It's that time of year, where parents such as us are racking our brains trying to think of the best Holiday gifts for our sons and daughters either getting ready to go to college, or (as in my DS's case) preparing for life beyond college. Well, in my DS's case, he asked me a favor a few weeks back: he wants to sit down with me sometime over the Holiday break and talk about what he should be doing financially once he commissions in May and starts his own military career. And then it hit me. What better Holiday gift is there than KNOWLEDGE and EXPERIENCE? Particularly in a topic that (unfortunately) most young adults have very little solid background in (if not very poor financial habits) and will be perhaps one of their greatest and most important challenges for their ENTIRE lives, with the greatest consequences. But I'm also not naive. Most, if not all, of the parents and "experienced adults" (nice way of saying "old heads" ) on here are pretty smart and pretty involved in their kids lives and future already (or you wouldn't be on here). And they've probably had this conversation, full of advice, general rules of thumb, and wisdom, with their children already. But this is for those few --the lurkers, those who may not have that strong financial background, the kids just starting out, etc. -- who may benefit from some sound advice. I'm going to propose we do this in two lists; the "Rules to Financially Live and Succeed By”, and the "What You Should Be Doing Now". I'll start it off, feel to copy the list each time when you add to it, and add explanations and examples when you add something new. If we feel something needs to be higher in priority, we'll adjust the list as required. Financial Advice For A New 2nd Lt / Ensign Rules to Financially Live and Succeed By 1) Educate Yourself! -- Your finances are one of the most important long term keys to your success in life. Being happy in what you are doing and who you are are just as important, but being financially secure throughout your life only makes your situation better. NO ONE should care more about it than you, so take the time to get smart on it. Read a book (or 10), subscribe to one of the dozens of financially focused magazines that are out there. Spend more time on the internet researching financial issues than watching a cat playing the organ on Youtube. NEVER, EVER, NEVER make a financial decision without doing your homework first! 2) Have short-term, mid-term, and long term financial goals -- Short term goals: buying that first car, getting started building up an emergency fund (I'll explain that later), moving out of college life and into your own independent life (no longer living off of Mommy's and Daddy's wallet) getting yourself that cool new toy / iPhone (or computer, or TV, or whatever). Parents, feel free to add. -- Mid term goals: Getting married, buying a house or renting an apartment, building a family and making sure they would be OK if you are gone (deployed, remote, PASSED AWAY, etc), etc. -- Finishing your military career and moving on to a new one, kid’s college, retirement, etc. 3) Make a budget, and stick to it! -- The first part is easy if you take the time to really do it. It should be focused on allowing you to realistically meet the goals you planned above, balanced against reality and desires. Updating said budget at regular intervals and at every life milestone (like getting married, buying a house, or having a new child) takes more effort as well. The second part (sticking to it) is the hardest, and the main cause for financial failure. We can add some pointers to the second list to help you out as you start your budget. 4) Live Within Your Means (or better yet, below it) -- Perhaps the biggest failure of the American life-style and culture over the past two generations: trying to keep up with, and beat, the Jones’. A culture of consumption and instant gratification, only to need even more because you feel what you have now is not good enough for you (even after you were just crying for it a few months ago). And THAT biggest failure has led more people to financial difficulties than anything else out there combined. Don’t be THAT guy / gal. Before you buy anything expensive (and to me, anything over $100 is expensive. To a Lt, it should be anything over $50), ask your self, “Do I really NEED this or do I just WANT this?” and “Can I wait until I can save up to AFFORD this before I buy it?” Setting short term goals and putting them in your budget should help you accomplish this rule. 5) Save at least 15% - 20% of your salary -- You’ll soon be making a steady pay check. Part of that needs to go to your short-, mid, and long-term goals. Things like emergency funds, investments, college funds, retirement planning, etc. EVERY TIME you get a raise, take 15% - 20% of it and ADD it to your savings plan. 5) Pay Yourself first. -- That 15 – 20% I mention above? The military has a GREAT service for your pay called AUTOMATIC DEDUCTIONS. Very easy to set up (right on the MyPay web-site the military pay folk have set up for you). Sign up right away to have that 15% - 20% of you pay automatically go to your investments. Too many folk say to themselves “I’ll simply write a check for those things at the end of the month”, then find themselves NOT doing it as life throws them curveballs, or that extra money in their pocket keeps screaming at them “Spend Me!”. Pay your self first with an automatic deduction, and you’ll never see it to worry about spending it. You’ll “Live Within Your Means” on your take home pay AFTER these deductions have already been made. 6) Have an “Emergency” Fund -- Start saving now to put at least 6 months salary into a separate fund (savings account, for example) where you can easily get to the money when NEEDED (not WANTED!). This takes discipline and time, and should be your first mid-term goal. You’ll need this money when life throws you those curve-balls I mentioned (fix a car, replace an appliance, etc.) 7) Be Smart about Credit -- Credit is both a good thing and a bad thing. Everyone has heard how credit can be bad, but it is also needed to make BIG financial decisions in life. I don’t know too many military people who can pay for a new car, or a house, in CASH. So, work on keeping a good credit rating. Have a credit card or two, and not many more. Understand interest rates and how it effects what you are ULTIMATELY paying when you buy something on credit. PAY YOUR CREDIT ACCOUNTS ON TIME! Try to owe less than 30% of a card’s credit limit on any one card at any time. Better yet, pay it off each month youowe something on it. USE CREDIT to build your rating, but use it WISELY. 8) Pay in Cash -- Save for those things you WANT, like that new iPhone, or new TV, or vacation. When you get them, you’ll feel rewarded as well as satisfied you now have it. Make saving for those big short-term items a part of your budget. In fact, if you plan to take 6 months to save enough to buy something, buy it at the 5th month with the 6th month’s payment on your credit card, and pay that last payment off the next month (it builds your credit history without going into credit debt). Ok, everyone: your turn to add to THIS list.