Student Life Archives

Since the day I received my acceptance letter to the University, my dad’s favorite line has been, “Better take full advantage, honey, because once you graduate you are off my ticket.” He’s never forgotten to remind me, as the years have passed, that time is ticking. So, as my last days as a student come to a close, I’ve been anxiety-ridden and scared to death.

In May I will be thrown out to the wolves to naively flounder in the real world. If you are like me, you don’t have any idea about personal finance. Currently, I don’t even have finances to speak of.

I decided to meet with personal finance expert Mike Gordinier, a senior lecturer at the Olin School of Business, in hope of finding enlightenment.

The moment I walked into Gordinier’s office, the computer at his desk made some kind of female ooh-ahh sound to signal that the financial guru had a message. I thought, “Personal finance can’t be all that hard – this man has a sense of humor.”

But once we got started, I realized I had a lot to learn. “Time is money” was the first thing he told me.

“Starting early makes the most sense,” he said. “You can set aside $300 a month in your 20s and you’ll be a millionaire by the time you’re 50-something. If you start in your 30s or 40s, it’s not going to happen.”

One step to saving money is understanding where the money you have is going. Gordinier suggested a budgeting practice where you write down how much you spend on food, entertainment and other expenses. This way, if you see you are spending way too much on one thing, you can put some of that money elsewhere.

He also said that now, in college, is the time to establish credit. He suggested acquiring two different credit cards in your name and just once or twice a month using them to buy coffee, pizza or beer.

“Pay off those balances religiously. Get a card with a decent enough credit limit. Then in a year or two the company will see that you haven’t used all the rope they’ve given you to hang yourself and know you are responsible,” said Gordinier.

A lesson I learned was that credit cards in your name but only extensions of a parent’s account don’t count.

“If you don’t have any credit history when you go to buy a house or car and need a loan, the banker is put in the position to be the first person to take a chance on you,” said Gordinier. “Risk isn’t something they like.”

Establishing credit seems easy enough; every friend I have is good at spending money. What about when it comes time to save the money you have?

There are many possibilities when deciding where to put your money. Gordinier suggested visiting mutual funds’ Web sites, such as www.vanguard.com. These sites not only entice you to invest in their funds but also offer many educational resources that describe how the funds work and what kind of fees are attached.

“Another good source would be to go to the b-school or Olin library and look at the Morningstar Fund Reports,” said Gordinier. “Morningstar is a private company that has no bias, and they have a ton of educational material about how things work. Best to start with Morningstar.”

Now, I’ve tried my hand at mutual funds, and they take more monitoring than I have time for while in school. They are not, however, the only place for a student or recent graduate to put money. Gordinier recommended that before you invest anything you should create a liquidity fund, which is about three to six months of your expenses saved up.

“With months set aside you can leisurely go about finding a new job,” said Gordinier. “The best place for that is typically a money market account, typically offered through a mutual fund company. You can get higher rates of return than what you can get at a bank.”

This is good advice for recent graduates, but he made another suggestion to students who simply have summer or part-time jobs. According to Gordinier, it would be smart to create a Roth IRA account, which allows you to invest in the stock market through mutual funds.

“You can put up to $4,000 a year into the Roth IRA account and then that money grows with no taxes on it. When it comes out for retirement purposes, there is no tax on it either,” he said.

I left Simon Hall feeling better already, repeating to myself, “Morningstar Report, liquidation fund, money market account, Roth IRA…” Maybe these will be the words to live by as I enter the next phase of my life.

But as Mike Gordinier said, “Time is money.” So the next place I am headed is to the campus bookstore to buy the textbook he uses to teach his class, Personal Finance by Arthur J. Keown. Maybe I’ll pick up something written by Peter Lynch, while I’m at it.

“Lynch is one of the most successful money managers on the planet,” said Gordinier.

So I think I’ll rely on the experts and get the “straight skinny on how to get started and how to do it right.”

This entry was posted on Monday, February 27th, 2006 at 12:00 pm and is filed under Scene. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.