, which is not hard to do, and you say, “I need this much money for tuition this semester. I need this much money for housing and food and books this semester. And next semester, I’ll need something that looks a lot like that. My annual college budget is $X divided by 12 is $Y.” That’s how much money you need to come up with per month.

How are you going to do that? It’s probably going to involve living frugally. It’s probably going to involve a written budget and game plan. It’s probably going to involve work—working for money. That’s usually where money comes from. It’s an amazing place to go—work. The more you go there, the more they pay you. You may come up with some great small business ideas while you’re in school. There are a lot of things there that just make a lot of sense.

The biggest mistake I think people make with college—and the parents are included in this stupidity, by the way—is they just assume that in order to be a student, you have to have a student loan—that automatically I’m going to go into debt because that’s how I’m going to be able to go to school. Otherwise, I’m not going to be able to go to school. That’s such a dumb assumption. It’s like saying I can never have a nice car unless I have debt. Oh, really? Why don’t you just save up and pay for it? The average car payment in America is $485 over 86 months. What if you save $485 for 10 months? Would that be $4,850? It’s almost $5,000. Can you buy a pretty decent car for $5,000? You can buy a pretty decent car for $5,000. Do you want to drive that car for the rest of your life? No. It’s a hoopty. You don’t want to drive that the rest of your life. It’s a little above a hoopty, actually. But if you did that for another 10 months while driving that $5,000 car and saved another $485 a month, you’d have another $5,000 to go with your $5,000 car. Would that be a $10,000 car 20 months in—not even two years in?

You save up and pay for things. You’ll always have nice things doing that, and your nice things won’t have you. Oh, there’s a weird idea.

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