If it’s a challenge for adults already in the workforce to manage their money, current college students and recent grads are at an even greater disadvantage. Between student loans, a full class load, and part-time jobs that often pay poorly, college can feel more like a burden than a way to get ahead in life. However, by becoming proactive with your money today, you’ll have the financial foundation you need to set yourself up for success in the future.
Audit Your Personal Finances
You’ll have a difficult time improving your financial situation if you’re not sure what your finances actually look like. Auditing your income, expenditures, assets, and liabilities once or twice per year helps you create a measurable starting point for tracking your financial improvements. If you focus solely on the amount of student loan debt you have or the amount of money you bring in, you will fail to see a larger financial picture.
That’s why your audit should include your personal net worth, or the value of your assets minus what is owed. Regardless of having a positive or negative net worth, this calculation will help you see your where you stand currently as well as the specific areas of your finances where you can improve.
Calculate Your Monthly Earnings and Spendings
While a personal audit helps you envision your finances at the macro level, noting your day-to-day spending and saving habits is essential to successfully manage your overall flow of money. Dedicate the next month to documenting each purchase you make, no matter how small, as well as your combined monthly net pay from each of your sources of income, from full-time positions to side hustles.
To avoid feeling overwhelmed, organize these expenses into easily identifiable categories, such as entertainment, food, personal health, rent, travel, investments, and other bills. Learning how to become better organized will allow you to project your financial goals forward and help you set plans for the future.
Create a Budget and Adhere to It
You now know where your money is going and where you may be overspending, but how will you hold yourself to improving your spending and saving habits? A personal or household budget will help you develop measurable and manageable goals for adjusting your expenditures. While you can also create a annual or bi-annual budget, most personal budgets are monthly ones and are itemized using the same types of categories you’ve already created for your expenses.
Draft a budget that starts with smaller, more feasible reductions to spending, and set reminders for yourself to revisit your budget every few months with the intent to lower spending and increase investments. If you’re not sure where to begin, create a simple budget sheet from scratch or find an online template that works best for you and your finances.
Eliminate Your Debts
With the rising cost of education, students and recent grads are responsible for paying thousands of dollars in interest on their credit card bills, student loans, or personal loans. As long as you are still repaying your debts, you will struggle to get ahead of your finances. That’s why you should find ways to either reduce your loan interest rate or increase your payments to lower the total amount you’ll pay.
Students with credit card debt can look into debt consolidation solutions for simplifying payments and tackling your debt head-on. If you’re already out of college and think your interest rate is too high, look into refinancing your private and federal loans to help you cut down on monthly payments. Additionally, you should take advantage of automatic withdrawals whenever it’s an option, as many banks and loan providers will lower your interest rate when you sign up—and it guarantees you’ll never miss a payment.
Build up Your Savings
If you’re already spending a considerable portion of your paycheck on textbooks, rent, and accruing loan interests, contributing to your savings can feel futile. To help you get in the habit of saving, focus on making small, yet consistent, deposits to your savings account. A good guideline is the 50/30/20 rule, which states that you should dedicate 20% of your income to savings.
Ideally, you’ll be able to have anywhere from three to nine months’ worth of expenses stashed away in case of emergencies, such as an unexpected medical treatment or a layoff. And if you find yourself using every last penny of each paycheck, look into practicing some simple savings solutions that work well with your lifestyle and financial needs.
Invest Regularly
Investing is an area of finances where many people are notably under educated—but that doesn’t make it any less of an essential piece to your financial strategy. Right now, retirement is in the far future, but creating good investing habits today is essential to having the necessary money to sustain you through your golden years.
By creating a diverse portfolio, you’ll be able to stay ahead of rising inflation during retirement and a projected lack of assistance from programs like Social Security. And since you probably have 30 or more years until retirement, you have the time to take on a highly volatile portfolio and ride out any losses you may incur.
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