On Monday, March 24th, Professor Karin Bonding of U.Va.’s McIntire School of Commerce held a workshop on personal finance and offered understandable, practical advice to non-commerce students. Bonding is a chartered financial analyst and director of the CFA Program Partner Initiative in Charlottesville; obviously, she certainly knows her stuff.
“Money should not be your ultimate goal; financial security should,” Bonding said. During the workshop, Bonding emphasized the importance of saving money. She stated that everyone should have an “emergency fund” that is the equivalent to the amount of 3-6 months’ of your personal living expenses. Being financially safe, stable, and independent is crucial.
In order to build up this personal “emergency fund,” Bonding walked through the process of creating a budget based on one’s gross salary. She drew out that by the time one receives their salary, nearly 30-35% of it has gone to federal taxes, state taxes, FICA (a federal tax that funds Social Security and Medicare), and a 401(k) plan. In other words, by the time all of these taxes are subtracted from a gross salary of—for example– $40,000, there will be approximately less than $28,000 left to take home.
This sad but true reality is unavoidable, but Bonding gives great advice as to how to make the most of your salary.
“There’s a simple way to do this: expenses less than income. That’s it! Income is determined by employer. Expenses are controlled by you. Think about that. You’re in control of this situation,” Bonding said.
Bonding has three major bits of advice when it comes to spending money on necessities: spend no more than 30% of your take home pay on rent; your car payment must be no more than 15% of your take home pay; and buy car insurance, health insurance, property insurance, and renter’s insurance. Sticking to the 30% mark on housing is perhaps the most difficult of these three, since most people move to large cities after graduating; but Bonding is adamant that this is a non-negotiable when it comes to saving money.
“You should not be spending more than 30% of your take-home pay on housing…. Get another roommate, move further away, take public transit-do whatever it takes to try to keep to 30%. You may have to lower your tendencies to want the best. We all want the best, but we may not have the budget to allow that,” Bonding said.
After stressing the importance of building a budget, Bonding moved on to explain the process of getting a credit card. Establishing good credit now will allow better and more opportunities for you in the future. Interest rates are heavily dependent upon individual credit reports; Bonding states that even some graduate schools review credit reports before offering admission. She also notes that it is best to start building good credit now, while in school.
However, it can be very difficult for college students to be approved for a credit card using an online credit card application because college students usually don’t have a sufficient income. Bonding suggests having a parent co-sign on a credit card, or going to a bank to talk to someone in person about getting a credit card, is the best way to go about it. Online credit card applications are reviewed by “computers,” and will make a quick decision simply based on the numbers on your application. By making that personal connection by going to the bank, it’s easier to get a credit card because it’s easier to reason with a person rather than a computer as to why you would like to get a credit card and that you would be responsible with it. Bonding recommends getting either a Visa, MasterCard, or American Express credit card.
This is a lot of information to handle, and this is only touching the surface of what it means to handle one’s own personal finances. To help organize and keep track of your money, Bonding recommends using the secure site mint.com to help with budgeting, and freeannualcreditreport.com to get a free credit report annually. Other dependable and safe sites Bonding mentioned are bankrate.com and fidelity.com.