For many students finishing up high school and heading to college, the prospect of planning for your financial future might seem intimidating. Between taking steps towards financial independence and learning how to rely on yourself as a primary income source, trying to navigate the world of money and finance for the first time can be overwhelming. Fortunately, we have compiled a list of seven things you should be doing as you head into college to ensure the financial security and success of your future.
1. Budget Your Income
One of the easiest and most often overlooked steps towards financial security is creating and sticking to a budget. We often hear about corporate and government budgets, but for an individual, budgeting simply means creating a financial plan for how to allocate future income and handle anticipated expenses. Setting up a budget early on is critical in helping you meet your financial goals and making sure that you always have enough money for your non-discretionary expenses. Another thing to keep in mind when creating a budget is thinking about both short term and long term financial goals, as the failure to acknowledge them both can be problematic.
Simply creating a budget is only half the battle. Once you have established your financial goals and designed a budget that will help you meet them, it is important to learn how to stick to your plan. In today’s world, there is no shortage of tools that can be used to aid you in this. From spreadsheet programs like Excel or Google Sheets to track and manage expenses, to new budgeting applications like Mint, Pluto Money, or PocketGuard, you can experiment with different methods of sticking to your budget to figure out what works best for you.
2. Prioritize Your Spending
Along with creating a budget, comes the ability to learn how to prioritize your spending. This means creating a list of your monthly expenses. Once you have established a list of all the different ways you are allocating your money, you should go through the list again and classify your expenses as either necessary (bills, rent, food, transportation, savings, etc.) or discretionary (all other non-essential expenses). If this still seems complicated, think about as a way of sorting your expenses into wants and needs: what payments are absolutely critical and where do you have unnecessary financial leakages? Learning to evaluate your spending and cut back on discretionary expenditures can help you grow your savings and ensure a more promising financial future.
3. Pay Yourself First
As you learn to prioritize your spending, your number one financial priority should be paying yourself first. Even before allocating money to cover your necessary expenses like food and transportation, set money aside for savings. Learning to save your money early on is one of the simplest and most powerful ways of building wealth and creating financial security, and yet many people never learn this critical skill. The alternative— saving what is left over after your monthly spending— is not nearly as effective, as much of the money that might have been saved earlier on will go to discretionary spending. If you are unfamiliar with how to best safeguard this saved money, there are a number of savings vehicles you can familiarize yourself with, such as high-interest savings accounts or retirement savings plans.
4. Build Credit
Like with savings, it is important to start building credit early on. Often, young people share the common misconception that establishing good credit is only useful for significant far-off purchases, like buying a home. While good credit is certainly important when buying a home, it is also something that is very applicable for college students. For instance, student loans can affect both your credit report and credit score. Although student loans have the potential to impact credit negatively, if you are informed and actively work to build good credit, they can be an opportunity to build a history of positive credit.
So how do you establish credit anyways? Building credit doesn’t happen overnight. If you are diligent and make sure that you pay your debts in full and on time, you will be in a good position. It can be tricky to build your credit up from scratch and it’s often said that it’s easier to damage your credit then build it back up, so it’s important to develop good credit habits early on.
5. Don’t be Afraid to Take Risks
So far we have discussed the many steps that you can take to ensure the security of your financial future, but it is also important to learn how to take risks. Although your youth is a good time to start saving and establishing good credit, it is also the best time of your life to take financial risks. In comparison to older and middle-aged adults, takings financial risks in your youth has a lot less at stake and a much greater payoff from taking. That being said, in order to ensure that you can be in a position to take risks with your money, you should make sure that you have covered your bases in other ways (like, as mentioned earlier, by establishing credit and building savings).
6. Improve your Financial Literacy
The best way to guarantee that you are setting yourself up for future success is to make sure you are making informed decisions about your personal finances. If even the mention of building credit and sticking to budgets seems overwhelming, the best thing you can possibly do is to start learning about how to handle your money by starting with some of the most basic concepts in finance. Improving your financial literacy doesn’t have to be difficult, and in fact, if you have an open mindset, it can be very fun and rewarding.
Even if you feel like you already have a good understanding of personal finance, don’t let that be an excuse to stop educating yourself. To have a good sense of how to manage your money, you need to not only understand the basics but also be able to keep up with the ever-changing nature of markets, economic trends, and the publications of new research and emerging theories.
7. Invest in Yourself
At the end of the day, the most important thing that you can do to ensure a successful financial future is to invest in yourself. Learning to take care of yourself and maintain healthy habits with regard to exercise, sleep, nutrition, and mental health is a necessary skill that often goes overlooked. Earning capacity tends to increase as you continue through life and more opportunities and prospects will open as you advance in your career, but you will only be able to enjoy these benefits if you are in good health.
It is also important to prioritize your education, to ensure stable employment and financial well-being in the future. Investing in a college education may be the best decision for you, even if that means taking on debt. Prioritize the educational opportunities that you feel will best benefit you in the long-run.
Don’t be overwhelmed by the growing financial responsibility that comes with graduating high school and starting college. Instead, make use of some of the aforementioned tips, you can use your youth to your advantage.