Part II "I wanna Build My Credit" for the Broke College Student

For some (I hope most of you), when you were younger your parents taught you a thing or two about the household’s finances in order to expose you to those quintessential life skills. My mother would sit me down to show me and even explain bills, credit cards, and other financial aspects of our household. One particular aspect I remember her vividly mentioning was the importance of CREDIT. I never understood all the nuances of credit but can recall her repeated statement “Oooo weee whatever you do please don’t mess up your credit.” I would soon come to find out first-hand just how important credit was and my ability to maintain it. In this article I will briefly explain what it means to have credit, the importance of maintaining it, and provide a few ways of how to establish and build it.



First things first, what is credit? What is a credit score?


According to dictionary.com, credit is “Confidence in a purchaser’s ability and intention to pay, displayed by entrusting the buyer with goods or services without immediate payment.”


Your credit score is a numerical expression based on statistical analysis of a person’s credit files using credit report information typically sourced from credit bureaus. Your score, commonly used FICO score, is used by credit bureaus such as TransUnion and Equifax. FICO scores range from 300 to 850 (scores below 600 are considered high risk borrowers, 620 being the dividing line between good and bad, 640 or above being "pretty good", 650 as average general credit-use behavior, and above 690 or 720 being excellent). In short, your credit score is a measure of your creditworthiness. Lenders use this score to evaluate a person’s potential risk of lending money to consumers and mitigate losses. Source: Wikipedia

I’m young and have my entire future ahead of me, who cares about credit, why is it important?

Not only will you want to secure a decent rate when buying a car, home, or any other major purchase, your credit is now being applied to a variety of areas. Your credit history can determine if you get a specific job, decent apartment, insurance rates, amongst others. One day you may consider starting your own business and your credit history could be the difference in you being approved or denied for that business loan. A few mistakes such as late payments, unpaid cell phone bills, outlandish spending, can haunt you for years.

My parents told me to stay away from credit cards and what-not because they could get me in big trouble?

Think of credit as fire, it could be of great necessity and very helpful at times for example providing heat for warmth, cooking, etc. However, if used improperly can cause one much harm.
The key is to be RESPONSIBLE, RESPONSIBLE, RESPONSIBLE


I’m a grown axx man/woman, I think it’s about time to establish credit for myself, how do I get started?

Even if you have not made a major purchase, there are ways you can start to build a good credit history immediately.
1. Open a Checking and Savings account and prove you can use your money wisely. (See Part I)
2. Try to obtain a credit card through the same bank as your checking/savings accounts, look for a card with a low interest rate and no annual fee. READ THE FINE PRINT.

Note: As a college student, you will be targeted for various types of credit cards with various interest rates, offers, rewards, and etcetera. I encourage you to STAY AWAY from these types of cards that may look tempting in the beginning but often will cost you more down the road.

3. If you don’t qualify for a small credit card with your bank or credit union, opt for a secured credit card which uses your savings (see Part I) as collateral.
4. Look for someone with a good credit history who would agree to cosign for you a loan or credit card and you immediately take advantage of their excellent history. Although some risk involved, great way to get started.
5. As a last resort, you could apply for a gas or department card (Macy’s, Dillard’s, etc.) to use for store purchases. Keep in mind interest rates tend to be high (despite the promotional 0% they use to lure customers) and should be paid off immediately. They don’t do as well for your score as bank cards however it’s a start.
6. Get an installment loan. To get the best score your credit should consist of a mix of different types of credit including revolving accounts (credit cards, lines of credit) and installment accounts (car loan, mortgage, and personal loan). Once you have proven to yourself you can use credit cards responsibly for a year or more, consider applying for a small installment loan from a credit union or bank in a short duration (one year or two) to round out your credit history.

Note: One does not have to keep a balance on any card to build credit. Pay your bill off in full each month. Also remember to use your card lightly (below 35% credit limit) but regularly. For example I would pay my phone bill using my credit card and pay the full balance off once the bill arrived.


Now that I understand the importance of credit, I admit I made some “not so smart” purchases which negatively affected my score, what should I do?


1. Pull your credit report to see what lenders are saying about you and to ensure all information is correct. You may obtain a free annual report at annualcreditreport.com.
2. Whatever you do, at least pay the minimum payment and on-time (one late payment past 30 days will ding your score).
3. STOP OVER-SPENDING. Look for ways to earn extra cash or free up dollars to pay off that credit card balance starting with the higher interest card first.
4. Don’t charge more than 35% of your credit limit for example card with a $300 limit should not charge more than $105 each month. The more you charge the more you look at risk to creditors.
5. Consider using your 3 to 6 month emergency savings (don’t get in a habit of it) to pay down your bad debt.
6. If you have multiple cards, once you pay off one, continue paying that same amount on the other.
7. Understand the difference between GOOD and BAD debt. Typically think of the difference in the two as, “Once I purchase this particular item, if it goes up in value it may be considered good debt, if it loses value it may be considered bad debt.” Accumulating debt for education, rental property, businesses, and other things that may increase in value are examples of good debt. Those clothes and LCD screens you purchased are depreciated once their purchased and considered bad debt. If you cannot afford to pay cash, wait and save until you are able to.


In conclusion, having no credit history could be just as bad as having poor history. As a college student and responsible young adult, you should be able to build and maintain a good credit history. Just remember to live within your means and pay your bills on time. In no way do I consider myself an expert on credit, however I do think just by following the advice in this article you are off to a great start. I encourage you to do more research in building your credit and continue to pass on that pertinent information to at-risk others. Last but not least, understand the difference between good and bad debt. Use debt to accumulate assets (things that go up in value), not liabilities (things that tend to lose value). Stay tuned as I go deeper into investing and good versus bad debt in Part III, “I wanna Start Investing” for the Broke College Student. Hope this is helpful, enjoy!

Part I "I wanna Get My Money Right" for the Broke College Student

The beginning of each semester is the time so many of us are full of various emotions about the upcoming year. While some are anxious to get back in school mode others may be burned out and ready to graduate. One commonality many college students are excited about in the beginning of the semester is receiving that infamous monetary award aka Over Payment (OP) check, Refund check, etcetera. The major difference to keep in mind is if you received your award via loan or not. Often you hear students blurt out “OP’s must have dropped” because you see the result of so many others outlandish purchases. Fresh Polo Ralph Lauren (not USPA), new hand bags, big rims, you see it all. Not to discourage treating yourself as a hardworking college student, but only if there is balance. In this blog I will give you some simple advice to help those who would like to have funds they can use in case of emergencies and get an early start in investing.

The most important rule to follow when it comes to any aspect of your finances is to “PAY YOURSELF FIRST.” I repeat “PAY YOURSELF FIRST.” That's right, you should put at minimum 10% of any money received such as earnings, gifts, and allowance into some type of savings or investment. This money should be put into a savings account until you have at least 3 months of your monthly living expenses built up. Your emergency savings account serves as liquid money that is to be used in emergencies (i.e. car repairs, loss of job, parents cut you off) only. Ideally you want to have at least 6 months expenses into your emergency savings account. For example, if you make $1000 a month and your monthly expenses total up to $750, immediately you should be depositing at least $100 (10% of your $1000) to your savings until you reach between $2,250 and $4,500 (3 to 6 months expenses). Once you have built yourself a cushion for financial emergencies and mastered the habit of saving aka “Paying Yourself First”, it’s time to start investing. The following are simple steps that you can use to get yourself ready to invest in which will be explained more in detail in another part. I used these same steps starting my freshman year in college and continue to follow them. Although I got off to a slow start, I have had no regrets in taking control of my financial future.
Note: It’s never too early to start. The habit of saving and investing regularly is more important than the amount. Case in point, if one cannot invest 10% of a $1000 on a college budget ($100), what makes one think they will invest 10% of a $100,000 salary ($10,000).

1. Get your consumer debts paid down (credit cards, computers, department store cards, etc.) and create a budget to follow.
2. Put at least 10% of your earnings into an emergency savings account until you have 3 to 6 months liquid, “PAY YOURSELF FIRST.”
3. Once your consumer debts are paid down, your emergency account is built up, and you’re able to follow some type of budget, you’re ready to start educating yourself on investing.
4. Educate yourself on investing starting with a simple internet search or books. Here are a few of my favorite sites and books.
a. Investing for Dummies
b. Stock Investing for Dummies
c. Kiplinger’s Guide to Investing Success
d. Internet search “how to invest”
Note: Important concepts to grasp early on include what it means to invest, dollar cost- averaging, mutual funds, Roth IRA’s, and any other aspects you find interesting.

5. My personal suggestion once you have educated yourself on the basics of investing would be to start with an amount you feel comfortable with and won’t need immediately, ideally $500 to $1000. Note: You can start to invest with as little as $50 a month, regardless of what you start with, do not be discouraged.

Keep in mind before you take that plunge into investing you should have a firm foundation. Establishing good habits such as paying yourself first, following a budget, and living below your means are essential. Tricking off money on material things that lose value must be controlled. For those of you with loans, following these simple steps are that much crucial to ensure your able to pay those borrowed funds back once their due. Stay tuned for Part II “I wanna Build My Credit” for the Broke College Student and Part III “I wanna Start Investing” for the Broke College Student. In Parts II and III, I will go further into simple investment strategies you can use as a college student including my favorites and will discuss the importance of credit (life’s report card). Hope this is helpful and enjoy!

How to Speed Read

I was reading through articles on the Art of Manliness site the other day when I came across one that particularly talked about Theodore Roosevelt and how he used to read dozens of books by speed reading. It immediately clicked in my head my summer goal has been to read a book a week. I figured not only would I be able to increase the number of books I read, but I also would be able to pick up a useful skill that will help me down the road. Another goal was added to my summer list. After a few online speed reading tests I concluded I read about 250 words per minute (wpm), average reader. By the end of the summer I would like to be reading at least 400 wpm with 80% comprehension. I feel like this is a SMART (Specific, Measurable, Attainable, Realistic, and Timely) goal that I could certainly achieve. WISH ME LUCK! Below I will attempt to explain my course of action and provide regular updates on my progress.
Note: My entire speed reading challenge will be accomplished through books and the internet. NO COURSE involved. I chose this method to not only save money by taking advantage of available resources (internet, library, etc.) but also have the flexibility to practice when my schedule permits.

There are four main areas you need to focus on separately in order to drastically improve: SUBVOCALIZATION, REGRESSION, FIXATIONS, and COMPREHENSION. Similar to if you were training for a sport such as basketball, you wouldn’t weight train at the same time you were working on perfecting your shot. Each area should be trained separately and brought together as one regiment. A summary of my research via web, books, and people’s advice follows:
1. Get your EYES checked. If you need glasses, get them.
2. Find your current reading speed. There are various online FREE tests you could take or simply count the number of words in a particular article and time yourself. The average person reads at a rate of 150 to 250 wpm I encourage you to take at least two different online exams to come up with average speed.
3. Try these simple tips that will immediately increase your speed.
a. Stop SUBVOCALIZING (pronouncing words aloud, mumbling, or saying words silently in your head). This immediately slows you down because you’re only reading as fast as you talk. Your eyes can read at a much faster pace than your lips can talk. To eliminate this habit be conscious of it and stop and/or try counting 1,2,3,4… repeated or a,e,i,o,u… while reading the material.
b. Stop REGRESSION (going back and rereading words). This not only slows you down but interferes with comprehension. To avoid regression you can use an index card to cover material you already read or use your finger as a guide and look at only what is in front of it.
c. Stop reading WORD for WORD (read in CHUNKS). Multiple FIXATIONS (number of stops per line) should be avoided and will decrease with practice. Instead of reading one word at a time, try reading two to four words each time. It may help to distance the page until your eyes are used to picking up more than one word. To start, try focusing on the third or fourth word from the left and right and picking up the others on the end using your PERIPHERAL vision. As it becomes easier work toward fixing your eyes on the middle part of the sentence and picking up each side with your PERIPHERAL vision. A good tool for practice would be going down the middle of a newspaper column reading in chunks (the narrow width helps with minimizing fixation). You also could draw lines parallel down your reading approximately 3 inches apart off center (forming three fixations) and focus on picking up the words in each column.

4. PRACTICE, PRACTICE, PRACTICE… the speed will come followed by the comprehension.
5. Follow up tips that are helpful:
a. Read early in the day if possible
b. Prioritize your daily reading (Most important to least important. Start with important material first and keep in mind the speed you read at depends on your objective with the material)
c. Skim and Preview material before reading to get main ideas
d. Form questions and attempt to answer while reading
e. Avoid highlighting
f. Maintain flexible speed (newspapers may be read fast opposed to legal work or math material that may need slower time for understanding)
g. Eliminate distractions (noise, television, bed, etc.) Ideally read at 45 degree angle.
h. Read in 30 min to 1 hr spurts with a short break
i. Search “speed reading” in YouTube and web (utilize free material)
j. Use fee online software spreeder to practice and read all online material (just copy and paste words in spreeder and increase the time weekly).
k. Google “Evelyn Woods”
l. For additional info. Check out “Speed reading for Dummies.”
Have fun and keep me posted with your progress and/or comments on how you and I can continue to reach our goal. Good Luck!

Goal Setting

I start off with my goals and objectives because I believe this is the platform that provides each individual with direction. A goal not written down is merely a DREAM, and while I am not discouraging you to dream, writing out your goals promotes ACTION and gives others insight into what you are about.

The technique I use to outline my goals is explained in the following steps (see image for example of my goals).

1. Draw a huge cross or X on a blank sheet of paper
2. Label the four different quadrants as Education/Career, Financial, Personal/Health, and Professional/Social.
3. Under each label write down your goals with time. Be specific as possible. (Include short, medium, and long term)
4. Ask yourself is this a SMART goal. (Specific, Measurable, Attainable, Realistic, and Timely)
5. At the bottom of the outline certain actions that will help you to achieve these goals.
6. Post them somewhere you and anyone who comes into your personal area can see. (Don’t be ashamed to show where you will be in time.)
7. Update and change your goals as needed regularly.

Note: If you prefer separate sheets may be made for short, mid, and long term goals.

Welcome!

Upon graduating this past May 2010 with a B.S. in Civil Engineering Magna Cum Laude, some would say “he did it, he got it all figured out.” I disagree in its entirety and keep in mind one of my most important character traits, Lifelong Learner. I have never been so hungry for knowledge and I continue to get it in any way possible as long as it’s legal and not harming others. I started this blog to share that knowledge and wisdom I have been exposed to through school, experience, others, and most importantly READING. My writings include a multitude of various topics that I feel may be have use or just of interest to others and are subjected solely to my personal opinion and research. I encourage your feedback. Enjoy!