Rule # 7: Spend within your means

RULE # 7

This rule came straight out of Dave Chilton’s The Wealthy Barber Returns in his chapter “Under House Arrest.”  Some of us think we have to keep up with the Joneses by purchasing more and purchasing better things. This is also apparent with major purchases- purchasing homes and purchasing furnishings. A lot of students are now thinking about buying their first home if not right after they graduate, but in a couple of years, so it’s important to address this issue.

Buy something you can afford. Perhaps you have been saving for a down payment for a couple of years now and you are thinking about buying your first home. Remember, your first home is often not your dream home, so keep that in mind when you’re in the market. Monthly payments should be affordable and should not prevent you from taking a week or two off of work to spend time with family or to go on a vacation.  Think about the lifestyle you will have when you commit to making large monthly payments.

Beware of handy-man specials. These “deals” can be tricky. The price of handy-man homes is often affordable for new graduates, but long-term – maybe not.  Before you purchase a handy-man special, think about the money it needs for repairs.  Conduct a cost sheet by going to the local hardware store and looking at prices for new floors, kitchen cabinets, bathroom tubs and toilets. Secondly, if you can’t do the work yourself, get a professional quote, maybe have a contractor come with you to tell you the overall price for repairs. Handy-man specials look affordable, but think about the cost once you have implemented repairs and renovations.

RULE #6: Don’t finance anything with depreciating value

RULE # 7

For many of us, financing tends  looks like an attractive option. We think that because the financing option is spread out over a long period of time, we will inevitably be able to afford our purchase.

This may be true; many of us could only buy a new car if we put a down payment on the vehicle, and then make monthly payments towards the principle. Makes sense, right? Wrong. Financing may look more affordable, but we have to look into whether or not these assets are appreciating or depreciating in value.

If you are financing something that is depreciating in value, then you better think wisely as to whether your purchase is worth it.

Think about it this way:

If I were to buy a new car straight from the dealership, the value of the vehicle would depreciate the moment I took it off the lot. If I made low monthly payments for five years, I would finally own the vehicle outright, and I would be finished making payments. But, here’s the crux: what would the vehicle be worth once I actually own it? The answer is that the vehicle would inevitably be worth much less than I had originally purchased it for. (To find out the depreciating value of Canadian vehicles, check out http://www.canadianblackbook.com )

Just some food for thought - think long term when financing assets that are depreciating in value.  

Rule # 5: Debt is the enemy

Debt is the one thing many students have in common; some of my friends have accumulated 20,000; 30,000; and up to 60,000 dollars-worth of debt. It is not uncommon to have racked up absurd amounts of debt to pay for school and living expenses while you are getting your formal education.

One of my former professors, a part-time faculty member at Western University, is a high-achiever in academia; she has a master’s degree from Harvard, and is a PhD candidate. She diligently warned her students against accumulating too much debt. Despite her competitive edge and her Ivy League education, she was and is unable to secure a full-time position as a faculty member. My former professor was a living example of how investing in a superior education doesn’t always have a good return.

But that’s not all. Most post-secondary students are in the same boat. Many of us have been brought-up to think that investing in a formal education will provide us with a great return on our money. We are confident that when we are finished school we will get a job; we believe that one day we will make enough money to pay off our student loans in a couple of years, live a comfortable life and retire. But this wide-spread conception of formal education has proven to be nothing more than a myth.

Post-secondary education is a prerequisite for many jobs: if you don’t have a degree then the job candidate who does is more likely to obtain a position, but the job market is flooded with university graduates and competition is high. It is a truly a no-win situation – there are more graduates than there are available jobs.  What does this mean? It means that investing in education to gain a better position, earn more money and, as a result, more security is a far-fetched ideal that will only be attained by a minority of post-secondary graduates.

The solution? Avoid student debt entirely by pursuing trades, apprenticeships and entrepreneurship. Trades and apprenticeship programs are often paid-positions and are either fully or partially funded by the government. If apprenticeships or trades don’t tickle your fancy, then get creative. Try saving enough money to start your own business and start earning your own revenue.

 Perhaps many of us have already accumulated massive debts, but throughout our search to get a job, it is important to keep these viable options in mind if we are not able to find employment in our fields.