Hi, I will be your instructor for this class. Over the next year or so, I hope to develop this blog into a useful resource for anyone getting started in Adulting. Personally, I have about 30 years of experience adulting including buying my own car, house and raising 3 kids. My oldest daughter will be graduating from high school this summer. So I am hoping this is useful for her as well.
Faking it
The problem is taking it to the next step. Tieing the tie doesn't get you through the interview. It doesn't help filling out the W2s (tax exemption paperwork) and to select benefits and it doesn't plan for your retirement. (Yeah, it's never too early to start planning on retirement).
(queue flashback )
enjoying it.
As a teenager, my biggest priority was going out. My girlfriend (now wife) and I loved going out to the movies on a weekly basis. We didn't even have to have a movie we wanted to go see, we'd just pick one of them that was playing at the time. Afterward, we'd get dinner out and then cruise around until I had to have her home. Having just started college, I found a quick way to get spending money was to use a credit card. There were flyers literally everywhere on campus for student cards.Narrator voice: Little did he realize how stupid he was being.
Spending on a credit card required that I maintain a job. The job was an entry-level retail job working at a big-box computer store. With classes in the mornings, and working most of the day, I didn't even start my required homework/projects until late. Top it off, I didn't want to cook that late and I was eating fast food most nights. By my junior year of college, I still had $2000 in credit card debt that I was maintaining and had gained almost 100lbs (plus close to being put on academic probation).
What went wrong?
I learned the hard way about credit cards. Credit cards live off of Interest. This is the amount of money that is tacked on to the bill each month that the credit card has an outstanding balance.- At the end of the month, our example credit card has an outstanding balance of $100
- We were offered me a generous "Introductory" APR (annual percentage rate) of 15% = 15/12 (months) = 1.25% monthly percentage rate.
- 100 * 0.0125 = $1.25 . This amount is added to my bill. $101.25 is now due.
Now the base monthly payment is typically calculated as a portion of the outstanding balance. In my experience, that's around 1-2% of the bill. Say it's a steep 2%, and the monthly interest rate is 1.25%, the actual amount toward paying down the bill is only 0.75%. At this rate, assuming the card was never used again, it would take 297 payments (aka more than 20 years) to get the bill down to $10.
Month 1: ($100 - $2) + $1.25 = $99.25
...
Month 427: ($3.64 - 0.08) + 0.05 = $3.61
Now as a busy college student, it was easy to miss a bill here and there. Unfortunately, credit card companies are not typically lenient to lateness. In fact, many will increase the credit card APR up a few points. I believe my credit card was up to 22% APR at one time. This meant the amount of my base payment was paying down even less of my bill.
Homework: 5 Different Ways to Calculate Credit Card Interest
Fixing it
Step 1: Cut up the credit card. It was only allowing me to live beyond my means. My 30hrs/week of minimum wage retail work did not make enough for going out as regularly as we did.Step 2: Pay more than what the credit card asked each month. Made a plan to pay $100 each month towards the credit card. It could still take almost 2 years to pay down my $2000 balance, but during the summer I could pay more as I didn't have classes.
Step 3: Change my expectations on what I could really afford each month. Movies turned into rentals. 'Dinner out' eventually turned into who's cooking in.
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