It’s rarer than ever to hear someone say “I worked my way through college.” With  tuition rates rising at nearly double the rate of general inflation, a student working under the Federal Work Study Program cannot realistically make a substantial dent in the tuition bill, let alone have money left over to pay the sum of room and board, books, a laptop, and minimal spending cash.

The federal minimum wage is $7.25/hour effective July 24,2009. Let’s assume the student gets paid the relatively generous amount of $11/hour for a library job, and works 20 hours a week term-time (a difficult amount to guarantee, given the student’s need to, well, study during the term). That’s $187 a week given a tax rate of 15% (yes, work study is subject to federal and state income taxes). There are roughly 40 school weeks in a year. The student can make up to $7480 a year, and that’s by working 20 hours a week in addition to being a full-time student. The student can cover 28% of  tuition, room and board at an average private four year university (averaging $26,273 in 2009) or 15.3% of the tuition, room and board at Harvard ($48868 in 2009).

In 1980, the average annual cost of tuition, room and board at an average private 4-year institution was $3499 and $11000 at Harvard. The federal minimum wage was $3.10.hour, and lets again assume the student gets paid a proportionally generous amount of $4.55/hour for the library job. That’s $77.35 a week given a tax rate of 15%, and after 40 school weeks of 20 hours a week of library work, the student could have made a total of $3094. The student could have covered 88% of the annual  private 4-year college bill or 28% of the Harvard bill.

The proportion of college tuition, room and board that a student can pay by working is not what it used to be and it will only get worse at the current rate of tuition inflation. For this reason, I have personally never bothered taking on a work-study job to help with tuition bills. It’s mathematically impossible to make an real impact by doing so.

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I’ve been learning so much about different financial products and investment strategies from blogs, articles, student groups, older investors, and, most recently, some willing mentors in the BetterInvesting community.  While it’s been great, I have realized that I probably shouldn’t go forward in investing more than a tiny training portfolio of my own money at this time, no matter how many brilliant ideas I have and how many new things I want to get familiar with. At risk of cognitive dissonance in comparison to the stories of my experiences, I will explain to you my particular reason: financial aid.

As a student going into my junior year of college at Harvard and a tad reliant on financial aid for continuing my education (70% of Harvard students receive some form of financial aid), it is both a fear and a reality that personal investment will compromise a percentage of my scholarship. How much is unclear; the way the government calculates the Expected Family Contribution (EFC) each year is undisclosed, though many websites host online calculators that should get you a (wide) ballpark number. The FAFSA website does address student investments in very general terms: “If the student is a dependent [as most students are], the accounts are reported as parental investments in question 90, including all accounts owned by the student and all accounts owned by the parents for any member of the household,” which tells us that student investments are equally weighted to parental investments but nothing really about specific numbers and percentages. Past the FAFSA, the formula that Harvard uses to calculate the values of its own need-based scholarships is a separate mystery.

I believe that the mystery of how financial aid credits are awarded is good: if more details were disclosed, enterprising individuals would try to find the loopholes in the formulas, gaming the system at the expense of families who may not have the time, familiarity, or language-skill to read all of the footnotes and small print.

And, of course, I also think that financial aid is great. Working on campus during reunion week at Harvard and noticing the uncomfortable lack of diversity of the alumni classes, I am proud that more and more colleges are making their programs more widely available. Even though it would benefit me personally to change the policy, I do not think that student investments should be weighted less than parental investments, again because of the loopholes that such will create.

But what I would like to do is highlight that this will delay my personal investments to many years ahead, especially as graduate schools provide financial aid awards and low-interest loans to students with financial needs.  Because the specific weightings of particular investments is undisclosed, I have to be patient in applying my newly-acquired investing knowledge into the markets. For me, it’s well worth the wait, and for other students, it’s a consideration to be aware of so they don’t unwittingly jeopardize their financial aid situation.

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I’m not only my parents’ only child, but also the only niece and granddaughter in my mother’s family.  As such, my first experience with family estate planning came early on, as my grandparents began making annual transfers of their assets to the next generation.  With each year’s gift, my grandfather provided specific guidelines on which equities to purchase, which my mother as my custodian followed explicitly, even keeping the same brokerage.  She trusted his years of investing experience more than her own judgment, and we felt that since it was ultimately his hard-earned money it should be his decision anyway.

Though I was aware of the account, as a minor I paid little attention to it.  When I joined an NASD-regulated firm after college and moved to open my retirement accounts, I took a look at the list of permitted brokerage firms and opened my account with Fidelity (I can’t really give a thoughtful reason why).   It wasn’t until I came of age to take custody of my grandparents’ gifts a couple years later that I realized I was holding accounts with two separate firms and no clear way to view my overall portfolio.

I could have consolidated the accounts, but fortunately my grandfather’s brokerage was also on the allowed list.  I didn’t intend to trade the account very actively, and wasn’t sure what fees would be involved with rolling the account over, so I opted to keep them separate.  I also reasoned that maintaining multiple accounts would give me more flexibility to make different types of trades, and benefit from the strengths of the different brokerages.

When an aunt passed away more recently, I was the beneficiary of her IRA – of course, maintained at a third firm.  Using the same logic, for now I’ve opted to leave the account where it is.  My active trading runs through my personal Fidelity account, so the inconvenience of checking positions and updating my records in separate accounts is pretty infrequent.  Of course, if I start to trade the family accounts, or just can’t keep my passwords straight, I may reconsider the whole strategy.

The ongoing BP disaster in the Gulf of Mexico highlights another argument for understanding what’s in your mutual funds. I don’t hold, or flaunt, many strong political views, but environmental causes are dear to my heart, and as the oil spill has continued to grow I’ve been reminded that if you don’t know what you own, then you don’t know what your companies are doing with your dollars.  I don’t trade actively enough to have instant recall of my holdings, particularly within my 401(k), so as news first broke of the Deepwater Horizon explosion, I went immediately to check my accounts.

Since nearly all of my individual investments remain in individual equities, my first move was to look into my 401(k)’s plan holdings.   My firm offered relatively few options, so I am split primarily in a handful of mutual funds.  As we’ve discussed, a quick way to check the top 10 holdings and industry stratification of any fund is through Yahoo! Finance (for example, here’s Fidelity OTC Class K ).  Taking a bit of time to research and and look up each of my funds, I was relieved to learn that none of my investments are concentrated in BP or other offshore drilling ventures, and further, that my industry exposure made even trace holdings unlikely.

Of course, with BP off about 35% since the explosion, there’s an economic element to my satisfaction.  I’d generally like to think any decisions I make about my investments assess business and financial risk rather than purely ethical concerns.   While there’s no room in a sound investing strategy to act emotionally, I sleep better at night knowing that achieving my investing goals doesn’t conflict with my convictions.

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If you want to get started investing, you need to start reading now. So much of investment is jargon. Articles on investment management are complex at first glance, but after a while get repetitive in the vocabulary, trends, metrics, and watershed legislation they cite. Understand some and you’ll understand most.

After you develop some background by reading articles, it may be best to discuss it with others. Use peers and professionals for guidance on what to read, and note that the more you know, the more they will be willing to exchange advice with you. Join a group on your college campus and take advantage of networking events to gain access to finance professionals. Ask them what kind of investments they make and why.

The first choice you’ll need to make is how much to invest in stocks. What is your risk tolerance – the degree of uncertainty that you can handle in regard to a negative change in the value of your portfolio? Would you be able to roughly maintain your standard of living if your portfolio disappeared tomorrow? You can start small and add a fixed amount each month. Your youth enhances the value of compounding.

Another choice you will need to make is, of course, which stocks to buy. What you are trying to do in choosing stocks is beat the market. In analyzing a company, try to put something together that the market has not yet priced in. This does not mean you need to have access to confidential information, this means that you have to be smart – put ideas together in ways others would not. Additionally, look out for risks: read the footnotes on the Annual Reports, try to discover what the casual reader may have overlooked.

Sometimes it is just luck. Throughout you lifetime you will witness highs and lows, not only in your personal life, but also in your stock account. Be patient. The rule of 72 is on your side. Do not sell immediately when a stock starts falling because a steep slope upward may be just around the corner.

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I opened an account on E*Trade this year in January. I was 19 years old and a sophomore in college. I was deciding between E*Trade, TD Ameritrade, Zecco, and Charles Schwab & Co. as trading platforms. At first, I was most interested in Zecco because it seemed to have the best deal: only $4.50 per trade versus $8.95 per trade on Schwab and $9.99 per trade on E*Trade and TD Ameritrade. However, a friend recommended E*Trade as having the best investment advice on its website, advice far superior to Zecco’s. Tending to buy quality versus quantity in my daily life and wishing to blame someone other than myself if all failed, I opened an account with $900 on E*Trade. Word of mouth advertising at its best.

Opening an account on E*Trade was surprisingly simple. All I had to do was fill out basic information, provide my Social Security number, and click “Accept” multiple times. A prompt to transfer money from a bank account for free popped up. I did so accordingly and waited a few days for the transaction to be complete.

Now it was time to choose stocks.

The first semester of sophomore year I joined Smart Woman Securities, a not-for-profit organization focused on investment education for undergraduate women. I learned how to make a comprehensive stock pitch with all the relevant sections: Business Overview, Industry Overview, Valuation, Competitor Analysis, Balance Sheet, Income Statement, Statement of Cash Flows, etc. I learned which metrics apply to which industries, and which metrics are relevant to all industries. I learned that ROA is irrelevant in the banking industry and that the Combined Ratio is important for assessing the profitability of a company in the insurance industry.

I had done a pitch on Cree, Inc. for a competition on campus held by Fidelity Investments and was fairly confident in my investment thesis. Cree is a leader in the LED industry, setting the standard for light source efficiency with the xLamp series of LEDs. It had endured the recession, expanded into Taiwan, China, and Brazil at a time when most companies were hesitant to do so, and its largest competitor, a private company out of Japan called Nichia, was wrapped up in law suits. I chose to invest 1/3 of my money in CREE, and 1/3 in VECO (its other competitor).

The last third I invested in JPMorgan (JPM) which turned out to be a bad idea. The stock fell by $8 dollars a share within a week, and after it rose $2 dollars I just sold it. With many years to go, I wanted to invest in something safe, so I chose Intel (INTC), which has remained relatively stable since.

What I loved: becoming an amateur expert on LED stocks. Additionally, I loved watching the market and having a small stake in it. Making a high return on CREE and VECO was not bad either.

What I hated: paying $9.99 per trade. With a tiny portfolio, this was really a pain.

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With my five year college reunion coming up this weekend, I’ve been reflecting on what I’ve learned in the last five years.  Plenty of lessons have nothing to do with money (e.g. drinking champagne, then whiskey, is a bad idea; buying a AAA membership is a good idea), but I’ve picked up a few useful tricks on the way:

Pay your taxes: I’d always taken for granted that taxes, along with insurance and social security, were handily deducted from my bi-monthly paychecks, with a single end-of-year true-up made to the government.  Outside a traditional firm-employee structure, however, the process is a bit more complicated.  For anyone self-employed or working as an independent contractor, you pay the IRS in quarterly installments of estimated taxes , explained more simply by Learnvest.com.  Tools such as Evernote or ProOnGo’s Receipt Reader are great to track expenses and calculate your deductions.

Organize your life: learning to track expenses is just the tip of an organizational iceberg.  Keeping your financial records organized helps with simple tasks from paying your credit bills on time (if you haven’t automated payments online) to understanding the cost basis of your investments.  I’ve also used Evernote and Delicious to keep track of articles, tips and calculators for future reference.  These days most people manage their bank and investment accounts online, but for technophobe investors or holdouts with security concerns, a disciplined approach to organizing statements and tracking will yield dividends in clarity and convenience down the line.

Plan to retire: when I first joined the workforce I nearly missed my firm’s deadline to open a 401(k) account, and I did so only after an exhaustive survey of my coworkers about why I should, and how much to invest.  In the end, I’ve maxed out my account each year, motivated in part by the firm’s generous matching policy.  I think this was the right choice – without the weight of a mortgage or family to pay for, cash put into my retirement investments would otherwise have gone to buying shoes and concert tickets.  Additionally, setting up the 401(k) was a good starter lesson in researching and selecting investments. Companies such as BrightScope have begun providing greater transparency into 401(k) plans for individual employees and investors.

Re-evaluate your goals: As I and many other friends have left our first employment to start graduate schools, different jobs or startups, we’ve each faced the question of what exactly to do with our carefully cultivated 401(k) investments.  Depending on your next step, there are four alternatives:

• Stay put.  This allows you continued tax-deferred savings and consistency of investment choices and management services, but can potentially limit your investment and withdrawal options.
• Roll over your 401(k) into an IRA.  There’s plenty of information about rollovers out there, and your plan provider probably has a useful guide to doing so: see Fidelity Rollover IRA. The key benefits, in my mind, are gaining control over your savings and a broader range of investment choices, potential consolidation of other accounts for ease of management, and the option to withdraw for education and home purchasing without penalty.   However, you may lose plan specific investment options, and the option to borrow against the account.
• Migrate.  If you’re starting with another firm which offers a plan, you can roll it into the new plan.  In addition to continued tax-deferred savings, depending on the plan’s terms, this might provide benefits from new plan-specific investment options and services, as well as the option to take out loans against the plan.  But you’re still subject to the typically more restrictive provisions of a 401(k), and this may limit options for your beneficiaries.
• Cash out.  The least ideal alternative, given the required tax withholding and penalties for early withdrawal.  Not to mention lowering your funds available at retirement.

Take a (little) risk: As a cautious person and newbie investor, I was initially reluctant to look beyond the relative safety of mutual funds and ETFs.  I’ve learned to push myself to do the research and make equity investments (after starting my retirement accounts and building comfortable savings cushion, of course).  Some of these investments have played out better than others, but at this point in my life I have a pretty long investment horizon, so now is the time to take some investment risks.

Someone once told me that, when asked, you should give two reasons for why you want to do something: one which is the superficial reason and the other being the personal reason. Two distinct reasons. One high-minded, the other slightly base. Take the opportunity to show the interviewer you are human, and fundamentally no better than them; ditch the holier-than-thou save-the-world answer immediately upon bringing it up.

So what’s my answer? Why and how did I get interested in finance and investments and money management? Hailing from Brooklyn, NY, I’m a no-nonsense kind of girl. So I’ll dispense with the superficial reason and give you my personal reason.

I’m interested in investment and financial services because no one in my family has a clue what that means. My brothers are doctors, my sister and both sister-in-laws blond nurses, my mom works in medical billing, and my dad works in medical engineering. We know healthcare, we all generate a decent, steady income, and it all just sits in the bank. We get the news last.

In high school I did what I was good at: biology and chemistry. I won awards, aced the tests, and so on. But when I was filling out my financial aid forms for college, reality struck.

The final pages of the FAFSA – the Free Application for Federal Student Aid that is required of every college and graduate school student applying for financial aid – asked whether your parents owned any homes distinct from the one you live in, and what is the market value and purchase price of the homes. It turns out that my parents invested in was a house in Palm Beach, Florida, which they purchased at the near-height of the housing bubble in back in 2005. As with most so-called investment properties in Florida, the value of this house has since plummeted to negative equity. Someone at the Polish community center told them to do it. The mortgage they are paying off is now higher than the market value of the home. I saw the discrepancy in the numbers and begged mom to tell me what happened and she did. I freaked out.

I knew that more failures of this sort would happen if our family continued to close ourselves off from market news. I picked up an Economist subscription the summer before my first year at Harvard and could not decipher it. The more I read and outlined, the more distraught I became. I had no background.

Freshman year I took a class called Social Analysis 10, which is Harvard’s introductory economics class that over 600 freshmen, sophomores, and even some juniors at Harvard take. It was fun, I did well, but it was too theoretical. I still could not understand any financial newspapers or magazines. I let it go for a while and joined the crew team. Second semester, I quit the crew team and did nothing at all.

Having no extracurricular activities and dedicating myself to my school, I began having trouble making more friends. It was far past the first few months of school, and by now most of the students in my class organized their cliques around their activities. I felt out of place. When a custodial worker asked me casually what my interests were, and I had absolutely no answer, I knew my lack of a goal anymore was becoming a serious problem.

In the summer between freshman and sophomore year, I attended Harvard Summer School in Tokyo, for lack of another idea of what to do. I had a great time — I learned about the history of the samurai and about why eastern and western medicine have grown distinct. I had an amazing host family which I am still in contact with. One of the boys in the program held an executive position in Veritas Financial Group, a club on campus dedicated to teaching students at the liberal arts college the skills necessary to excel in finance. He kept telling a friend of his in the summer school program to join Veritas in the fall. I was jealous that he wasn’t recruiting me, a girl, but instead yet another guy.

So in the first semester of sophomore year I took only three classes. Instead of a fourth class, I joined seven business/finance clubs on campus. Seven: Veritas Financial Group, Harvard Financial Analysts Club, Harvard Women in Business, Smart Women Securities, Harvard Investment Association, Harvard AMBLE, and the Harvard College Investment Magazine. I went through their training curricula, showed up at almost every meeting, met a lot of amazing people, and got super involved. I opened an account on E*Trade with a little less than $900 and learned how to choose stocks. Retaining my science geek pride, my first investments were in companies producing light emitting diodes (CREE and VECO), in which I made 28%.

In summary, my path to getting smart about my personal finances and investing came from personal experience that affected me deeply, not high-minded nonsense about the wisdom of crowds or the efficiency of markets. I resolved that I would no longer turn a blind eye to personal finance and embarked on a journey to better understand investing so that I could be in complete control of my — and my family’s — financial future.

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Last weekend, I joined my extended family to watch my younger cousin graduate from USC.  Afterwards, over dinner at a Beverly Hills steakhouse, a conversation about his plans for next year somehow evolved into a lengthy discussion of value investing.  As a graduate of USC’s Marshall School of Business, and a member of one of their student-run funds, he’d had plenty of exposure to the ins and outs of the public markets and developed a definite perspective on his own investment strategies and goals.

It made me wonder how many of his 5,000 classmates, or how many of the millions of graduates in the Class of 2010 across the nation, are similarly prepared to face their financial futures.  I suspect many recent or soon-to-be graduates have never considered learning about investing, thinking “what’s the point? I don’t have enough money yet anyway” or “oh, someday I’ll just hire a financial advisor”.  But as with most things, knowledge is power, and lacking the financial resources to play in the market is no reason not to start learning so when that vague “someday” rolls around, you’ll have the tools to do it yourself.  We’ve already covered how brokers make their fees.  Financial advisors similarly get paid based on commissions, percentages of your accounts’ values, and flat or hourly rates for other projects.  Paying an advisor often amounts to buying guidance from resources which are readily available to you anyway.

If you’re not ready to put to work that graduation cash from your parents, or the remaining change from your last summer job, there are still plenty of resources out there to learn about strategies and research companies, from the simple to the complex.  You can begin building your own strategy, even if you can’t implement it, by asking yourself about your goals, your tolerance for risk, and how actively you expect to manage your investments.  Tools such as Marketwatch’s Virtual Stock Exchange offer a risk-free way to test out scenarios and get more comfortable.

Don’t forget, regardless of how you build your portfolio, your first step should be to build and maintain a cash reserve for emergencies.

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Over the past few years, I’ve watched a growing number of friends get engaged and then get caught up in the excitement – and chaos – of planning their weddings.  In the midst of preparing for the big day, it can be easy to lose track of planning for the long term.  All the wedding blogs will tell you that agreeing about money is critical for a happy, balanced marriage, but if you’ve never had the conversation before, how do you know where to begin?  If you’re already living together, you may have a head start in some of these areas, but it’s still important to discuss these money issues before you get married, keeping in mind the importance of being open and patient with each other.  Your wedding represents the start of your future together – and managing your money well now can help smooth your path towards that future.

Your current situation:

Debts: You and your partner should discuss your current debts (credit cards, school loans, mortgages, etc.).  How much debt does each of you have, and how are you currently paying it off?  Do you expect each other to contribute to paying those debts?  Do you have a date in mind to be debt free?  Do you know, or even have, your credit score?  (You can get your credit reports, but not your score, for free from http://www.annualcreditreport.com.) Most importantly, what are your respective attitudes towards debt – do you only carry cash, or are you always carrying an ongoing credit balance?

Budgets: How do you currently spend your money?  How much do you want to be paying for housing, groceries, entertainment, and other monthly expenses?  Who is going to physically be paying the bills?  How are you getting health insurance, and can one of you receive better benefits through the other’s employer?  Many credit card companies and sites like Mint provide useful tools for understanding your historical spending patterns and breaking them into specific categories.  Together you should discuss all your current and expected expenses, and develop a baseline budget.  Of course, the other key element to the budget is income, which comes with a separate set of questions.  Are you both currently employed, and living off your salaries, or with help from parents or investment income?  Do you intend to keep working, at least in the near term?   The budgeting process will also help you determine how much to set aside in an emergency fund – you’ll want to sock away at least 3-6 months’ living expenses in an accessible, short-term account, particularly now that you’re both responsible for another person.

You may already know the answers to some of these questions, but understanding your overall financial situation will help you to achieve your short- and long-term financial goals.  Now, you just have to set them.

Bank accounts: Once you understand where your money comes from and goes, you should discuss how you want to manage it as a married couple.  Setting up a joint account simplifies check writing and bill paying, but many couples elect to keep separate accounts, or maintain one joint account with individual accounts for personal expenses.  If you’re contributing to a joint account, how much will you each contribute?  What will your goals and uses for the account be?  Make sure to discuss guidelines for making larger purchases, and when one of you can make purchases without consulting the other.

Savings and Investments: You’ve addressed the day-to-day money questions, so it’s time to discuss your attitude towards savings, investments, and planning for the future.  Do either of you currently have brokerage accounts?  Are you contributing on a regular (monthly or quarterly) basis?  How do you intend to use your savings accounts – are you planning to pursue graduate education, buy a home, or start a family?  Your ability and inclination to invest is often a reflection of your spending patterns, and if you haven’t historically focused on socking money away, it’s time to start building the habit.  This is also a good time to discuss your thoughts on where to keep your investments – a function of your attitudes towards risk.  Are you actively investing and in the market, while your partner prefers conservative, short-term CDs?  How much information, or control, are you willing to share over your savings or investment accounts?  As with bank accounts, joint investment accounts add the benefit of convenience, but take away some independence in decision-making.

Retirement: You’ve heard it before – it’s never too early to start saving for retirement.  Focusing your investing in retirement accounts can also provide some tax advantages (useful to offset the impact of your pending change in marital tax status).  You and your partner should discuss your collective goals for retirement.  At what age do you each intend to retire?  Where, and how, do you want to live?  How do you intend to finance your retirement living?  Do you currently have IRAs, 401(k)s or employer pension plans?  How will you share information on the performance of your retirement assets?  Though retirement may be a long time away, planning and sharing now may help you avoid surprises down the line, as well as inform other nearer-term financial decisions which you’ll make together.

Most importantly, this financial discussion should mark the beginning of a ongoing conversation about your finances.   Your thoughts on these topics may change over time, and your partner won’t know unless you tell them.  Learning able to talk comfortably about money may be one of the most challenging goals you’ll set for yourselves, but you’ll be well rewarded in the end – financially and otherwise.

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