This article originally appeared in The Chicago Tribune
May 10, 2009
by Gregory Karp

When he was 28, J.D. Roth had a friend who offered him an exciting, once-in-a-lifetime opportunity: They would take a five-month trip together to see Thailand, India, Israel, Egypt and other far-flung places.

Roth had to say no. He had spent all the money he earned since graduating college, and more. He had lots of stuff–and was $20,000 in debt. By contrast, Roth’s friend Paul lived frugally with few belongings and had significant savings.

Paul had the freedom to take the trip of a lifetime.

“I realized then, `Aha!’ Paul was making choices that gave him flexibility later on,” said Roth, who now blogs about his financial life at GetRichSlowly.org. “I didn’t have any flexibility. I couldn’t afford to take the time away from work. The world opens up to you if you can avoid debt.”

Roth, now 40, still regrets his poor money decisions as a young adult and not taking that trip.

In the coming weeks, many high school and college graduates will leave the classroom for the “real world.” Like Roth, many for the first time will make money decisions that will affect their financial freedom. They’ll spend on cell phones, apartments and dinners with friends. They will decide whether to use credit cards or contribute to a retirement plan.

Seemingly routine spending decisions matter greatly. Here are three tips that could make a difference:

— Learn about money.

“Part of problem is we’re not taught this, and when we are, we’re taught in a horrible, boring way,” said Ramit Sethi, 26, author of the book “I Will Teach You to be Rich,” and creator of the blog iwillteachyoutoberich.com, aimed at young adults. “Everything we hear about finance makes us feel overwhelmed and feel like we are somehow being scammed.”

But Sethi doesn’t let his fellow twentysomethings off the hook for their ignorance: “I also blame us. The information is out there, especially now online. There are great blogs and free columns. But we don’t take time to do it because we don’t see the immediate reward. We think short term.”

Blogs by Sethi and Roth are good resources, as are such books as “Your Money or Your Life” and “Personal Finance for Dummies.” Listening to podcasts of radio shows by Clark Howard and Dave Ramsey will get you up to speed on most money topics.

Or, if you prefer information by television, you can watch Howard, Ramsey or Suze Orman.

— Spend consciously.

“Personal finance has traditionally been about `no, no, no.’ No, you can’t buy that latte; no, you can’t buy those jeans; and no, you can’t go on vacation,” Sethi said.

The key isn’t deprivation but conscious spending, which refers to scrutinizing spending to ensure you’re spending on purpose, rather than accident and habit.

“It’s about saying yes,” Sethi said. “Yes, you can spend extravagantly on the things you love if you cut costs mercilessly on the things you don’t.” He suggests starting with just two large areas of spending, so you don’t become overwhelmed–and set yourself up for failure–by trying to cut spending across all areas.

— Build habits that last.

Money competence doesn’t come from completing a series of one-time tasks but from developing habits. Three examples suggested by Roth and Sethi are managing money regularly, being wary of subscriptions and learning to cook.

For managing money, look to sites such as Mint.com, Wesabe.com or Quicken.com, which aggregate your accounts and provide tools for examining your money life. And try to put your savings on autopilot, such as participating in an employer’s 401(k) retirement plan. “Personal finance is not about willpower,” Sethi said. “It’s about building a system so the right stuff happens automatically.”

Subscriptions–such as cell phone plans, video-by-mail clubs and gym memberships–can be insidious because you’re spending unconsciously. When possible, choose a pay-as-you-go plan until you’re certain about how much you’ll use a service.

Cooking at home is not a replacement for social dinners out, which can be important. Instead, it allows you to eat for less on routine days when you might otherwise be tempted by restaurant meals.

“This is something that especially young people can profit from,” Roth said. “It’s not difficult, and it can be fun.”