Teenagers and young adults have no wisdom when it comes to managing money. A study by ING Direct found that 87% of teenagers have minimal knowledge on handling personal finances. 35% of teens want to learn how to save money and 28% of them know that managing a budget is important. Is it any wonder that we grow up and don’t know whether or not to save, invest, or pay off student loans? Can we do all 3 at the same time or is there a correct order to follow?
We here at Fit, Wealthy, & Wise recently had the opportunity to sit down with Andrew Moll. Now you are probably wondering who Andrew Moll is? Mr. Moll works in risk management for a non-profit organization in Maryland. While in his undergraduate years he was a triple major in Finance, Accounting, and Mathematics and recently became a Certified Public Accountant.
Mr. Moll has a passion for staying educated on the topics of personal finance and investing and is an avid reader of finance blogs. In his free time, he enjoys trekking and backpacking with his twin brother, Dr. Eric Moll.
The average debt of a college student in 2015 according to the Wall Street Journal is a little over $35,000. Is it financially better to pay off student loans ASAP or pay the minimum amount and invest the rest of the money?
That is a great question. Unfortunately, there isn’t a straightforward, simple answer to it. Everyone has different circumstances in life that dictate the best path for them to eliminate their debt and reach financial independence. For individuals to reach a satisfactory answer they’d need to ask themselves the following questions:
- How much risk are you comfortable with? Investing instead of paying off student loan debt early has the potential to give greater returns but it also has more risk of loss too. Paying debt early is a risk free investment with a return of whatever your interest rate is. Only you can know what you personally are comfortable with.
- What interest rate do you have on your loans? If the interest rate is low (near savings, CD, or bond rates) it’s probably worth considering investing if you are okay with the additional risk.
- Do you have other debts? Paying off highest interest rate debt first will save you the most money in the long run.
- Is a loan forgiveness program available to you?
Remember to always look into refinancing your student debt every so often. Some simple researching and paperwork can save you a lot of money over the life of a loan.
What tactics can college students utilize to make sure they graduate with their finances primed for success?
This is another great question! I think it’s really important to learn and understand how personal finance works. Always ask questions. If your school offers personal finance classes, take one. Everyone has to use money, so learn how to make smart decisions with yours.
One great way that I like to learn about personal finance is by reading online blogs. There are tons of great blogs with very useful content that are written by people that have been or are currently in the same situations that we currently are in; similar to this site. Spend some time reading. I promise you’ll learn something new. Rockstar Finance is one of my personal favorites that I have been following for awhile.
If it’s possible to graduate without loans you’re in great shape. If you have to take out loans make sure you have a plan; a plan to pay them off and a plan to finish with your major. I have friends that drifted from one major to another and couldn’t decide what they wanted to do.
That was not a good decision on their part since it just saddled them with more and more debt while increasing the timeframe of them being in school. When picking a major don’t just look for something that would be fun. Consider the earning potential of that career path. If it takes $35,000 to get a degree and the degree only gets you into a job that pays less than $30,000 a year you’re setting yourself up for a hard road ahead.
Investing can be a daunting task for people. Can you simplify it for us?
The best way to describe it is putting your dollars to work for you. I look at each dollar I own as a worker that is producing a return for me. Some dollar ‘jobs’ are more risky than others. The risky jobs offer higher pay (return) since there’s a higher chance of loss.
For starting off I’d say look into investing in a Mutual Fund or Exchange Traded Fund so you can get the experience of how it works without the risk of an individual stock. Remember that the market will go down at some point so don’t let your emotions ever drive your buying and selling decisions.
Financial guru’s like Dave Ramsey advocate for not using credit cards. Do you subscribe to that line of thinking?
No. I personally find that credit cards are a great way to save a little money using their reward programs. I will say that credit cards aren’t for everyone. If you are unable to control your spending and aren’t able to always and I mean always pay off your balance each month then you shouldn’t get one.
One of the big misunderstandings about credit cards is how the interest is charged to the purchases. If you have been paying your entire bill each month interest won’t start accruing till after the grace period. The grace period is the period between the period closing date and when the payment is due. They are normally around 20 days apart.
So for an example say you used a credit card for the month of October with a period closing date of October 31. You’d receive the statement will all of your October charges totaling $250, due by November 20. If you paid your $250 balance on November 20 you won’t pay any interest. By doing this you are really getting an interest free loan for those 20 days and that enables your dollar ‘workers’ to work for you a little longer.
If you aren’t paying your total balance your interest will start accruing from the day of the transaction. The rates can be over 20% APR with it compounding daily so it doesn’t take long for a deep hole of debt to be dug if you don’t faithfully pay your balance each and every month.
One of my favorite cards is the Citi Double Cash Card. It gives you 1% back on all purchases and 1% back on all payments. This works out to be 2% back on all purchases!
When selecting bank accounts, what are some important features to consider?
First off, I look to see what interest rate they offer. Make sure it’s not a promotional rate the bank is offering to attract new customers where they’ll lower the rate after a certain time period has elapsed. I also look to see if they have any fees that will hurt me. Less fees the better! If your bank has ATM fees then that’s a bad sign. Many of the good banks these days will reimburse you up to $10 – $15 of ATM fees a month, so make sure they aren’t charging you to take out money.
Being able to easily transfer money to other people and into my accounts is a feature I personally find important too.
If I had to recommend 2 banks right now I’d go with Ally Bank and Capital One 360. Keep in mind that these are both online banks that don’t have actual physical branches so you won’t be able to walk in and deposit money. They do have great apps that allow you to deposit checks by taking pictures of the check.
Thank you Mr. Moll for sitting down with Fit, Wealthy, & Wise, we really appreciate the insight that you provided our audience.
Have any questions? Let us know about them in the comments section.