This is a column that aims to answer important questions college students may have regarding money, the job hunt and everything in between.
As college students we are in a limbo between the “college world” and the “real world.” It’s not a bad place to be—it gives us time to develop a solid financial base so that when we graduate we are ready to tackle our financial responsibilities. Here are some helpful budgeting tips and tools to make it an easy and maybe even enjoyable task.
Rule no. 1: Do not spend money you do not have.
To begin the budgeting process, find out how much money you have to spend. From that total, take about a minimum of 10 percent out for savings.
Rule no. 2: Save, save, save!
Saving money as early as possible is crucial for many reasons.
One: Emergencies do happen and it’s good to have money just in case.
Two: If you want to purchase a big item, like a new computer because yours is on its last leg, you should be planning ahead.
Three: Loans. You do not want to come out of college with a mountain of debt that you have no way of paying. Start saving and you will slowly be able to pay them off.
Rule no. 3: Track your spending.
One way to track your purchases is using a website or app like Mint that is connected to your credit and/or debit cards and tracks what you spent, where you spent it and when you spent it. It is also helpful because you can separate your expenses into different categories i.e.: “School,” “Restaurants” or “Rent.” This will help you figure out roughly how much you spend each month and on what.
Mint can also help you make your budget by allocating certain amounts of your income to certain expenses. If you do go over your budget, Mint will let you know.
Rule no. 4: Do I need it or do I want it?
It’s easy to throw your budget by the wayside when you go out with your friends to dinner, shopping, etc. A good rule of thumb is to ask yourself, “Do I need it or do I want it?” Saving you from buying that ridiculous shirt you will only wear once.
Here are a few tips from Chris Smith, a Puget Sound alum, a former Vice President at Hewlett-Packard, and author.
What are some general budgeting/money managing tips you have for students?
My advice is, once you graduate—keep right on living like a starving student! Not forever, but until you have met two important goals. First, you need to pay off all your debt (student loans, credit card debt, car loans, etc.).
Second, you need to build up an emergency fund. How big? Most financial experts recommend four to six months’ worth of living expenses. The sooner you aggressively tackle them, the sooner you can begin saving and investing for your future.
Beware the “subscription effect!” The point is these subscription providers are masters at manipulating your perception; you think you’re making a reasonable decision, what you think is a necessity—and without necessarily being aware of it, your budget is being gobbled up!
The three most common off-ramps on the freeway to successful budgeting: “just this once;” “I’ll impress everybody” and “this deal is too good to pass up.”
Car advice: Brand new car? Strike one. You financed it (took out a loan) instead of paying in full, up front? Strike two. Oh, don’t tell me you bought the dealer service plan, too? You’re out! When you drive a new car off of a dealer’s lot, enjoy that first mile—because the car you’re driving just lost on average $7000 in value—instantly.
Are there any strategies you’ve found to saving money?
The most important strategy that I can possibly point out is called “pay yourself first.” Most people save what’s left after spending—and all too often, they shortchange their savings, because they convinced themselves that some short-term need is more important than their long-term security.
If you commit to a high savings rate (minimum of 10 percent) early in your financial life, and make absolutely sure that those savings happen by automatically paying yourself first—those are the two most important things that you can do financially.
Any financial pitfalls students should avoid?
By far the biggest pitfall is: “I’m young. I’ve just started my working life. I know it’s important to build my personal finance skill, and I will—but not this year. Next year, maybe.” The first 10 years of your working life completely set the tone.
Another pitfall is “unconscious luxuries.” This is when people make what they believe to be a “lifestyle choice,” but they don’t realize that it’s also a financial choice—and that it’s an expensive one.
The truth is wealth is built by saving, and is destroyed by spending. A very high-spending lifestyle (huge house, maybe even multiple houses, new and expensive cars, lavish vacations, etc.) is not the typical profile of a wealthy person, even though it is almost invariably how wealthy people are portrayed. The bottom line is you can either look rich, or be rich—but not both (except in very rare circumstances).
As college students, we should take control of our finances and have a strong understanding of managing our money. By creating a solid foundation of knowledge and understanding we are setting ourselves up for future financial success and independence.
