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Top 5 Hidden Costs of Your First Job

1. Clothing

Your favorite jeans and college t-shirt work great when you’re heading to class, but once you enter the workforce you may have to beef up your wardrobe. Depending on the industry you go into you may be required to wear business professional or business casual attire every day. Purchasing these types of clothing doesn’t always come cheap.  About.com estimates that men will spend $125 a month on their professional work wardrobe. That totals up to $1500 annually.

2. Transportation

Depending on what city you work and reside in, other costs of your commute may arise. After you graduate you may need to upgrade your vehicle which will increase costs of auto insurance, loan payments, etc. Transportation costs may also include stress and time away from family or other activities depending on the distance or traffic of your daily commute.

3. Eating out

Even though you may plan on bringing lunch to work most days, you may be obligated to go out to lunch. Many employees treat lunch as a time to network with clients or discuss business. Spending a minimum of $20 a week on business lunches or dinners can end up costing you $1,040 a year. This being a low estimate increasing lunch outings can really add up over time and end up decreasing the amount of money you have to spend on other discretionary items.

4. Travel

With some jobs you may be required to travel. Whether this means traveling locally to meet clients, or traveling across the country, these costs can reduce your discretionary income.  Many firms will reimburse you for travel expenses, but you may have to pay the upfront cost. There are also expenses associated with traveling that your firm may not compensate you for such as time away from your family, meals, and traveling essentials.

5. Taxes

Most people don’t consider taxes when they enter their first job but it is something to be aware of. When you earn more money you may be pushed into a higher tax bracket. This is especially true for students entering their first job who have formerly filed as dependents of their parents. In 2012 those filing as Single on their tax return earning $8,700 to $35,350 were taxed at a rate of 15%. If you earned $30,000 last year you would have been taxed roughly $4,500. As your income increases your tax bracket increases, which means you may end up forking a good chunk of your income over to Uncle Sam.

 

Although that new job offer may sound great, it is always good to look into the hidden costs. Comparing these costs and your compensation is a great way to find out if you need to further negotiate your salary. When looking at an offered salary it is important to analyze the extra costs that take away from your discretionary income in order to accurately evaluate the offer. Budgeting for these extra expenses can help you in not being caught off guard when they arise.

 

Sydney A. Henderson
Peer Counselor I
Powercat Financial Counseling
www.k-state.edu/pfc

Investments

Stocks, bonds, and mutual funds are three terms we come across while watching TV, reading the newspaper, or discussing retirement. However, unless you are a business major or possess the intellectual curiosity necessary to decipher these definitions on your own, then you probably do not fully understand their functions.

Companies sell stock in order to raise money. The buyer of stock then has an ownership in the company and can help make decisions about the leadership of the company through a voting process. You can make money by owning stock in two ways. The first occurs when someone is willing to pay more for your stock than the price you paid for it, which is known as price appreciation. The second is when a company chooses to distribute periodic payments to shareholders, this is known as a dividend payment.

Bonds are similar to stock because companies sell them to raise capital. However, when buying a bond you are not buying ownership in the company but instead you are essentially giving the company a loan. When a bond is issued, the issuer promises to pay you a certain amount (usually $1000) when the bond matures. You make money because you buy the bond for less than $1000. For example, if you purchase the bond for $900 and it matures in one year then you make $100 or an 11.1% return. Another way to profit from owning bonds is that they can provide a fixed interest payment to the owner. For example, if the bond has a 5% annual interest rate, you will receive $50 annually from owning the bond plus your gain when the bond matures.

A mutual fund pools the money of many individuals to invest in stocks and bonds. When you invest money in a mutual fund, you receive shares of the fund. Each share represents an interest in the fund’s portfolio and the value of your mutual fund shares will rise or fall depending on the performance of the stocks and bonds within the mutual fund. A mutual fund is managed by professional investment advisors who have the ability to buy and sell the stocks and bonds within the portfolio.

 

Matt Kiehl
Peer Counselor II
Powercat Financial Counseling
www.k-state.edu/pfc

Income Based Repayment (IBR)

Graduating soon with an overwhelming amount of debt?  Will your salary not be enough to cover it?  You might be able to qualify for the Income Based Repayment (IBR) plan.  The repayment plan is a new way to make your federal student loans more manageable.

The idea behind IBR is to allow for lower monthly payments based on your income and family size.    The loan payments are capped at 15% of your discretionary income.  This is decreasing to 10% in July 2014.  Discretionary income is defined as Adjusted Gross Income (income before taxes) minus 150% of the poverty line for your family size.  You may have a payment of $0 if your income is less than 150% of the poverty line!

You must reapply every year to stay on IBR.  However, if you do so for 25 years, your remaining debt and interest will be forgiven!  For new borrowers starting July 2014, this time period will decrease to 20 years.

If you have a public service job, IBR has more benefits for you.  You may qualify for public service loan forgiveness after only 10 years.

For more information, see www.IBRinfo.org.

 

Kari Christensen
Peer Counselor II
Powercat Financial Counseling
www.k-state.edu/pfc

The Latte Factor

A while back, a man by the name of David Bach coined the phrase “The Latte Factor.” The Latte Factor is based on the idea that you can greatly increase your savings by paying attention to some of your smaller expenses and redirecting them for better use. Your personal Latte Factor can be anything from daily lunches out to your subscription to a local newspaper.

The Latte Factor Can be illustrated by the following calculations:

A Latte a Day = $3.50
A Latte a Day for a Month = $105.00
A Latte a Day for a Year = $1,260.00
A Latte a Day for a Decade = $12,600.00

As you can see, the Latte Factor does a good job of showing us how some of our smallest expenses can add up to enormous amount of money over time, but what does that mean for us as college students? I think that it illustrates the importance of tracking our expenses and understanding how much money we are spending on a weekly basis. Here are 4 tips to help prevent small expenses from adding up:

Create yourself a budget. Give yourself a weekly allowance for things like food/coffee/etc. and STICK TO THAT BUDGET. If you go over, stop spending (it’s not always easy but it definitely works).

Use a gift card. Using a gift card is another effective way to give yourself an allowance. Put an allotted monthly amount on the card and use it for all your expenditures.

Use moderation. College is an important time to start forming good habits that are going to stick with you for the rest of your life. Consider this saying “Good habits are hard to form and easy to live with. Bad habits are easy to form and hard to live with.” It’s going to take some personal discipline on your part, but I promise that it’s worth it!

Create an account on Mint.com. Mint.com is a FREE website that allows you to monitor your expenses and create personal budgets. I personally use this and it is a great tool if you are looking to get serious about your finances.

 
Ryan Ehart
Peer Counselor I
Powercat Financial Counseling
www.k-state.edu/pfc

Importance of a Financial Plan

With any event, it is important to have a map of where you are and where you are going. Managing your finances is no different. Not only is it responsible to have a financial plan, it also comes with many benefits and few costs. I would like to focus on the importance of having a financial plan upon entering college and the urgency of creating one if you are student who does not currently have one.

When you step onto campus for the first semester of your freshman year, hopefully you have some savings from part time jobs in high school, graduation gifts, scholarships, some support from your parents, education funds, and maybe a few student loans to help you have enough cash to make it through your first year of school. However, as you progress through school, the tuition bills begin to add up, the scholarship money tends to get smaller for upperclassmen, and mom and dad may feel the need to teach you financial responsibility by letting you support yourself.

Without a financial plan, it is very difficult to know if you have sufficient funding and it is very convenient to spend money freely on eating out, going to concerts or movies, and other recreational events. Also, it is difficult to foresee upcoming problems with your finances if you neglect to take the time to consider what your financial future will look like. In the instance of not looking ahead, when problems do show up, they can be very hard to overcome. You may have used up all of your savings, scholarship money, and student loan money that was intended to last you through the entire semester before you realize you have a problem. In order to have the cash to pay the bills to get through the semester you might have to take on a job or even a second job if you already had one. Another option is to accept more student loan money, which can be difficult and can set you back upon graduation. Most students would agree, working while going to school and trying to juggle a social life can be extremely stressful. As you can see, not properly allocating your money has many adverse effects that go beyond not having enough cash. You can lose your free time, struggle to do well in your classes, and add unnecessary stress to your life all by not having a financial plan.

However, there is good news. With a few hours of time and some number crunching, you can be on the road to responsibility and financial success.  With a financial plan there is potential to save yourself time, money, and stress. With all the benefits and such little cost, it seems silly not to have a financial plan.

Developing a financial plan is simple. First, you need to find out where you are. Take a look at your current resources and expected expenses for the upcoming semester. Calculate the savings you expect to use, your expected income and expected expenses on a monthly basis. If your resources do not meet your expenses, you know in advance that you will need to find sources to finance your need. By knowing this before it is an emergency situation, you give yourself the luxury of time to solve your problem. Once you have your plan in place, you have to execute and track your progress. Keep records of all your expenses (receipts, bank statements) and income (pay stubs, loans). By comparing your actual amounts with your estimates on a monthly basis you can see where you are going and if adjustments need to be made.

It is my encouragement to you to develop a financial plan and follow it closely. If you already have one and have not been utilizing it, please start. By being responsible with your money in college you are putting yourself on the track to get a fulfilling college experience, graduate with minimal student loan debt, and the potential to start saving and investing for retirement at an earlier age. However, it all starts with a financial plan so save yourself time, money, and stress and develop a financial plan.

If you’d like to meet with a Powercat Financial Counseling peer counselor to get free assistance in developing your college financial plan, please contact us at powercatfinancial@k-state.edu or call us at 532-2889.  We’re students just like you and are here to help.  We have more information about this subject on our website at http://www.k-state.edu/pfc/planning.

Matt Kiehl
Peer Financial Counselor I
Powercat Financial Counseling
www.k-state.edu/pfc