Most students don’t start thinking about their finances until they graduate and start working full time. While it is difficult to talk about money, it is essential to understand the basics of managing your finances early in your career, rather than later, to avoid bad spending habits that could have a negative impact. on you later.
If you don’t know where to start, no worries! Here are a few ways to start saving to make sure your pockets always stay full:
FIRE stands for Financial independence, early retirement. It is a movement dedicated to extreme saving and investing that would allow people to retire before the expected age of 65. Some people may even spend up to 70 percent from their income to savings so that they can live off their portfolios.
Millennials were particularly interested in the FIRE movement – their choice to save the majority of their annual income when they enter the workforce can translate into a retirement fund worth about 30 times their annual expenses. (which are typically $ 1 million), according to Investopedia.
It can be especially difficult to accumulate wealth when the stock market is falling, so having a mindset focused on long-term savings will ensure that you are prepared for an unforeseen expense.
If you want to learn more about FIRE and get more financial advice, I recommend looking at Graham Stephan on Youtube.
Have an emergency fund
This is one of the most important tips in financial planning, but it can be difficult to convince students, people who are often young and indifferent to their own mortality, to open a rainy day fund.
That being said, it is definitely worth it. Only 39 percent of Americans can afford an unexpected $ 1,000 expense – a medical emergency, accident, or family / personal crisis would be enough for most people to get into debt trying to get their life back on track.
If you’re not sure how much to save, my advice is to put some money each month into an emergency fund until you’ve reached at least a full month’s salary. That way, if you were to lose your job tomorrow, it would allow you to continue paying your rent and eating at the same time.
Be smart with debt
Sometimes we have to go into debt. This particularly applies to middle school students, who need to take out student loans to go to school. Student loan debt can be a huge source of stress and could easily multiply when compounded by mortgage debt or credit card debt, leaving some to choose to ignore their debt (which is probably the worst thing). that you can do).
While “debt” sounds scary, believe it or not, not all debt is bad, and there is in fact “good” debt. Good debt is any type of loan at a lower interest rate, which usually includes things like student debt and mortgage debt. Meanwhile, bad debt, like credit card debt, is any type of loan with a ridiculously high interest rate.
If you are trying to get out of debt, I suggest paying off any debt with higher interest rates first. Only buy things you can afford so you can pay off your debts on time. Much of your credit rating is based on your ability to make timely and consistent payments, so paying your balance on time will help improve your credit.
Quick tip: open a college credit card so you can start building good credit. That way, the moment you want to buy a car or get approved for an apartment, you have something positive to show the banks if you need to take out a loan.
While this is a traditional method of dividing your paycheck, I think it’s a great way to start if you’re not sure how much to save. Special mention to Elena taber for talking about it on her YouTube channel and making some amazing financial videos (which got me interested in finance in the first place).
Basically when you look at your after-tax income you should allocate 50 percent for personal expenses, 30 percent for miscellaneous needs / expenses, and 20 percent for savings and debt repayment (here’s a handy calculator do the math for you).
This means that half of your income should be used to cover your accommodation, utilities, food, transportation, insurance, and other basic expenses that you cannot avoid. Thirty percent can be spent on luxury expenses like entertainment, dining out, and other extra things you enjoy.
The remaining 20% is where you would start building that savings fund, start saving for retirement (take the employer’s match for your 401 (k), I’m serious), and pay off your debts ( remember: high interest comes first!).
Saving just 20 percent isn’t exactly the type of aggressive savings the folks at FIRE would follow, but it’s still a responsible money management system.
I know it all might seem a bit overwhelming at first glance, but financial literacy is no joke. Falling asleep when your teacher talks about interest rates might have been okay at school. But in fact, losing opportunities because you are consumed with debt is not worth living.
Learning how to manage your money as early as possible is imperative, because just like bad interest, bad habits build up and can cause you serious financial harm in the future. So save yourself the trouble and do your research!