We’ve been chatting about all sorts of topics regarding life after college and being successful in your 20s. To be specific, we’ve been leaning towards grabbing control of your life and making money on your own terms.

You know how to focus on your side business, how to overcome hurdles from starting your own business, the laws of working for yourself, and making money online. What’s next? Now you need to master one financial skill if you want to live the life that you deserve.

There’s one secret to being successful with your own business and in general after college. What is this secret?

To live below your means.

What’s the beauty of living below your means?

You should consider living below your means. I have to borrow a quote from my new favorite book, Linchpin, to summarize living below your means:

“When you cut your expenses to the bone, you have a surplus. The surplus allows you to be generous, which mysteriously turns around and makes your surplus even bigger.” — Seth Godin

I don’t want to turn into a frugality blogger, but you do need to see the benefits of cutting back on your expenses. You need that surplus.

Why’s this such a remarkable financial secret for life after college?

Cutting back on expenses is something that we all know that we SHOULD be doing, but how many of us are actually doing it? We all preach the good word of cutting back on expenses. Yet so few of us do it. When you finally start to cut back on your expenses you’ll realize that you don’t need to stress out about how much you make because you have more money coming in than you have going out.

Have I always lived below my means?

I must make a confession now. I’m slowly starting to become better at practising what I preach. I’ve recently become more serious about cutting back my expenses.

I had two cell phones for the longest time. I signed up for a long term contract to get my iPhone many years ago. Then I got sick of the iPhone and wanted a Blackberry. Instead of waiting for my contract to run out, I bought a Torch and now had two phones. That’s one too many if you asked me. I just loved both phones that I couldn’t decide which one to get rid of, so I kept both. Now I finally got rid of my iPhone.

I also cut back on my expenses in a few other ways. Check out how I’m cutting back my expenses:

• I moved back home. I finally rented out my condo and moved back home. I’m not only saving money but I’m making a bit with my rental income.
• I work out from home more often. I still have my gym membership but I try to train at home with my younger brother as much as possible. I saved money on gas and time.
• I prepare my own food as often as possible. I love making my own food. I try to prepare my own food as much as possible.

That’s all the money that I can save for now. I still love going out for drinks and eating out at nice restaurants. I need to live a little.

At the end of the day, cutting back your expenses is all about deciding what you want out of life. You can have anything that you want. You just can’t have everything that you want (stolen from JD Roth).

Are you willing to cut back on your expenses to chase after your dreams? 

“The only man who sticks closer to you in adversity than a friend is a creditor.” – Unknown

As scary as Halloween is, there’s nothing more scarier than the thought of being stuck in credit card debt and being forced to spend a majority of your paycheck on your debt payments. It totally sucks to not be able to enjoy your money that you work so hard for because you owe someone else money.

When I was doing research for my premium guide that I released last week (Completely Conquer Credit) I spoke with many young professionals that were in credit card debt and wanted to get out. Over my research there were three general thoughts on debt that resonated between everyone. I wanted to share them with you guys today.

The following are three scary things that you haven’t been told about credit card debt:

1. Credit card debt greatly restricts your options.

Are you sick of your paychecks going directly to your debt payments? When you’re in debt your options are totally limited. You can’t go on a trip with your friends every year for Spring Break. You can’t quit your job because you have payments to make. You need to stress about getting rid of your credit card debt in your 20s while your friends get to go out and have fun.

Do you want to live a life of abundance or are you cool with being held back? Since you’re reading this right now, chances are that you want more out of life. You want to be a financial stud, not someone that owes a lot of money. Once you realize how much not beating credit card debt is holding you back, you need to start making some serious moves!

2. Credit card debt keeps on adding up.

When you make the minimum payment each month you’re going to keep on getting hit with interest until you kill your credit card debt. If you keep on making the minimum payment without trying to put additional money towards your debt, it’s going to take you a damn long time to pay off your balance.

Unless you take some bold actions with your debt payments you’re going to be stuck in this vicious cycle for a long time. If you keep on using your credit cards you’re only going to the delay a debt-free life.

3. There’s no bail out in real life.

You’re stuck with this debt unless you claim bankruptcy. That’s a completely different issue that I’ll address at a different time here. The reality is that there’s no bail out in real life. You either accepted the college student credit card when you were younger or you grabbed some sort of credit card as a young professional. You’re responsible for the money that you spent. You have nobody to blame.

You’re going to have to work your ass off to beat your credit card debt. You need to stop being delusional about passive income and some sort of bail out that you think is going to come your way. Instead I highly recommend that you get a second gig or you figure out how to pay off your debt with your current income. When in doubt I always recommend that you take the next small step. What are you waiting for?

After reading these three scary points, you’re going to want to get rid of credit card debt fast. Instead of feeling sorry for yourself, what are you going to do about this? Are you going to completely conquer credit?

The good news is that you have all of the tools available to you. You can browse through the archives of Studenomics or you can find a thousand other personal finance blogs on the topic. If you’re willing to spend a few dollars you can check out my recently released premium guide on the topic.

[GRAB YOUR COPY]

(photo credit: enokson)

“The man who never has money enough to pay his debts has too much of something else.” -- James Lendall Basford.

We all know that credit card debt sucks. We all know that we get charged interest when we miss our credit card payments. We know that even the perfect credit card can hurt us when not used properly.

There’s just something that we weren’t told about credit card debt. What is this?

Credit card debt is more emotional than logical. Nobody plans on getting into credit card debt when they fill out their forms. We just don’t think about it and somehow end up owing money.

I wanted to start off by sharing a reader question that I responded to the other day. I love to respond to reader emails because I believe in building a legacy and helping out as many people as one dude possibly can. Long time reader Kellee wrote in:

I am proud to say I have zero credit card debt, but I’m not sure when the best time is to pay my bill. I don’t like to procrastinate, so if my bill is due on the 10th, I’ll pay on the 7th to get it off my mind and make sure the payment clears (without any after 5 or business hours nonsense). Although, I’m not being charged any late payments, will I be charged the interest rate on the charges between the 7th and 10th? Is the true due date the best time to pay? I don’t like auto-payment, because I always like to check my statements myself for errors before I pay. Any help would be appreciated!

I love questions like this because it’s a perfectly logical question to ask. Kellee is clearly making intelligent choices and on the right track to financial success in her 20s. What’s the answer to her question? I suggested that she pay the debt off ASAP. The stress of owing money is just not worth it. If you have the money ready to pay off your credit card balance then I suggest you do it ASAP. Get that debt off your shoulder and move on with your life.

Now don’t get me wrong, I’ve used debt as leverage many times in the past for investment opportunities (another topic for another day). For most of us the reality is that debt will only hurt us. I suggest that you get rid of your debt ASAP.

Credit card debt is more psychological than it is logical.

Too often do college courses, personal finance books, and so-called “experts” throw out logical advice that’s supposed to help us solve our problems. We don’t think rationally when we get into debt. We don’t plan on using money that we can’t pay back. If we all behaved logically with our money than there would be no need for personal finance blogs.

Now allow me to get off-topic a little bit…

I’ve been training at the gym ever since I can remember. Conventional wisdom tells us that all junk food is bad and that we should never fast good. The reality is that everyone eating this has consumed some sort of junk food in the last week or so. Instead of feeling guilty over it we can do something else.

We can work with our weaknesses. I love junk food. Most bodybuilding sites suggest that you cut it out. Whenever I ate junk food I ended up feeling guilty over it.

Then I found the 4-Hour Body and a new solution to eating junk food. Tim Ferriss suggests that we have a one day junk food eating marathon on a weekly basis. This is done so that you strategically fill your craving of fast food without expanding your waist line. Last Friday as I do once per week I went wild. I had a McChicken combo with a strawberry milkshake, pizza for dinner, some shots of vodka, and a burrito in the middle of the night. I woke up cursing junk food and swore that I would never eat it again. Of course, the same thing is going to happen this Friday.

When it comes down to it, we all know what we should be doing. How many of us are actually doing it? This applies to spending as well. We can’t cut all of our spending at once. We can’t always save money. There’s nothing wrong with going on a shopping spree or buying expensive crap you don’t need. The problem comes when we don’t plan for it. If you work with your weaknesses and plan to make mistakes then you won’t feel guilty over it.

Before we look at the topic of tackling debt, I wanted to share a few interesting quotes that I found while doing research for my upcoming guide on completely crushing credit.

Ramit Sethi put it best on the psychology of debt and over-spending:

Anyone who believes people overeat and overspend simply because of a lack of willpower is simplistically ignoring decades of research so they can ideologically mislead themselves.

Adam Baker on paying down debt:

With no debt, your financial life will be the proverbial blank slate. Life will be yours to build, create, and live as intentionally and as passionately as you desire.

There are two popular strategies for paying down debt (as covered in my upcoming manual, Completely Conquer Credit in your 20s, end cheap plug):

The debt snowball.

This is the Dave Ramsey special. If you use this strategy to pay down credit card debt you make the minimum payment on all of your balances. Then you take your extra money and put it towards the credit card debt with the smallest balance. The goal here is to get a quick win and build momentum by paying off a credit card balance and seeing the direct results of your effort.

This approach to killing debt is very emotional. You use your emotions to your advantage. You get in the zone and start getting in pure “kill-debt” mode.

The high-interest-first approach.

This is the more logical/mathematically correct option. You make the minimum payment on all of your balances and then you put all extra money towards the debt with the highest interest rate. In theory this is the option that makes the most sense because you’ll knock off your highest interest debt first, saving yourself lots of money on interest in the long run.

The assumption here is that you’re a person that always makes the “logical” choices and does what is right. I have news for you: getting into credit card debt is not a logical process.

Simply put, none of us are told that credit card debt is more emotional than it is logical. When did you learn this?

P.S. If you sign up for my exclusive newsletter below I’ll send you a second free gift. This free gift is a sample chapter from my upcoming guide on how you can Completely Crush Credit:

The following is a guest post on payday loans. These are two different looks at the idea of a short term loan.

They don’t call them loan sharks because they play like dolphins. Predatory lenders are infamous for their clever capacity to prey on people who often find themselves in the position where they need a big cash sum several days before pay day. They use the ease and the access to lure many people into repayment plans that can quadruple the interest rate in weeks. But many governments around the world have rules that keep lenders in line. Not every short term loan lender is a crook. Many wish to provide a means for people who otherwise don’t have the means to get a cash advance a chance to do so. It must be said though that it’s not in their business model to tell you when it is and when it isn’t a good time to use a payday loan. You need to decide that by yourself. I’ve composed some general guidelines below:

When it’s a swindle.

Many people who take out short term high-interest loans simply don’t do the arithmetic. It’s often assumed that these loans are ideal for tangible necessities like food and gas, but that couldn’t be farther from the truth. If you’re in a situation where you need such a loan to cover those necessities, that’s an indicator that you’ll be in an identical situation next month and the one after that and so on. Only then you’ll also be dealing with paying back a $500 loan that’s now become $1150. If it comes to feeding the family for a week or paying the credit card bills, you need to do some number crunching to figure out where the money is going and how to better distribute it. This is basic financial advice so I won’t digress. If you’re ever in this position, payday loans are almost never ever a smart way to get money.

When it’s a lifesaver.

The first thing you have to do is to teach yourself on what the possible payback amount will be if you don’t pay the loan off as soon as possible. If you’ve done the math and determined you can most definitely pay off the debt as soon as your next payday arrives, it becomes a wiser decision to take a payday loan out. But due to the strong risk factor associated with short terms loans regardless of your potential to pay them back, you need to know when it makes the most sense to take one out. Avoiding a late credit card payment is justified if the penalties equate to a higher amount overall than if you took a payday loan out. Being saddled with last minute vacation costs can eat away at spending money, which case a short term loan can probably do better things for you than a credit card that can be racked up carelessly with almost as high of interest.

Many short term loan lenders such as Cashnetusa loans offer first time clientele with considerably lower interest rates. Take advantage of that if you’re using a payday loan as a one-time emergency. If you’re using them consistently it’s time for a personal finance assessment, but when you need them and can avoid the usury strategy, they can sometimes be the unlikely lifesaver.

If you have high credit card debt, most people believe that you can’t properly manage your finances. If you have high student loan debt, however, you’re just considered part of the social norm. Everyone has student loan debt, right? Wrong. In fact, most students who do have high student loan debt could have avoided pulling out loans altogether had they simply done one or all of the following:

Filled Out the FAFSA.

This seems like a no brainer, but many prospective student avoid filling out the FAFSA because they believe their parents make to much money. You will never know the type of aid you are eligible for until you apply. The form is also easy to fill out, and by taking the 10 to 15 minutes needed you let yourself become eligible for thousands of dollars in grants and scholarships.

Checked Out State Programs.

In addition to federal programs, some states offer programs to help get you through college debt free. Some states will allow loan forgiveness to students who choose to work in certain professions, or even just for graduating in 4 years or less. The Texas B-On-Time Loan Program forgives all of a student’s loans as long as they graduate within 4 years. Other states even offer programs to high school students to help cover the costs of in-state schools. The Missouri A+ programs grants high school students 2 free years of school at a community college in exchange for tutoring and mentoring hours.

Applied for Scholarships.

You don’t have to be a star athlete or a MENSA candidate to get a scholarship. Online scholarship search engines like Fastweb.com or Scholarships.com can help future and current college students find and apply for all types of scholarships. By simply writing a 300 word essay you could win up to $5,000 to use towards college tuition.

Taken College Courses in High School.

Taking college level courses in high school is much cheaper than taking college courses on a college campus. “Many high schools offer students the opportunity to take college level courses through IB or AP classes, and high school students should hop on the chance to take these courses to not only get ahead in school but to also keep money in their pockets,” says Charles Bulger from Currencies.com.

Stayed In-State.

Simply choosing the out-of-state college over the state school you got into because of location can be costly. Out-of-state tuition prices are often triple the price of in-state tuition. Stay in-state for school, and then move to a dream destination for a job after you graduate. You’ll get to live in the place you always dreamed without racking up debt due to loans.

High student loan debt can be just as restricting as high credit card debt. It can greatly decrease your standard of living after graduation, and if the job market continues to stay stagnant, trying to afford a $500 a month student loan bill could seem impossible. Always be mindful when faced with the option of pulling out student loans, and remember that they may not be necessary.

A while back I wrote about the idea of investing your student loans. I was pretty negative on the idea because I’m not a fan of investing money that isn’t yours.

The other day a Studenomics’ reader opened up an interesting point by bringing up the opposite side of the spectrum. Daniel is more positive on the idea of investing your student loans. I’ll always support a logical and well explained point. Daniel wrote on investing student loans:

Well….. using student loans to invest would indeed be quite risky, though not nearly as risky as many other options that exist today.

By doing this, you are doing the same thing as margin trading, except the bank is unknowingly taking over the financing from the broker. To look at this on the good side, using student loans is actually LESS risky that using a margin account.

With a margin account, if the equity in your account falls below a specified level (30 – 50%) then the broker has the right to sell stocks to equalize that equity at their discretion. This could lead to even higher losses (on your part). You are also required to meet many restrictions (to protect the broker no less, though it does offer you some protection from yourself!), which can reduce your buying power.

On the other hand, if you are using a student loan, you need not worry about the broker selling your stocks haphazardly to equalize equity. You also do not need to maintain a minimum cash investment (lets face it, you could open the account without any cash of your own, using only borrowed money). Also… and the biggest advantage obviously, is the interest rate… a margin account, right now, is going to charge you between in the ball park of 8 to 9 percent interest on the money you borrow…. the student loan could be a low as 2 to 3 %.

Another advantage of a student loan is the repayment schedule…. if you do happen to go bust, and lose your entire investment….. you are not dead in the water. You will be in the same situation as many other college students, owing a bunch of money to student loans. Granted, you would have willingly put yourself into that situation, but it would not be a situation that was life threatening (as a major default on a margin account could be).

Overall….. is it risky…. YES! But then again, basic math will tell you that the following formula holds true:

stocks = risk

Anyone that should try something like using borrowed money to invest with is probably a little crazy to begin with (yes, you too traders!)

What do you guys think about this comment? Do your agree or disagree?

How serious are you about your debt? Are you doing everything possible to pay off your debt?

I’ve had a few setbacks lately. Car problems along with a string of bad luck resulted in my credit card being swiped more than usual. I put a few unexpected expenses on my credit card. It really sucks because this was not money that I was planning on spending. The only positive to this is that I can bail myself out due to my emergency savings. It’s not going to be fun transferring the money over to my credit card, but it beats paying interest on debt.

All week I’ve had the idea of debt on my mind and I wanted to write about it. There’s no real structure to this post. I just wanted to throw out random thoughts on different kinds of debt and paying it off:

Preventing debt with an emergency fund.

If you’re already in debt then this might be a little too late. If you’re currently not in debt, please don’t underestimate the value of an emergency fund. Now I know that you’re probably thinking: what’s the difference between regular savings and a so-called emergency fund? Nothing technically. It’s just a basic psychological tactic used to put money in a separate savings account knowing that you can bail yourself out if you ever need to.

How serious are you about your debt? With an emergency fund you take proactive measures and you hedge against unforeseen expenses that will come along. Basically, you got money for when shit hits the fan.

Using debt as leverage.

Not all people are in debt for the same reasons. On the opposite of the debt spectrum is using debt as leverage. Some college students will use student loan money for investment purposes. Some savvy investors will take a line of credit and invest this money in the stock market or any other potential income generating asset. You know the classic saying, “it takes money to make money.” When you don’t have any money you can always borrow money to take some chances. This is of course extremely risky.

How serious are you about your debt? Chances are that you owe a lot of money, but you’re an advanced enough investor that you can handle the risk and stress that come along with owing money.

Good debt.

We consider bank loans for a home mortgage to be a good form of debt. An education is also often considered a positive form of debt. At the end of the day I’m hard pressed to even think that the notion of good debt even exists. What do you think?

How serious are you about your debt? With a home mortgage or any other perceived form of “good debt” we often tend to make our payments without much stress of paying it off aggressively. These loans often take a long time to pay off.

Bad debt.

When we have to worry about paying off car loans or credit card debt, it’s often painted as bad debt. A car loan can often times be necessary because we need to get around to work, school, and every where else in life. When it comes to credit card debt, it’s usually due to the excess of crap that we purchased over time.

How serious are you about your debt? With this type of debt the goal is often to pay it off ASAP. Some will urge you to pay off the lowest balance first while others will suggest that you target the debt with the highest interest rate. The former gives you a psychological boost of knowing that you’re on the right track, while the latter makes more sense mathematically.

How do you deal with debt and unexpected expenses?

Few students can afford to pay for their post secondary education without some form of education financing.  The average student debt for graduating students in Canada is over $20,000, seriously harming their financial position as they enter the workforce.  But should they be concentrating on paying off student loans right away?

Delay Payments with Interest Relief

If you have graduated and are looking for work or you are under-employed, look into government assistance in the form of interest relief.  Interest relief is granted for periods of six months, up to a maximum of 30 months.

During periods of interest relief:

• You are not required to make payments on interest or principle of your loan
• The Government of Canada or Government of your Province will pay the interest on your loans for you
• Any voluntary payments you choose to make during periods of interest relief will go directly towards reducing the outstanding principle.

Apply for interest relief right away to ensure you meet all of the eligible conditions, which includes:

• Your monthly gross family income falls within the maximum income guidelines
• You reside in Canada
• Your loan is not already in default
• You have signed a consolidation agreement for your Canada Student Loans

Make the Minimum Monthly Payment

As a new graduate entering the workforce you are faced with many financial pressures from finding a suitable place to live, making car payments, and perhaps upgrading your wardrobe.  Aggressively paying down your student loans doesn’t need to be an initial priority in your life.  Here are a few reasons why:

1. The interest rate is cheap – If you choose the floating rate option the interest rate on your National Student Loan will be prime + 2.5 percent, which currently equals 5.5 percent.  Provincial loans are at prime rate which is currently at 3 percent (Newfoundland does not charge interest on student loans)
2. Income Tax credit – Any interest paid on your student loan is eligible for a 15 percent Income Tax credit.  So if you paid $1,000 in interest over the course of a year, you would get $150 back on your Income Tax paid
3. Cash Flow – Why use all of your cash flow to pay off student loans when you could be establishing an emergency fund, saving for a down payment on a house, or paying off higher interest credit card debt?

You Have Other Priorities

I left University with close to $30,000 in student loan debt, and when I moved in with my girlfriend (now wife) she brought with her an additional $25,000 in student debt. 

I was fortunate enough to have purchased a house when I was 19 (with my parents co-signing), and after University I sold the house for about a $30,000 profit.

Rather than completely paying off my student debt and starting over at zero, I paid off some debt and used the remainder for a down payment on the house we still live in today.

Our house has doubled in value since we purchased it over 7 years ago, and we would not have been able to achieve these gains by just paying off student loans.  We leveraged an asset, which gave us more potential for financial gains.

Just Pay It Off Already

Seven years after my wife and I left school we have managed to pay off all of my student loan debt, however we still owe about $5,000 on my wife’s student debt.  Our monthly payment is $145.

While we could manage to pay this off in one lump-sum and be rid of student debt once and for all, I still believe that our money is better off investing in our RRSP and TFSA, or paying off our mortgage.

Surprisingly many smart graduates say that their student loans aren’t costing them much money, so they decide to pay them off early.  However a loan this cheap shouldn’t be paid off more quickly than necessary.

Eliminating your high interest rate debt and building up some savings in a TFSA while improving your career prospects should be your main focus out of school.

Paying off student loans early may seem like the prudent thing to do once you graduate, but don’t weigh yourself down with an unnecessary burden while you have other priorities in your life to look after.

About the Author: Robb Engen writes about Canadian personal finance at Boomer & Echo. Together with his mom, (she’s the Boomer, he’s the Echo) they offer their own unique perspectives on saving, investing and personal finance

In our 20s our relationship with money goes through some crazy ups and downs. Just like any other relationship. There’s the phase where we absolutely have no money and have to scrape by for food. Then there’s the time where we finish college but realize that we have tons of debt. Then there’s that ecstatic phase where we get our first real paycheck. These phases can all be extremely fun. I mean who doesn’t remember those $2 meals or that big of chips that served as lunch and dinner?

The beauty of interacting with 20-somethings about money is that everyone is on a different level. Some readers have emailed me to tell me that they have either paid off their debt or are close to doing so.

Is there life after debt? What can you do once you become debt-free?

Reward yourself.

Most pf bloggers will urge you to continue saving money and delay gratification. I say screw that! Reward yourself. Treat yourself. You deserve it. You worked hard to kill your debt. Now have some fun. Don’t go overboard but don’t feel bad if you want to go on a dream vacation at this point.

Don’t get into more debt.

This will put you back to where you started. Once you kill your debt you don’t want to return to being in debt. You don’t want to be stuck in this viscous cycle.

Be proactive with your finances this time around.

You screwed up once. You don’t need to screw up again. Hopefully the struggles of paying off your debt taught you a thing or two about sacrifice and hard work. This time around you should learn from your mistakes and actively avoid getting into any more debt.

Keep up the pace.

When it comes to paying off debt, some people go through hardcore measures. Everything from working 3 jobs to eating next to nothing are done to crush debt. You can keep up the pace and use this momentum to start saving up money. Now that you’re out of debt all of the income could go towards your savings and future goals. This is a great way to jack up your savings and net worth.

Yes there is life after debt. What do you plan on doing once you’re debt free?