Sunday, August 8, 2010

Couldn’t You Have Picked a More Exciting Hobby? (3)

Before I headed off to the University, I wish someone had sat down with me and shown me the financial facts on paper. Now that I am older and a little more experienced, I can see how the money-thing works. But, back then I really needed someone to enlighten me. Bear with me on this, as my numbers reflect figures from 20 years ago. In my head it would have went like this:

Ok Wes, three months from now, you will be starting school. Tuition for the year costs $4K; Books cost $500; Room & Board will be $7K. How much do you think you will need for gas & entertainment each month? One hundred dollars. Ok, that is every month, over nine months, we will just plan for an even $1K. So, totaling that up, we have $12.5K. Now, that is the total of your expenses.

What about income? Your GI Bill is $150/month for nine months, annually that is $1350. You make $133/month for your Army Reserve Drill weekends, annually that equals almost $1600. With two weeks of Annual Training, you have another $500. You have a part-time job, right? Yes. That gives you another $2450 per year. Is that it? Yes. Ok, well, your total annual income is $5900. That leaves you with a shortfall of $6600, how do you propose to make up the difference? Well, with student loans of course. Student loans? Really, ok! Can we look ahead to the future? Sure.

You plan to be there for three years. After three years, you will have a shortfall, or student loan debt of $20K. Then, what do you plan to do? Get my Masters Degree. Oh, do you have to attend Graduate School? Yes, for architecture I will need more than a 4-year degree. You need a professional degree for architecture! Ok, here’s a good school, and after two years there, you will have another $30K in student loan debt. So, now, we have you fresh out of school with $50K of student loan debt. What do you think your starting salary will be? I do not know, but I have always been told architects make lots of money. You are not sure; except that you are sure whatever it is, it will be enough. Pretty much, I do not plan on making six figures right out of school, but I should be able to live well enough.

Ok, well – I took the liberty to research starting salaries in architecture. Based on these figures, you are looking at about $25K per year. Wow! What do you mean “wow”? That seems like a lot, at least compared to what I am making today. Oh, you think that is a lot, because it is almost 5 times what you are making today – I see. Care to look at how that breaks down after taxes and deductions. Sure. First a few questions: Would you like Health Insurance? Of course. And 401K? Yes. And how much? 3%, I will start small and build up over time. And you live in the city, right? Yes. So, an additional 1% income tax. Ok, bottom line: you will receive an average $1443 per month – some months a little more, some a little less, as you will get paid every two weeks. Care to see how far that goes? Guess it would be good to know!

Architecture Income: $1443
Reserve Income: $150

Total Income: $1593

Rent: $500
Car Payment: $230
Utilities: $100
Cable: $50
Cell Phone: $50
Food: $250
Gas: $150
Student Loan Payments: $253
Total Expenses: $1583

Total Income – Total Expenses: $10

Well, would you look at that – you did it! You are $10 ahead. Oh, but wait, you are a young man. Were you planning on going out on the weekends? Of course. $10 is not going to get you very far! No, it is not.

Wes, looking out five years into the future, what do you think of this plan now?

The fact is that I did not look five years into the future before I started at the University. Due to my choices, which lacked wisdom, knowledge, and counsel – this was the predicament I was saddled with, more or less, when I finished graduate school in 1995.

Is it little wonder why I was searching so desperately for answers to my money problem?

What about you? Have you taken the time to see how much you spend each month? I am not just talking about the mortgage/rent, food, gas, and utilities. What about the little things? The things that add up, slowly each month, perhaps on a credit card, and become long-term debt. If you are to ever win at this thing called money, you need a plan (a budget) - "on paper, on purpose before each month begins." (DR) 

Start today, use a small notebook and track each dollar you spend for the next 30 days. The truth might just shock you into starting an all-inclusive spending plan next month. When you do that, you will start to change your money spending behaviors.

To be continued...