Chapter 2 of Dr. Chira’s Book

It’s time to move out. Your parents deserve a break. Whether you decided to get your own place when you turned 18 or you are currently 28, post-college, living with your parents again, almost every single one of us will need to get out at some point. This chapter is for college students living at home or in student housing. If you are past that stage, but you have children or plan to someday, you might consider this information for their future. This chapter focuses on the things to do before, during, and after moving out to survive on your own financially. A few people suggested that I include information on how to do laundry, but I think I will leave that to YouTube. Amelia was one of my favorite students, and when I say favorite, I don’t mean she got the best grades. She barely got a B, but that was because she also worked two jobs, determined to take on as little debt as possible. She had the added pressure of immigrant parents who did not speak English and needed support. One day, she came to my office hours and said she worried about what would happen to her savings if her house burned down; she kept it all in cash in a box in her closet. I had completely different conversations with Diane, another student in the same class. She got a car for her 16th birthday, her tuition was paid by her parents, and she had their credit card to use when needed. Yet, at 21, she was extremely responsible and looking for ways to prepare for life on her own. As these two examples show you, our situations can be very different, but the problems we face financially when starting out in life are somehow similar: what do we do to start our lives on the right foot? Some of us are lucky to have money conversations with our families, but for most, that’s not the case. Somehow, when it comes to money, society expects you to learn how to do everything right on your own. This chapter is the missing guidebook on starting out in life. The first thing you should do, as early as possible, is establish a banking relationship. Ideally, you would get a job in high school, then open a checking and savings account and be able to extend this relationship as needed. How do you choose a bank? Or switch banks? If you already have a bank, it may be time to ask yourself if it’s the best option for you. First, you need to decide if you want to have a traditional bank or an online bank. My personal preference is to go with a traditional one. Yes, the interest you earn on money sitting in your checking or savings account is often higher with an online option, but when you have $500 or even $5,000 in savings, it does not make much difference. The convenience of a big bank-type branch at every corner might outweigh the extra few dollars you will earn in interest. As you become more financially stable and accumulate more money, opening an online savings account is a smart move. You can check for the best interest rates offered on a website like Nerd Wallet. If you go for a traditional bank, the second thing you will need to decide is what bank you would like to go with: a big bank like Wells Fargo or Bank of America, a local credit union, or something in between. Instead of giving you some generic advice like “consider all the factors,” I will tell you what I like and why. I am a big bank type of person. I like to log into Wells Fargo and see all my accounts easily; I like to be able to get pretty much any product I want. Unlike my previous credit union, which was tied to a geographic region, I can find a Wells Fargo almost anywhere I go. And all my family has accounts with them, so transferring money between us is easy. This is obviously not the answer for everyone. This is what works best for me, and it’s not a perfect relationship. Recently, for the first time in 10 years, I had a very unpleasant situation to deal with. After much pain, they solved it, and we moved on. Regardless of what you choose, try to open your own checking and savings account as soon as you can if you don’t already have one. Next on the agenda is getting a credit card. This is also something to do as soon as possible. The whole next chapter is about credit cards, but for now, I will just say that without a credit history and a credit score, you will have to jump through many more hoops in life.

The faster you start building your credit, the easier it will be for you down the road. I’ve heard it all: that participating in the credit game is a scam and you don’t want to do it; that you never plan to buy anything major that needs to be financed; that you were just fine until now without credit, so why bother? Well, for one, because if you want to sign a lease, get utilities or buy a cell phone, someone is going to want to check your credit rating. If you don’t have one, you may not get the place you want or be approved for a cell phone. You may have to pay a deposit just to turn on your lights. The easiest way to build credit is to get a credit card. You can also get a car loan and other debt, but that implies a repayment plan and some income. With a credit card, you can manage your cash flow, pay it off every month and build a nice credit history. Again, we will talk about this in depth in the next chapter. Topic number three for today is signing a lease. If you want to move out, you will need to live somewhere. Assuming you are not moving into the home of a friend who does not care about your history because you have known each other for 20 years, signing a lease comes with a little bit of a headache and responsibility. Here is what you must know: Consider getting some roommates when you first start out. It is good for your cash flow. The more roommates you have, the smaller the slice your housing costs take from your paycheck pie. Try to have as little baggage as possible: no prior evictions, no late rent payments, and no German shepherds. Yes, they are cute and smart, but many landlords can’t have them because of their insurance policies. Think about the money you’ll need to move in. Some places will ask for as much as the equivalent of two months’ rent as a deposit, in addition to one month’s rent up front. If your rent is $1,000 per month, that’s $3,000 just to get your keys—withoutconsidering any moving costs. You can’t just decide to move out today and be in tomorrow, in other words—you need to have some cash saved. If you plan on moving out, incorporate the total estimated amount into your budget and save for it. Once you’re ready, start looking for a place about 30 days before you want to move. Think about the money you need to connect your utilities. Usually, if you have a good credit score and history, you can call the electrical, water, gas and internet companies and they will connect the utilities fast and easy. This is not the case, however, if you have a bad credit score or don’t have a score at all. Don’t worry, they will turn on your utilities—but it will require a deposit. If you don’t have a stable income because you are in college, be prepared to have a cosigner. Your mom, grandma, Uncle Joe—someone with a job and stable income—may be needed. Personally, as the landlord of a house rented to students, I want someone I can go after if my house gets trashed. This is where roommates also come in handy: Jim may not be the first person you thought of as a roommate, but if his mom is willing to cosign for your place, Jim is your new friend. The fourth and final thing I want to talk about some more is the idea I mentioned of having roommates. My personal recommendation is to have roommates as late in life as you can handle. For me, that was from 18 to 31. When I was 18, I had no choice; I was living in a dorm in college, and that was the deal. Later in life, I realized that spending as little money on housing as possible in our 20s makes sense. I didn’t have any kids, and I spent lots of time hanging out with my friends anyways, so why not have some roommates? When I was 26, my husband and I bought our first house. Did we really need 2,800 square feet, four bedrooms, three baths and two living rooms? No, we did not. We ended up owning a house and living for free because our roommates paid the mortgage. At some point, you will outgrow roommates. But two or three years of splitting your most expensive cost with a few fun people will make it possible to save for other goals, be it travel, a down payment on a house or just to work less. Once you move out on your own, be aware that costs have a way of piling up. Insurance, internet, food, rent; it’s likely more than you had to pay before. Before you make this step, sit down and think about all the costs you will have and figure out if your income can support it. To start your independent life without going into debt or adding stress to your life, make a plan.