Tuesday, May 29, 2012

Young Man Movin' Out

I saw on Facebook, over the weekend, that the (grown) son of a good friend of mine, a boy I’ve known since he was a baby, is itching to get the hell out of the general area in which he’s spent his whole life, and set out on his own for Destinations West. His comments met with mixed opinions.

Not wanting to put a public stake in the ground and start taking sides, I decided to send him a private message.  It’s a big decision to up and leave an area with which one is so familiar and head for a place where there is no more support system.  I don’t know why he decided to leave… whether it’s to get away from a small town, or his family, or his girlfriend’s family, or loan sharks, wild bears, or just to claim his own independence and stand on his own.  Even though he lives on his own, he’s still very much wrapped up in the family business and vise versa.

As I’ve been around the block a time or two, and moving away something I’ve done a number of times before, I thought I might be able to offer some friendly advice.  It was advice that I might have given a younger me, when I was just starting out. 

So I did that, he saw it, and was appreciative.  Most things, he said he knew, which meant that there was some he didn’t.  I made myself available for any further questions or concerns, but I have the feeling he’s got things well in hand… or at least he thinks he does.  Time will tell.

But because nothing is worth doing unless you can blog about it, I thought I’d turn my advice on the matter into another post, where I get to pretend I know what I’m talking about.  (And… you know… so many young runaways read this blog.)

I felt I had to point out, right off, that the place where he lives right now has a ridiculously low cost of living, and that once out west, prices range from Expensive to Insanely Expensive.  It is possible, I said, that one could become independent without moving clear across the country.  He could move away, but still remain in the vicinity of low cost housing, groceries and bar food.  I said that the appropriate distance would be just far enough away that it’s too far to come home to do laundry.

Anyway, these are the things I said to keep in mind.

Control your own cash flow.  Make sure that you’re the one controlling the checkbook. Have a parent, or someone else, teach you exactly how to manage your checkbook, balancing and all.  (It’s not brain surgery or Sudoku…  I’ve been doing it since I was 23.  And I hate math.)  The thing is, online banking has made it very easy to keep up on your balance and what you have outstanding. 

Another benefit of online banking: unless you take up birthday cards or letter-writing, a pack of stamps will last for years.  The bank either pays your bill electronically (when you tell them to), or they mail the check themselves.  Just try to find a bank that doesn’t charge for online banking.  I’ve got it, but I set it up a long time ago and I’m unsure how widespread the free checking is anymore.

But remember that whoever controls your checkbook controls your life.  Your primary mission should be to become financially savvy enough to not get yourself into heavy debt.  (And I mean real, “OMG How Am I Going to Pay This?” kind of debt.  More on that in a sec.)  But you need to know how much is coming in, how much you need to cover your month’s bills, and how much you can stash away.  You need to have your thumb on the pulse of your cash flow.

·       Establish credit Regardless of what you may think of credit cards, they represent something essential… Your credit history will color every business transaction you may seek.  Your next landlord will do a credit check.  You need a car loan?  Or any loan?  Credit check.  Set up utilities for your new apartment?  Credit check.  Job application?  Many times… credit check.  It’s imperative that you have reasonable credit.

The theory is that the credit score values the difference between how much credit you have available versus the debt you carry.  So, the higher your credit limit, and the lower your balance, the better your credit score.

If you’re not a regular credit card user, here’s how to start…

Obviously, you don’t go straight for the American Express gold card.  Start with a department store card; someplace you shop often, like a Target card.  Then, just use it every once in a while.  Make a couple small purchases every month, on stuff you would buy anyway, then when the bill comes, pay it off in full.

Never, EVER, pay the partial amount or the “minimum payment”… that’s where they screw you.  You end paying 20% to 26% interest, and that’s what gets people into credit trouble.  It’s a sucker bet that the banks just love people to make.  People end up paying many times the price of their goods by paying the “minimum payments.”  If you pay in full every time, you’ll never have to pay a cent in credit card fees. 

I’ve had a card since I first moved out at 23.  Over the next 27 years, I’ve paid less than $20 in fees.  (There was one cycle when I had a big car repair, so I paid half on one bill, and the rest on the second.)

A lot of people think that credit cards get people into trouble.  They’re incorrect.  Undisciplined users get themselves into trouble.  The card has nothing to do with it.  A lot of people use debit cards.  These do not help your credit score.  Also, if your debit card gets lost or stolen, you’re screwed.  With credit card purchases, you’re not liable for unauthorized purchases, once you notify the card company.

One thing I do is keep a notebook and jot down every credit card purchase I make.  Then when the bill comes, I reconcile the two to make sure that there’s nothing extra on the bill.  Also, it helps you keep a handle on what you’ve already charged.  I just put every receipt in my wallet and when I empty it, I write down the date, amount, and retailer.  Be sure you empty the receipts at least once a week, otherwise you’ll end up with a George Costanza wallet, about the size of a Big Mac.

Anyway, once you’ve run your Target card for, say, 6 billing cycles, try applying for a Visa or MasterCard.  It doesn’t much matter which one, just make sure that there’s no annual fee.  I pick the one with the best rewards program for me.  I used to use an “Airline Miles” card, but now use a Citi card, for their Thank You points program.  (Which can be cashed in on airline tix as well as hotels, trips, electronics, and other goods and services.)

The key is to never use the card to buy anything you can’t pay off on the next bill.  But by merely getting some charges done and then paid for, you will raise your credit score.  Also, once you establish a good payment history, the card issuer will normally raise your credit limit.  (My first card had a $300 limit.)  Now don’t take a raised limit as a sign to begin charging your brains out.  You still need to pay each bill in full.  No cash?  Don’t charge.

They’re also important for emergencies, like if you’re in a far off state and your car breaks down.  Having a credit card can make the difference between getting your car fixed, and a long hitchhike home.  But if you do have to make an large, emergency charge, put the card away for a while until you can pay it down.  Don’t make matters worse by piling on.  That, my friend, is the beginning of the end.

But as long as you’re careful, the card will serve you, and not the other way around.

Note: If you are the type of person that buys stereo equipment or other high-ticket merchandise on impulse, you may want to table the credit card idea.  If you can’t tell yourself ‘no,’ you can get into serious debt and kill your credit rating.  But as long as you consider a credit card as nothing but a way to access money that you have in hand, you’ll be OK.

·       Research apartment rents in your desired location.  You’re probably already doing this, but a computer can make this a snap.  There are loads of sites that can give average rent costs by location.  Having a solid idea of what the costs will be will help you not only pick a suitable location, but let you know how much you’ll need to stockpile and how much it’ll cost per month, to live.  Your rent is generally your largest expense.

·       Keep up to date on your current utility bills.  Your new power company is likely to check with your old one before signing you up.  Even when blowing town, you can’t ditch your debts.  They will take their pound of flesh, even if they have to take it out of your ass.

·       Consider taking some classes online, to learn a skill.  With the advent of online classes, it’s easier than ever to take a Community College class or two.  I’m not necessarily talking about getting a degree; just learning a particular skill that you might find useful.  It’s a good first step, if you ever want to make a living that doesn’t involve sweating your ass off.

·       Be sure to have some nice clothes.  Current fashion trends be damned; it’s not a good idea going into an interview looking like Larry the Cable Guy.  Same for if you ever need to apply for a loan or something.  Be sure you can clean up well.  If you look like a punk, you’ll get treated like a punk.  And (if applicable), no smoking before an interview.  No one wants to hire someone that smells like an ashtray.

That was it. I ended by telling him that I wasn’t trying to be one more person trying to tell him what to do, and that he was a grown-ass man capable of making his own choices.  But making the right choices will be the difference between being a broke or successful grown-ass man.

So, am I missing anything?  I’m sure there’s stuff I missed… What would you add to the list?  Or is there anything here with which you’d disagree?  Drop your thoughts in Comments…


Cassie said...

All practical advice, Bluz! I'm really, actually very impressed. ;)

But now I have Billy Joel stuck in my head. So thanks for that.

You forgot to say, "Carry pepper spray."

bluzdude said...

I'm glad you recognized the musical reference. It was completely intentional. (OMG, that song came out before you were born!)

If I was giving the advice to a young woman rather than a young man, I might well have thought of the pepper spray. But the young man I was writing to? No one in their right mind would mess with this guy, unless he desperately wanted his ass kicked. This kid is Bam-Bam, all grown up.

Jessica R. said...

This is great advice. Especially this part, "But remember that whoever controls your checkbook controls your life." Amen.

Anonymous said...

Where were you when I needed you as a punk kid starting out??? I got in so much debt trouble and still haven't really gotten out. I am much smarter about it now, of course, but it's like trying to turn back the hands of time. You can't go back, you can just try to fix the mess. It takes a lot of time, unfortunately.

But yeah, I would say this advice is spot on. I'm sure there are other things to think about, but these hit the big money ones, and some practical things (like dressing to impress in interviews. Key).

Mandy_Fish said...

I wish I'd headed out west or out somewhere when I was young and without responsibilities. But I was too scared. Better to risk failure than to stay in the same place your whole life and always wonder "What if?" That's my take on it. Screw cost of living.

Kernut the Blond said...

The bit about the clothes is particularly important, but seems to be little known among the younger set - and many adults. My mother always impressed on us how important that first impression is. I know far too many adults who seem to be unaware of this.

One friend just went to his divorce hearing in faded jeans, old cowboy boots, and a Harley Davidson t-shirt. Nothing wrong with the look - if you're out for a ride (he did ride his bike to the courthouse). But then he wonders why people don't treat him better.

Judie said...

I have told Keil these things, EXACTLY! Especially the one about paying one's bills on time. Keil lives near us, but we respect his privacy and he respects ours. He can come over to do his laundry, though.

As for moving away from one's family, my own family is so sick, so toxic, that when I finally was able to make a run for it, I did just that! What a relief that was!!

bluzdude said...

It’s funny that you home in on that particular idea. That was the line in my head that started the entire letter/post. The kid is the only one bringing money home, but he was not the person that handled the checkbook or bill-paying.

To me, that’s inconceivable, but different people have different ways. But to be independent, it’s something that you simply must do. Cash flow is the lifeblood of your living standards. If you let it get away, or farm it out, you’re letting outside factors influence your very being. If you’re lucky, who ever is doing your books is acting faithfully and in your best interests. But it opens the door for a degree of shiftiness, dishonesty, and most importantly, control by proxy over your actions.

If you’re out in the world as a consumer, you have to have a firm idea of how much you can spend at a given time. If you don’t manage your own cash, you can’t have a very good grasp of your limitations.

This is only tangentially related, but sometime, I’m going to have to do a post about how families manage their household finances. There are a number of ways to do it. I’m curious how many married couples shove everything into one pot versus how many maintain their own accounts and finances.

bluzdude said...

Thanks you for providing real world backup for what I’m trying to warn about.

Banks prey on young adults, knowing full well that impulse control is not their strong suit. By the time they grow into it, their in debt up to their eyeballs, whether it’s electronics and HDTVs, or eating out every night, or weekly clothes shopping. They WANT people to simply make the minimum payments because that’s where they make their money…

When I first started out on my own, I had a good bead on credit card use, but didn’t know jack about keeping a checkbook. I thought you could just look at your account balance from an ATM receipt and put that in the check register. My (3-years younger) girlfriend had to explain why that doesn’t work (because of checks you may have that haven’t cleared yet) and show me how to balance the checkbook.

I’m a real stickler about it now and balance it to the penny with each statement. Oh, and speaking of, I should point out how important it is to balance often! If you wait and try to balance several months at a time, mistakes are so much harder to find and correct. (I know YOU know this… I’m just kind of “appending” this onto the post.) Sorry I couldn’t have been there for you back when it could have done you some good…

I had one other time where I had to put a large car repair on my card, but I caught a lucky break. Right around that time, I got a credit card offer in the mail, advertising 0% interest on all balance transfers, for 6 months. I jumped at it, and used the six months to whittle down the balance and pay it off. Once you have a card and decent credit, you’ll often get new card offers, but it’s not like you can count on it. I was lucky. Of course, if I hadn’t been proactive about maintaining a good credit score, there wouldn’t have been as many offers coming. One can make their own “luck” that way.

bluzdude said...

That’s pretty much what he’s doing, and I don’t have a problem with that. I am a big proponent of striking out on your own and living your own life. I’m just hoping to boost the odds of succeeding, where ever one may end up. Anyone can bolt for parts unknown and flounder. I want him to go armed with some good ideas and a plan, and then succeed.

bluzdude said...

It’s sad to say but appearances do color the way people get treated. If you look like a slob, you’ll get treated like a slob. Regardless of whether one is applying to IBM or the local car wash, one should look professional and competent. That’s not necessarily suit and tie, (for the car wash), but clean and presentable. Have tats covered, scraggly beard trimmed or shaved, hair neat, and clothes well fitted and clean. Save your “individuality” for your own time, at least until you’ve got a handle on the company “vibe.”

bluzdude said...

Then feel free to point out this post to him, so he sees that it’s not just Nagging Mom stuff, but good, solid advice.

Anonymous said...

"A lot of people think that credit cards get people into trouble. They’re incorrect. Undisciplined users get themselves into trouble."---So true!

If you don't have it, don't spend it. There's only been 1 time I wasn't able to make a full payment, and it was because I had put a couple graduate classes on my card. I paid it off in 2-3 months.

Facie said...

"Pay yourself first" was just about the best advice I received as a kid just out of college with my first job. Open up a savings or money market account (most you need only $250, and if you don't have that, then you should not be moving anywhere!). Then have even just $25/month from your checking put into your savings. If you do that from your first paycheck, you will never miss it. Contributing to a 401k is good advice too, but this kid is probably not there yet.

As for credit cards, we put everything on our MC, even $5 at the grocery store, and we pay it off every month, earning points. In fact, I just looked at my statement now and realized we can get $150 off our next bill. But I do have to side with Dave Ramsey a little; it is so much easier to spend more than you probably should when you use plastic. I think I would make better grocery decisions if I paid cash.

I think your advice is great. I wish more people saw it your way.

Anonymous said...

Good advice, all. But I'm not sure what it has to do with him moving out West. It's good advice whether you live a thousand miles away or next door to your parents.

I've only recently learned the discipline of creating savings accounts. My budgets and credit cards were always getting blown up by three things: car repairs, vacations, and Christmas. Now, I've got little savings accts for all three. (Again, so much easier to do with online banking where you can freely transfer money between accounts!) Now, all it takes is a little bit in all three each paycheck and no more surprises and pain with unforeseen credit card explosions.

Also, I wish I could tell the younger me to be as aggressive as possible with IRAs and 401Ks. It's taking more and more money to retire these days. If I had been more aggressive with it in my twenties, all that money could have been earning interest for these past twenty years. It's much harder to start planning for retirement in your forties.

bluzdude said...

That’s it exactly. The card doesn’t use itself; it’s up to the holder. If you don’t have the cash, (and it’s not an emergency) put the card away and go without. People in this country are getting eaten alive with credit card debt, especially young people. It’s tough enough starting out, without starting out in a giant hole.

bluzdude said...

That was the deal with my dad, from my first high school paycheck. 75% of it went in the bank, I kept 25%. It was a simple deal, but it paid for my college education.

You handle credit cards the exact same way that I do. Everything goes on the card, if at all possible, so I can reap the benefit points. On my current card alone, which I’ve probably had for 5 years or so, I’ve cashed in for a plane ticket one time, and 2 night’s stay at the William Penn for another. And I should be able to cash in again by the time the next opportunity arises. (Possibly Pittsburgh Podcamp 7!)

I do realize that I’m fortunate that I have a good stash of cash in my checking account, so I don’t really have to pinch pennies on groceries. Still, it’s a way of life to for me to monitor such things. Once you’ve lived for a while without a lot of money, you gain frugal habits that are hard to shake. But by not shaking those habits, it helps to ensure that you remain financially solvent.

bluzdude said...

You’re correct; these tips apply everywhere. This guy just happened to want to head west.

Car repairs were the things that always messed me up. I could dial back on Christmas, and my vacations were usually just going to stay with my parents. But car troubles were the wild cars.

It’s so hard to worry about retirement when you’re wondering how you’re going to make your next rent payment. I know I had a very late start, even with a 401k. It should have been no surprise that 3% of squat added up to squat. If I’d have been more aggressive when I first started to make some money… well, I guess I would have lost even more in the Great Stock Market Crash of 2007-2008. My only recourse now is to retire to my buddy’s garage, back in Ohio.