The best time to develop a financial plan is yesterday. The next best time is right now. Cliche or not, it really is never too early to start thinking about your financial future.
College is a turbulent time, financially. Many will emerge under heavy student loan debt. Many will be making only a fraction of their eventual income. Many will fall into traps and find themselves even further in debt.
But with a little bit of foresight, college is the best time to begin to think about your financial life plan. And you can take some basic steps to ensure that you put yourself on the right path.
Learn how to budget
“Budget what?” you may ask. While it’s true that college may not be your most lucrative years, it’s vital that you learn how to budget what you do have. These budgeting skills will carry over to parts of your life when the stakes are higher and you do need to budget a lot more money.
If you’re new to budgeting, it might be a good idea to keep it simple. Try a 50/20/30 budget, in which 50% of your take-home income goes toward essentials like bills, utilities, and food, 20% goes toward savings and investments, and 30% is flexible spending for non-essentials.
“This budgeting plan keeps your personal finances simple so you can pay your bills, add to your savings, and have the freedom to use some money just for fun. And for the novice, the 50-20-30 Rule is a great starting point for learning the basics. There’s no uncertainty, your action steps are clear, and it even provides for savings, investments, and other financial goals. This makes it much more likely that you’ll stay the course over time, ultimately reaching your desired financial stability,” says Trulia.
Begin your emergency fund
Before you can begin to invest and make money off your money, you must have a solid savings base in place to handle any of life’s curveballs. This is the essence of an emergency fund, and it’s the first savings account that every college student needs to establish.
An emergency fund is used to pay for unexpected speed bumps in life, like home and auto repairs, medical expenses, and being fired or laid off. Without an emergency fund, you have to resort to loans and credit to pay for these essential items.
Take advantage of compounding
When you invest, your returns compound. It’s the number one rule of investing and the reason why the earlier you start investing, the better. As a college student – remember – anything helps.
“If you save $3,000 a year when you’re between 20 and 30 years old, put the money into an IRA with a 7% average annualized rate of return and never save again, you’ll have $442,000 by the time you’re 65 … however, if you wait to begin saving until you’re 30 years old and put in $3,000 each year until you’re 65, you’ll end up with only $283,000 at the same rate of return,” says AOL Finance.
So yeah – just something to chew on.
Invest in furthering your education
Another savings fund that college students can pay into is a “further education” fund. This can help you save for future education expenses, like tuition in a masters or doctorate program, law or med school, or study abroad. This fund can also be used to pay for tutoring and other supplementary education you may need in the course of your collegiate career.
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