With a new school year under way, the student Class of 2014 faces a number of challenges, one of which is managing their finances upon graduation. Talking about financial issues is not a foreign topic to Rachel Cruze, who grew up with a front row seat listening to her father, Dave Ramsey, one of the most trusted names in money and business.
I recently had the opportunity to talk with Rachel, who teamed up with her dad write “Smart Money Smart Kids,” a New York Times best-seller that gives you a glimpse of what it was like to grow up in a Ramsey household and living debt-free.
Even though the book targets families in teaching their children how to manage money, the common sense principles and stories shared are applicable to everyone. One of the key points in the book is that it’s never too late to learn about personal finance.
Rachel brings a different perspective to living life financially free and we discussed how she was challenged with some of her own mismanagement of money beginning at an early age. According to Rachel, learning to manage money is not rocket science; rather it’s about changing behavior towards how you spend money.
We discussed her views regarding the enormous debt load the average college student faces today when entering the marketplace and here are some of her suggestions in regaining control of finances. Pew Research Center looked at data that compared debt burdens and net worth of those with and without student debt. The results showed that people under 40 with student loans had additional debt such as credit cards and auto loans making it harder for them to afford a house.
This type of debt is exactly what Rachel is addressing and it begins with hard work, “nothing happens unless you work for it,” a philosophy and way of life that guides her decisions.
Entering the world of work for the first time can be daunting when you grew up in an instant world. The market place is full of instant gratification without much sacrifice involved “anytime you can order food, buy clothes and check on the latest movies when walking to and from your office, the word sacrifice takes on a different meaning.”
Money comes from work and even though money can be seen as “instant” there is a consequence to it that can derail your career. Technology can be a blessing and a curse with the challenge in distinguishing what is realistic in keeping a lifestyle below your income.
Here are some questions and advice from Rachel in managing money:
What are the big misconceptions about debt that students need to hear?
According to Rachel, it’s about assumptions such as “assuming that debt has to be part of their life, such as always having a car payment and that you can’t have a degree without going into debt. Obtaining a degree and where you go to college is important however consider that alone will not guarantee a job, employers tend to look for those who have strong work ethic and are not afraid of hard work.”
How does debt affect career decisions? Debt affects it a great deal and can influence your career decisions by making you forced to take a job versus going after your dream job. Credit card debt keeps you from having a choice and changes your perspective because you work to pay bills rather than being open to opportunities.
If you are in credit card debt, what are some of the best ways to learn from the experience without beating yourself up? To help shed light on debt, look at it as a thief, it robs your peace of mind and takes away your income. In “Total Money Makeover,” Dad’s method of getting out of debt is using baby steps where you can see progress being made instead of feeling overwhelmed.
Personal finance is not hard to understand when you break it down into two parts; 20 percent head knowledge and 80 percent behaviors. When you start changing your behavior you will see progress toward reducing your debt load.
What would be your advice to those graduating from college and starting their career with a plate full of debt?
1. I would tell them that it’s normal to be in debt and that you may have to focus on getting a job first rather than waiting until an opportunity opens that matches your college degree. While it would be ideal to work within your field of interest, you may have to take a job out of necessity to produce income.
2. Develop a budget and keep it. Live life with intention by purposely keeping a budget. Live below your means and view your income as your largest wealth building tool you possess.
Behavior is 80 percent of managing money and the first 90 days of keeping a budget will often be the most challenging. Keep a realistic expectation and give yourself some time to adjust with the first month being somewhat crazy in adjusting categories, the second and third months get a little easier. When you reach the fourth month you are on your way to a debt-free lifestyle. Think of a budget as giving you permission to spend.
3. Start getting out of debt by focusing on the smallest to the largest regardless of interest rate. Once your smallest debt is paid off, the money rolls to the next one and so on, we call it the snowball effect and it works!
I like John Maxwell’s definition of a budget, “a budget is simply telling your money where to go instead of wondering where it went.” Making a budget doesn’t mean you live on bread and water; it means you start controlling where you spend your money.
