...Before Obtaining A Diploma

Written by: Jim Randel

For thirty years I have studied the process of success—why some find the way to their goals and dreams and others fall short. Of course, there are several components to the answer, but one is financial savvy.

Here are the ten most important concepts every college student should understand before anyone hands him or her a diploma.

1. Compound interest can be your best friend … or your worst enemy. The earning of interest on interest is a great boon when you have a savings vehicle with frequent interest payments. But, when you owe money and the lender is compounding what you owe, you are on a precipice. Einstein once called the compounding of interest the most powerful force in the universe.

2. There is a huge difference between gross and "take home" pay. This is a rude awakening to someone getting their first paycheck. Uncle Sam takes his cut for withholding (income taxes), Social Security and Medicare. Depending on your income, the government may glom as much as 20% of your paycheck before it even hits your hands.

3. Anyone without a budget is flying blind … and may slam into a brick wall. A budget does not need to be anything sophisticated. Rather, a realistic outline of input and output is all that is needed. Do not forget Uncle Sam however (see #2 above). Then, every few months, check your actual income and expenses against your budget. Make adjustments as appropriate. Living within a budget is not easy, but it's critical.

4. Credit cards can be a great convenience … or a weapon of mass destruction. Learning how to use debt, most commonly experienced with the credit card, is critical to financial success. Learning how to use credit cards (e.g., how to manipulate "float," which is the period between debts incurred and debt due) is a skill that is worth your time.

5. Even when you have no money to invest, you should learn the basics of investing–stocks and bonds, cash equivalents (e.g., CD's) and real estate. Learning how to invest is a process. Start by reading books and blogs, attending seminars and classes, and speaking with experts. Then, when you actually have some money to invest, you will not be a "babe in the woods" and the exact type of person the American financial system feeds on.

6. Understand your financial blueprint. Different people have different tolerances for risk. As with almost anything, investing has a risk-reward equation to it–generally the greater the risk, the higher the potential reward. You need to assess your own comfort with risk and at what level. Your financial blueprint is how you are wired (basically, stemming from childhood) to feel about risk, about saving and about spending.

7. Everyone should have some part of their life devoted to an entrepreneurial activity. An entrepreneur is someone who owns their own business. That is not for everyone, however. What we do believe is that everyone should undertake some kind of entrepreneurial activity, which we define as an endeavor in which you invest your time, energy and perhaps money. It has the possibility of being life-changing if it hits the mark.

8. Make decisions as if you are wealthy. After college you will have decisions to make–decisions that can have life-long consequences on your ultimate financial security and personal happiness. The problem most young adults face is financial pressure—the necessity to make decisions based on immediate monetary needs. Do everything in your power (including living with parents for some time if that is an option) to give yourself more freedom to make good decisions.

9. Wealth creation is about assets. It is very hard to get rich earning a salary. By the time the government is finished with you, and after living expenses, there is rarely enough left to build a great net worth. With assets, you can leverage yourself. By controlling and building the income-producing power of, for example, a business, a real estate deal, or even a book or song, you have an asset that people will buy. Develop a few assets, and you create a healthy net worth.

10. Nobody achieves financial security, let alone wealth, holding a job for a job's sake. Cling to your passion as if it is a life raft because in a way it is. Make whatever sacrifices you must to give yourself the chance to make a living at your passion. As one expert has said, if you do what you love, you will never work a day in your life.