~International Speaker, Coach & Author www.danielangounou.com
It is without a doubt that money is the number 1 reason for college student dropouts and has been for a long period of time. Unfortunately, most students do not know how to handle their finances to succeed during college and prepare themselves for a bright future. Oftentimes, students’ bad money habits are created during their college years because it is the first time most of them get to be “on their own”.
Although money is a huge burden to many students, it doesn’t have to be the case forever. I am on a mission to empower as many students as possible to understand personal finance. As you have probably heard, knowledge is power. Once you apply these financial keys, you will be ahead of most our society, which will catapult you to success during college and beyond.
Assess Your Current State
Before jumping into action, you must first analyze your current situation. Where do your finances stand as of today? Do you have a current job, allowance, loans, expenses, etc.? I suggest creating an excel spreadsheet starting with two simple columns: Income and Expenses. After you have all your income and expenses (I recommend listing them as monthly income and monthly expense), find the difference between the two figures by subtracting the expenses from the income amount. This is called your “cashflow”; the amount of money you have left after your monthly expenses. This number may be positive, zero, or even negative depending on your situation. Whatever it is, just be honest with yourself, this is the first step to financial success! It is also important to list out your money goals at this step so you can have an idea of where you want to be. Some questions that may be helpful to ask yourself are:
- “How much money do I want to have saved right after graduation?”
- “What are some purchases I would like to make in the next 3 years?”
- “Who is someone that I want to be more like when it pertains to personal finance?”
Consider Creating a Source of Income
This step looks different for every studentbecause it all depends on your cash flow from the previous step, as well as, in my opinion, what year of college you are in. I always advise first-year college students to avoid overloading themselves with jobs or too many activities until they know and understand their class workload and what works for them. Usually 2 months in, or even after finishing first semester, most students form a routine that works for them and understand what they can or cannot handle. After that time period, I recommend considering working a job or creating a source of income that will mesh well with your schedule. Here are some great ideas for students: babysitting, help desk operator, tutor, brand ambassador, dog sitter/walker, research assistant, or part time work in a field related to what you are going to school for!
Create and Stick to a Budget
Budgeting might sound like too much of an “adult” word. But unfortunately, most adults do not budget which is why most of them are in a financial funk. Don’t become one of them! Create this habit now and you will be so pleased with how budgeting can bless you now and in the future! To make it simple, a budget is a financial plan that you set for yourself for guidance on how to use your money. This can be easily done in excel. Or, if you are more of a digital person, there are many apps that will help you with this. Consider starting by using a very simple rule called the 50/30/20 rule. This rule explains that 50% of your income should go to necessary expenses, such as rent, food, mandatory books & supplies, etc. This is money that you must spend in order to live safely and go to school. The next bucket is the 30% for your “nice to have” items. These items could be decor you may want for your room, new clothing that you do not necessarily need, going out with friends, gifts, and things along that line. Lastly, you are to save 20% of your income. Saving is a huge part of personal finance because it can really help when the unexpected happens and it is the key to building wealth! If your necessary expenses account for less than 50% or if your “nice to have” items accounts for less than 30% of your income, great! Put the rest in the savings bucket.
Saving & Retirement Planning
The 20% budget I talked about earlier is going to be for short-term savings as well as investments and retirement planning. You might be wondering, “Why would I think about retirement planning in college?” The answer to that is the earlier, the better! I recommend anyone interested in creating wealth to have a 3-month emergency fund saved (that is not touched unless necessary) in a checking account, and the rest of their savings to go into a financial vehicle that will produce some form of a return. A high yielding savings account is a good place to start. Another idea is to invest in mutual or index funds. These are a great way to invest without having to stress too much about what is going on in the market.
Another necessary piece to your savings bucket is retirement planning. You do not have to be employed to start a retirement account. You can create something called an individual retirement account (IRA) and contribute to it for your future. Also, get a life insurance plan! This is something that is best to do at a younger age and can give you tax advantages as well. While I cannot go into full detail in this article, I recommend that you look into getting a whole life insurance policy with cash dividends with a mutual funded insurance company. This will allow you to enjoy the power of compound interest because the earlier you start, the more time money has to multiply for your benefit.
Work on your Credit
Credit is a huge deal in our society. In order to buy a house, a car, or any big purchase that will require a loan, it is very important to have good credit. A credit score is basically a grade that tells other people how good you are at borrowing money and paying it off on time. So now that you know how important it is, let me help you bring it up! A major way to drastically increase your credit score is to become an authorized user on someone else’s credit card that already has good credit. This is a good opportunity to ask your parents or a close family member to help you get a head start. Another way you can work on your credit is by getting a credit card. There are many student credit cards on the market that help students with this. Just make sure not to abuse it! A great rule of thumb is to only spend as much as you have in cash and pay it off every month so you do not accrue any unnecessary interest.
Taxes are another one of those things that are unavoidable and is vital to have an understanding of how they work. You may have never filed your own taxes up to this point, or maybe you had a parent do it for you. Regardless of where you fall in that spectrum, it is important you start understanding what they are and how they work. This can be as simple as a YouTube search. If you have a job and are getting a paycheck, you are paying taxes and will have to file them at the end of the year. I challenge you to do it yourself and seek professional help so you can be empowered.
Now that you have learned some of the major keys to financial success, take action! Do not allow money to be a problem for you during college. You are here to discover yourself and get ready for the real world. Money shouldn’t stop you from your dreams, it only helps you when you know how to handle it. Share this article with someone else and ask them to be your accountability buddy! Also, connect with me, I would love to help break this down even more in a workshop and provide resources to ensure success! Cheers to a bright financial future!
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