For college graduates this year, I offer an acronym to help manage your money. It’s CASH.
The “C’’ in CASH stands for credit. I won’t say don’t get a credit card, because many of you already have one. And I’d be a hypocrite anyway, since I use credit. But credit is a dangerous financial tool, because it often lets you live beyond your means.
I’ve worked with so many people who thought, as you might, that they could handle credit wisely. They couldn’t and are struggling to dig out from under credit-card debt for things they can’t even recall buying. Please pause before you use credit and consider what would happen if your next paycheck didn’t come.
Don’t use your credit card if you can’t pay off the purchase by the following billing cycle. The moment you swipe and buy something that you can’t pay off the next month, you are in danger of becoming trapped in a cycle that can lead to a lot of financial grief.
The “A’’ in CASH stands for assets. If you’re fortunate enough to have a good-paying job lined up, you might feel entitled to get stuff. You want new clothes to wear for your new job. You want a car, or a better car. But this sense of entitlement will leave you broke with stuff of dwindling value.
Did you know the moment you drive a new car off the lot, it loses 11 percent of its value, according to Edmunds.com, an online automotive information Web site. Although not all cars lose value at the same rate, by the end of the first year, a new car depreciates an average of 21.8 percent, Edmunds.com estimates.
Spend more of your money accumulating appreciating assets, such as a retirement account that has the potential to increase in value. Big Mama taught me that you’ll put yourself in a precarious situation if you don’t know the difference between buying things that improve your net worth and stuff that just makes you look wealthy.
The “S’’ in CASH stands for student loans, which many of you have. Don’t delay in getting a handle on how much you’ve borrowed. If you have private loans, contact the lender to be sure you’re clear on what you owe. Go to the National Student Loan Data System at www.nslds.ed.gov to get information about your federal loans. This site is the U.S. Department of Education’s central database for student aid.
Don’t wait until you have to start paying back the loans (typically six months after you stop attending a school at least half time). Talk to your lender or lenders about your repayment options.
One option if you aren’t earning much is the Income-Based Repayment program, or IBR. This option, which is not available for private student loans, is intended to set a reasonable monthly payment based on your income and family size. To get more details, go to www.ibrinfo.org.
Finally, the “H’’ in CASH stands for housing. If you have to rent long after you’ve graduated, don’t feel as if you are a financial failure. You are getting something for your money — a roof over your head.
Homeownership is still a good idea — and still the way most middle-class people boost their net worth over time — but don’t buy until you’re financially steady.
If you’re not ready to rent or buy a home, move back in with your parents. If you do find yourself in that situation, treat it as a temporary way station on your path to independence. And treat it (and your parents) with respect. Their roof, their rules apply. You may feel grown, but you’re not until you’re covering all your expenses. And unless you’ve got massive student-loan debt you’re trying to pay down, pay something toward the rent/mortgage and other living expenses such as food and utilities.
I chose this acronym because the basics of personal finance haven’t changed much. CASH is still king and comes down to what Big Mama taught me. Debt is dangerous and should be avoided as much as possible and paid down as soon as possible. Always ask yourself if something is a need or a want, and the answer will result in less stuff you can’t afford and more appreciating assets. CASH will set limits on what you can do, but in the long run you’ll have a greater sense of financial peace.
Readers can write to Michelle Singletary at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071, or firstname.lastname@example.org. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read previous Color of Money columns, go to