A long time reader that I’ll call “Samantha” wrote to me with the following question:

I’m a senior in college and will be graduating in May. I’m extremely blessed in that I will be graduating with no debt – a scholarship provided all of my tuition expenses, and my parents were able to cover room and board. I’ve had several jobs, including one on campus, and I’ve been able to hoard that money in a savings account. I have a credit card, but I ALWAYS pay the full amount each month. I feel extremely grateful for the opportunities I’ve been provided.

The reason I’m writing is that, for my graduation gift, my parents and I are working together to create a “Wisdom Book.” Essentially, I have asked all of the people in my life whom I love and admire to write down what advice they would like to give about life, love, money, etc. to a recent graduate like myself.

Would you recommend any specific questions to ask?

With regards to the specific question, I don’t think I would ask a specific question at all. Instead, I’d simply ask the following:

What single piece of advice do you wish you had heard when you were about to graduate college?

The truth of the matter is that you never quite know where a great piece of advice might come from. A financially well-off person that you might expect to give you investment advice might have that one perfect piece of relationship advice for you. At the same time, you might get a great piece of career advice from someone you’d never think of as a career guru.

What advice would I give in response to this question?

Follow your heart, always. Use your brain to give yourself as much security and safety as you can as your heart wanders. That means when you earn money, save some of it. Build up a big emergency fund in a savings account, then start investing some of it into the stock market with some index funds. Similarly, when you have a chance to pick up a new skill of any kind, jump on it. When you have the chance to establish a new relationship with someone, jump on it. The more relationships you have, the more money you have, the more skills you have, the easier it’s going to be to follow your heart. If you don’t do these things and take the easy path, you’re going to find yourself throughout your life being tied down to your circumstances, watching great opportunities pass you by, and that will leave you with nothing but regret.

And now, I’d like to open up this very question to my other readers for their comments. Please leave a comment and answer the big question:

What single piece of advice do you wish you had heard when you were about to graduate college?

Quite often, when people write to me asking for specific financial advice, I respond to them encouraging them either to seek a lawyer or a financial advisor, but I also make a point to tell them to lay all of their cards on the table for this advisor.

Some readers have expressed surprise at this response. Either they seem shocked that I wouldn’t simply give them an answer to their question, or they seem almost insulted that I would somehow imply that they weren’t being forthright about their situation.

There are multiple things at work here.

First, most personal finance solutions aren’t as simple and one dimensional as one might think at first. There are many, many factors that are in play when one tries to determine the best move for their situation: age, health, psychology, current financial state, current employment state, goals, future plans, ongoing relationships – even things as mundane as the amount of free time one has.

As a result, many situations simply don’t have a simple off-the-cuff answer. It’s quite likely that, in a short telling of your story, you’re leaving out some key information, intentionally or otherwise.

Second, I’m not an expert. While I’ve read a ton about personal finance and have actively applied that to my own life (which is what I write about here), I have very little experience taking that same knowledge and applying it to other situations. I think there’s value in sharing my own experiences – and I do believe that others can take home lessons from those experiences – but, frankly, I’m not trained in the nuances of evaluating the experiences of others. All I can share is my experience and the lessons that have come from that.

So, what’s the solution if you do need an answer to a financial question?

First of all, it is reasonable to write your situation in detail. It’s similar to the reason that people journal – quite often, simply recounting and describing your own experience and situation can open up your own mind to revealing the correct answer.

I honestly believe that this is the biggest reason people write to me. They simply need to write it all out, and once they’ve done that, they want to share it all with someone – but not with someone they know personally.

Don’t overlook things, either. No matter what the situation, you should include all the basics – your current financial situation, your health, your goals for the future, even the amount of time you have to seek new solutions. Every significant factor in your life is important for solving financial problems.

Often, just this process alone – writing everything out – will reveal the answers you need. I know that quite often I find the answers I’m seeking while writing a post for The Simple Dollar. I’ll start an article about my own situation, turn the pieces over and over in my mind, do some additional research, and by the end of the article, it’s clear to me where I should be going with things.

What if the answer isn’t obvious? Your best first step is to talk to someone you personally trust, but it must be someone that you’re willing to lay out all of the facts to or else talking will get you nowhere. You must be willing to open the books to this person in order to really tap their wisdom.

In many situations, this can be the best approach, as the person you trust likely has some insights into your personality that no advisor could bring to the table.

Of course, there are many situations where this isn’t appropriate, either. Such personal advice mostly works best when figuring out general plans, not specific investment choices. Once you get down to the specifics of financial choices or legal options, you should turn to a financial advisor or a lawyer. Here are a few tips for finding a good one.

First, you should always retain the final decision in any situation. You are hiring these people for their expertise to help you make the right decision, not to hand them the responsibility. That responsibility still rests with you and it always should. Never give full autonomy to an advisor to make choices for you. Instead, if they give you an explanation you don’t understand, ask them to explain it better. You’re paying them to provide you with their expertise, not provide you with more confusion.

Second, if you’re seeking a financial advisor, look for a fee-only advisor. A fee-based or commission-based advisor both have other interests that they bring to the table – namely, they want you to invest in whatever investment they can earn a big commission on, and that’s often not the best investment for you. Instead, seek out advisors that operate based only on fees – they may be a bit more costly up front, but you can be sure that they’re not trying to sell you a product. For your fee, what you get is their best advice, unhindered by the need to shill for a product.

Third, hit up your personal network for recommendations for both lawyers and financial advisors. This goes both for positive and negative (stay away from…) recommendations. You’ll often be surprised at the responses you get from friends and relatives you trust when you ask them for suggestions on lawyers and financial advisors – they may offer strong (and accurate) recommendations that you didn’t expect.

Finally, do not hide key information during this process. I know quite well that it’s tempting – usually out of personal pride – to hide key painful pieces of information when asking for advice. Don’t. Provide all of the painful information up front, and be an open book for additional questions. Don’t. Hide. Anything.

In the end, make sure the advice passes your smell test. Do your own investigation into the advice you get and make sure that it does make sense, no matter what the source. Multiple sources for your information are always good.

Good luck!

A while back (actually, almost a year and a half ago now… how time flies…), I talked about using a 401(k) to pay off credit card debt. I largely viewed the decision as one that makes terrible sense on paper, but the decision can make sense in the broader terms of the choices life hands you.

This brings us to a question from reader “Mandy” who is going through a similar dilemma:

I recently ended a lengthy relationship with a person who used my credit recklessly. I am now left with about $30K in debt, almost all of it high interest. My personal credit is very poor, so I’ve been rejected for a personal loan from the credit union and have no way to consolidate that debt.

This leaves me with two options: tap into my 401(k) (which has a balance of about $40K) or borrow money from my family. I’m currently 34 years old and have a job that pays well enough that I can make the payments on the debt fairly easily, but building any sort of emergency fund is very slow and I’m unable to make much of an extra payment on the debt.

What are your thoughts?

If I were Mandy, my first plan of attack would be to call all my creditors directly. Call up every single lender and every single credit card company and play a little hardball with them. Request a rate reduction from each one. If you hear “no,” ask to speak to a supervisor. Tell them you’re going to have difficulty paying the bill. Ask if there are any balance transfer offers available to you.

In short, seek out everything you can do to get the debt itself into better shape. You’re likely to hear a lot of “no,” but even a few “yes” answers sprinkled in there will make all the calling worthwhile and take some of the heat off of your shoulders.

The next thing I’d do is look for sources of liquidation in my life. Do you have any items you could sell to help reduce some of that debt? Do you have a car in the driveway that you rarely drive? Do you have some old collectibles with significant resale value? If you can liquidate some things and use those to pay off the worst part of the debt, you’re likely in far better shape.

Once you’ve done these things – and assembled a debt repayment plan – and you’re still in a harrowing situation, then it’s time to consider the choice between borrowing from family and draining your 401(k). Neither choice, incidentally, is a good one.

A note: when I repaid my own debts, I did tap into a supplemental 401(k), though I left my primary 401(k) alone. My employer required all savings beyond the amount they would match to be placed into a distinct supplemental account, and I was contributing 2% beyond their match. It wasn’t much, but I did make the choice to tap it.

So, which is it: borrowing from family or tapping the 401(k)?

The first thing I’d do before making that choice is to carefully look at my debt repayment plan and figure out how much I actually need to borrow. Likely, you don’t need to borrow the whole $30K. Instead, you just need to eliminate some of the debt, getting rid of just a few of the monthly payments.

Once I had a grip on the amount that I needed to borrow, I’d collect all of the work I had put in thus far and talk to the person I wanted to borrow money from. Lay out everything – no hidden secrets. Let them know your exact situation from top to bottom.

Doing this will do two things. First, it will make that person into something of a mentor for you. That person knows your situation – they can become a helper (offering up good ideas) and a cheerleader (pushing you along to success). Second, it will make clear to the person you wish to borrow from the seriousness of the situation – and your seriousness in tackling it.

Having done all of this groundwork, and even given the general concern I have with lending money among friends and family, I would ask for a loan from a family member before tapping my 401(k).

No matter how careful you are, there may come a time where enough bad events happen that you simply cannot afford your bills any longer. While there are certain things you can do to protect yourself from ever being in that situation (building an emergency fund, practicing frugal living, etc.), they don’t really help when you have no money and there’s a pile of bills that need to be paid.

If you find yourself in this situation and don’t know what to do, here are some practical steps you can take to get started on the road to recovery.

First of all, don’t bury yourself in guilt and shame. Everyone makes mistakes in life, and you’re certainly far from the first one or the only one. I was in a situation that was quite desperate once upon a time.

Also, realize that there are solutions to your problems, no matter how bad the challenges are. Just because you don’t immediately see the answers doesn’t mean that the answers aren’t there. There are answers, and there is a path to a better situation.

The biggest step you can take is to explain your entire situation to someone and ask them for ideas. This is why checking your shame at the door is so important – in order to be able to talk to someone else about your situation, you need to minimize the shame factor and be willing to lay it all out there.

That being said, be careful about who you choose to advise you. Don’t choose someone that you feel as though you must hide pieces of the story from, or else they won’t be able to offer you strong advice. Similarly, it must be someone you trust who will try hard to offer you a valuable and accurate opinion and help you piece things together.

Similarly, do not ask this person for money, and make that clear up front. Many people will enter such a discussion with some serious concern that it will turn into a money request, so make it clear up front that you don’t want a dime – just some strong advice. Then stick to that pledge, no matter what. Their advice will be more valuable than whatever pocket money they could hand you, anyway.

Don’t be insulted by the advice they give you. If you’re in this bad of a situation, the advice you’ll hear is going to hurt. Expect that, and don’t be insulted by it. The person giving the advice is not trying to hurt you, they’re trying to help you to get in a better position.

Get multiple opinions, if you can. The more input you have, the more likely it is that you’ll find a path leading towards financial freedom. Thus, it makes sense to find multiple people to give you advice about your financial direction.

Start making the small changes now. Stop spending wasteful money now, even if you haven’t figured out the big solution yet. If you’re worried about making ends meet, but dropping $10 a day on lunch eating out, join the brown bag club. If you’re in dire straits, avoid going shopping or charging you credit card. Make those little changes now to pave the way for a brighter financial future.

When implementing solutions, check your ego at the door. One of the best things a person can do is to commit strongly to frugal living, and that might mean giving up some status symbols in your life for a while. Don’t let that drag you down, and really attempt to appreciate the smaller things you can do for yourself.

Don’t be afraid to move on to professional help. Sometimes, you may need to consult a professional (an advisor or a lawyer) to get your situation straightened out. If the people you talk to point you in this direction, don’t hesitate to go forward with it, because the longer you hesitate to make change, the harder it will be.

As I read personal finance book after personal finance book over the last year, I came to realize that a lot of concepts in various books were exactly the same. In fact, there were a handful that were mentioned in a majority of the books, which would indicate something close to a universal truth about personal finance management.

I went through the notes I collected on all of the books and tried to filter out the ten universal truths about personal finance shared by a large number of the books. Here’s what I found.

Spend less than you earn. This is the number one key, and it shows up again and again in almost every personal finance book that I read. You are never going to get ahead if you spend as much as you earn or more than you earn over any lengthy period of time.

Sit down with all of your accounts and figure out where you’re at. Every day you don’t have control over all of your accounts and can’t really estimate how bad the situation is is another day you’re going to be chained to your job and worried at night about it. Spend the time to sit down, spread everything out, and figure up your total financial picture. There are a lot of different ways to do this – I think that just listing every account you’re aware of (and the balance of that account) is the best way to get started.

Set small and big goals. Small goals are ones like commitments to not spend any extra money this week. Big ones are goals such as paying off all of your debts. State the goals clearly and effectively, and keep track of your progress towards these goals so that you’re constantly in the fold of something bigger than the minutiae of your day to day life.

Get a small emergency fund before you do anything else… The first step in any financial turnaround, once you’ve stopped spending more than you make, is to build up a small emergency fund so that you don’t have to put a minor crisis (like car issues, for example) on your credit card. $1,000 is a pretty common target number.

… then eliminate all of your high interest debt. After you have a small emergency fund, start dealing with your high interest debt immediately. There are differing opinions on how to do this, but the general consensus is you should start with either the highest interest debt (fastest route to recovery if you’re committed) or the smallest balance debt (provides success of some debt elimination the fastest).

Check your credit score regularly to make sure nothing bogus shows up. Go straight to annualcreditreport.com to get your report via the FTC. Don’t use other sources, like freecreditreport.com, which act as a middleman and tack on extra stuff for the same service.

Put at least 15% away for retirement (including what your employer matches). Some books say to put away 10%, but they often mention in the fine print that they’re not including employee matching in that number. Generally, to be on the safe side, you should be putting away at least 15% into your 401(k) and/or your Roth IRA.

Automate what you’re doing. If you’re investing, automate the investments and have a certain amount moved over from your checking each month. If you’re saving for a goal, automate transfers into your savings account. Automate as many of your bill payments as you can. The less you have to remember and encourage yourself to do, the better – plus, it takes extra effort to not do it once you’ve set it up.

Similarly, always look for ways to reduce your required spending each month/year. Any method you can find to reduce your monthly bills is incredibly worthwhile. Even simple things, like swapping your light bulbs for CFLs, buying EnergyStar appliances, and canceling some of the unused options on your cell phone plan and your cable plan, will really add up over time.

Invest extra money into low-cost broad-based index funds unless you have tons of time to do research. Almost a majority of the books indicated that this is by far the best way to invest. Just buy some Vanguard or Fidelity index funds and sit on them until you have a need for the money. Better yet, keep buying in regularly in an automatic fashion. If you have a ton of time for research and homework, you can make somewhat better money in individual stocks, but they’re riskier and require much more time investment.

These are the nutshell ideas behind many of the books I read, and these ideas usually pop up in some form in almost every single personal finance book. Why? They’re universal truths – or at least as close to truths as you’ll find in the world of personal finance.

Some of my most faithful commenters have personal finance blogs of their own, and one of them, Mrs. Micah, asked a question that really got me thinking: where do you get your financial advice?

The more I thought about the question, the more I realized that the answer isn’t as obvious as it seems at first, so I’ll progress through my ideas about that question.

My first and most obvious answer is the personal finance resources that I read regularly, like personal finance books, blogs, magazines, and so on. Most of the raw personal finance information that I absorb comes from these sources.

But that’s the easy answer. Where do I really get my personal finance advice? To me, advice means more than just absorbing information from others – it also includes the situations where people provide direct comment on my own life and how I live it.

In that light, my biggest source for financial advice is my wife. She might not be the most informed individual about how to eke out an extra percentage from my investments, but she does know me – who I am, what our situation is, and where we’re going. Often, I’ll collect the data I need for various points of view and then present them to her, and together we talk through the situation and determine a plan. When I’m trying to make a decision about my financial situation, she is the first person that I turn to.

If that’s not enough, I turn to my parents. They generally offer lots of good arguments for staying the course in whatever I’m doing, simply because things have turned out all right so far since I began turning my financial ship around. Before then, I didn’t really talk to them at all about my finances, but I’ve come to find them to be excellent advisors when I’m troubled. I’m also coming around to talking to my mother- and father-in-law about things, but since my relationship with them is still relatively young, I sometimes don’t ask such strong questions of them.

After that, I listen to my readers. Quite often, if something is still troubling me, I’ll voice that concern in the form of a post here at The Simple Dollar and then take all of your comments to heart. Often, writing the post makes the answer clear; other times, I’ll rely on your comments for guidance. Often, you say what I’m already thinking; other times you rip my ideas to shreds. Either way, you aren’t afraid to pull punches and call me out when I’m getting overly confident or am looking down an inconsistent path.

If that’s still not enough, I turn to meditation and/or prayer. I take in all of the advice that I’ve heard and spend some time in deep meditation. The answer – the truly right answer – then comes from within. I won’t debate whether that’s a subconscious thing or a supernatural thing, but I find that such steps are often the key to me finding the right answer.

Those are my key sources for financial advice. I start with information (books, magazines, blogs), talk to those who love me, reformat that question as an article that addresses my readers, read the responses, then take all of that and meditate on it. In the last year, these sources have served me incredibly well.

When I think back to my high school years, I realize that I didn’t have the faintest idea of what I wanted to do with my life, nor many of the options really available to me. I had a sense that I needed a significant change of scenery for a while because I did not want to follow the paths of many of the people I saw graduating from high school and just sitting around their hometown watching the years go by. The problem was that I didn’t know what I should be doing instead – I was the first person in my family with an opportunity to go to college, thanks to scholarships, and that seemed like the obvious route to take, so that’s what I did.

I wish now that I had the chance to do some things differently, but such chances only come along once in a lifetime. Knowing what I know now, here are five pieces of advice that I’d offer to anyone in high school or fresh out of high school about what’s available to them.

Don’t go straight to college unless you’re absolutely sure
One of my biggest regrets in life was that I went to college directly out of high school. I didn’t have even the faintest inkling of the opportunities available to me, so I just followed the general advice of everyone around me, which was to go to college and get started on that career immediately. I went there without the maturity I really needed to make it work, nor a good idea of what I could get out of college. I treated it as an extension of high school – and because of that, most of my years as a student were largely wasted.

If you can’t explain clearly why you’re going to college (and the generic “to get an education” doesn’t cut the mustard), you shouldn’t go to college – yet. If you’re a bright person, the answers will eventually come to you and you’ll tackle it with the right mindset, but going to college without any real goal in mind, especially straight out of high school, is a waste of your time and money – and that of your parents.

Note that I’m not saying that one shouldn’t go to college – just that one shouldn’t go to college without a purpose.

Spend some time figuring out what you’re passionate about – but don’t waste time
A friend of mine took a “year off” after high school to “find herself,” but she actually spent it not doing much of anything at all. She worked at a fast food restaurant and apparently read a lot for that year, finally starting college fifteen months after high school graduation.

If you’re thinking of spending a year or two before college evaluating your life (something I strongly encourage), spend it doing something deeply fulfilling. Don’t just spend it working to earn tuition or spending money. Here are some things you can potentially do:

Volunteer Find a volunteer or other community service organization and get involved big time. Take ahold of a project within it and push it through to completion or some level of success – it will teach you a lot about people and leadership.

Work an internship Spend some time doing internship work for something you’re passionate about, even if it is just photocopying pages or washing dishes. You’ll get exposure and experience and you’ll also find out if it’s right for you.

Commit to a large-scale creative project If you’re musically inclined, write and record an entire album. If you’re a writer, write an entire book. Paint a set of canvasses. Whatever it is, if you’re passionate about it, do it on a larger scale than you’ve tried before.

Travel and experience new things
My plan for both of my children, provided they are interested, is to give them an ATM card, a backpack, and a ticket to DeGaulle Airport for their high school graduation. Even better, I’d like to do it in conjunction with the parents of a few of their closest friends. It is the absolute perfect time in a young person’s life to explore the world and figure out some things about themselves.

It took me a very long time to figure out who I actually was – I didn’t really figure things out until almost six years out of high school, and that was just the first revelation of many. Part of the reason is that in some ways I didn’t really escape where I came from, so it took some significant time for me to view myself independently and figure out who I really was.

Whatever career you choose, don’t chase money – chase passion
Lots of people will make statements like “you need to major in X because that’s the only way you’ll make $40K straight out of college.” Ignore it. If you’re truly passionate about your topic, you’re going to be among the top people in it simply because of the love and devotion you’ll show, compared to many others who are just there at the behest of others.

Not only that, your passion for the subject will continually reflect well on you. Think of people you know who are passionate about what they’re doing – almost always, you see them as a success or, at the very least, the passion is very clear.

The real key? Learn how to stand on your own two feet – and learn exactly who you are and what you’re passionate about. Do this actively, and with commitment. When you’ve got that figured out, the college decisions and what to do when you get there will become far more clear – and you’ll end up with a happier life over the long haul.

A while back, my wife was leafing through a copy of David Bach’s Smart Women Finish Rich when she asked a very astute question: is it really necessary for men and women to receive different personal finance advice?

I’ve puzzled over how to answer this for months, knowing what I want to say but realizing that this issue is bound to get me in some hot water from some segment of my readership. However, it’s a really worthwhile issue to discuss, so here goes.

It’s not necessary, but it is useful for men and women to receive different personal finance advice. Why? Men and women simply think differently, and a big portion of personal finance success is psychology. Even if there is a clearly optimal way to manage your finances, it still takes psychological effort to achieve it, and if men and women think differently, the advice that will help them achieve it will be different.

So let’s look at this a bit more closely. From that article:

Men tend to do better with tasks requiring more localized processing, such as mathematics.

For example, John Doe would likely be better at tasks such as number-crunching a budget and developing an investment plan.

women are better at integrating and assimilating information from distributed gray-matter regions of the brain, which aids language skills.

Jane Doe would likely be better at making good shopping choice (evaluating a lot of disparate types of data) and keeping the family in line with the family budget (communication and language skills).

Is this an absolute? Of course not. Many women are good at investing and many men are good at shopping and managing a budget. However, the default cognitive bias points the genders in specific directions.

The truth is that there is no “perfect” personal finance advice for everyone. Each person will find advice that works for them. It’s much like dieting. Better yet, it’s like playing The Sims – I play it much differently than my sister-in-law does, but my wife tends to play more like me than her sister. We’re all unique, though, and we all respond to different situations and events differently.

So if everyone has different personal finance needs, how can one possibly find something that will help them? Just keep looking until you find a voice or a set of answers that makes sense to you. It might be a book (like Your Money or Your Life), it might be a blog, it might even be someone on television or radio. Also, you don’t have to blindly follow everything someone says – just use the pieces that fit with you and make an effort to try to understand as much as you can.