Cruz: With the higher costs of college these days, it is very difficult for many students to afford school without either some parental help or borrowing. I do not consider myself an expert in this area, but there are many sources on the Web that can help you. I also think that parents of students should have a discussion about how much a student should be expected to contribute to a college education. Sometimes parents may deprive themselves of money that they should be saving for their own retirement, and I think that’s wrong to a certain extent.
YWJ: What about cars?
Ramsey: Now, make no mistake, I like cars. I have a couple of very nice ones—but I paid cash for them and bought them when they were around two years old, after some other lutz took the tail-kicking in depreciation. Cars drop over 40 percent in value in their first two years.
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Cruz: You need to determine whether you really need a car. Second, if you need a car, what kind of car do you need and for how long do you need it? Third, what are the options you do not need in the car? What you do not want to do is buy so much car that it limits your ability to do other things. It’s a necessity, not a luxury, at this point in their lives. And keep in mind the cost of the car is more than the car itself. How about insurance? How about maintenance? How about repairs from time to time?
YWJ: Do you have any thoughts on housing?
Cruz: If you’re a college student, I’ve found that many times housing on campus is a pretty good deal, particularly if you get roommates. You have to ask yourself, Am I willing to live with a roommate? Am I willing to live with other people so we share the expenses?
YWJ: What about renting versus buying?
Cruz: When you’re renting, you’re obviously not able to accumulate any kind of equity, and you’re not building up any kind of an asset base. But focus on the basics now. This is not the time to be splurging.
Ramsey: It’s OK to rent—don’t buy too soon. It’s only better to buy if you are out of debt and have an emergency fund. It is better to own over the long term only as a universal statement. That doesn’t mean go out and buy when you aren’t ready.
YWJ: It seems like young people waste a lot of money on things they don’t need, like going to Starbucks every day or buying cool ring tones. How can they afford this trap?
Ramsey: All people, no matter what their age, throw their money away on all sorts of stuff if they don’t plan. If you have cash and it’s in the budget, get some stuff.
Cruz: I’m a firm believer that every person needs to decide for themselves what is absolutely necessary and what gives them pleasure—and understand that if they get one thing, there will be something else they cannot get. If somebody goes to Starbucks and gets a tremendous amount of satisfaction out of it, that is fine—as long as they say, “then I may not be able to do something else.” On the other hand, if they’re going to Starbucks, if they’re getting ring tones, if they’re going out to eat every other day and then they go into credit card debt, then it’s a problem.