College 101
Personal Equity and You: Don't Be Broke Forever Article Type: Quick and Dirty
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Equity is all about assets versus liabilities. Think of, say, those sick new shoes you got as an asset and the seventy-five bucks you had to borrow from your parents to get them as a liability.
The basic idea is to boost your assets and limit your liabilities, which is often easier said than done. (Especially when your mom starts to get weird.)
It can be hard to visualize what assets are available to you as a prospective, current, or recently graduated student, since making mac and cheese isn't exactly a marketable skill...unless you're a hipster working at a restaurant in San Francisco, and that mac and cheese has truffle oil in it.
Allow us to explain, then. Your education is one huge, future asset. Projections show that 24% of jobs will require a Bachelor's degree by 2020 (source). You can also boost potential future earnings by choosing a major with a high return on investment.
You'll also want to limit your liabilities. Simply put: stop buying crap you don't need and live more cheaply. You might not be able to buy all the sweet new electronics you desire, but it's possible to pay down large amounts of debt when you cut out unnecessary spending.
If you need to borrow money for college, federal loans are a good way to minimize future liabilities. Federal loans tend to have more flexible repayment options and lower interest rates than private loans. Unlike private loans, they can be subsidized by the government, too (source).
"But, Shmoop," you might say, "I need all the loans I can get. Private included." First of all, you're in good company. Roughly 20% of all students graduate with private student loan debt (source). It's a little more challenging to manage private loans because they don't typically come with the protections of federal loans. Keep an eye on the terms of your repayment and the interest rates in order to make private loan debt a less stressful affair, and pay them off first in order to minimize your liability.
Paying down loan debt can feel hopeless at times. We know. But trust us, you're saving yourself money in the long run...like a boss.
You might consider investing to boost your assets, as well. Just make sure you've gotten any high-interest debt under control first. If you start investing early and add consistent, but modest amounts to your investments, there's the potential to save six figures before retirement (source). That could be enough to get you a nice home in Florida for your golden years.
To summarize, we'd like to say that the name of the game is liability reduction, both during and immediately following your college years.
You may not be able to build assets like an investment pro who's 20 years out of college. Still, don't underestimate the value of your education. As long as you're smart about your spending and responsible about managing any high-interest debt, you should be just fine.
Sure, you'll be broke for a while, but hopefully that will be temporary. All good things come to an end. And bad things, too.