As we approach September, the subject of discussion in some of our meetings was how to prepare students heading off for post-secondary education. I reflected on one client who decided, that as a result of her experiences, to become financially literate. In her case, she graduated from college with over $25,000 of debt.
She admits that she wasn’t financially savvy. She says that, when she got her student loans and a credit card, she didn’t really know how to manage that amount of money. She candidly shared that she spent the $25,000 on school as well as clothes, entertainment and other wants. After she graduated, she spent the next few years digging herself out of that mess.
Today, many students find themselves in a similar situation with a large sum at their disposal to pay for school with little savvy on how to handle it. First and foremost, students need to be up front and real with themselves. This is a really important exercise. These young people need to develop a new mentality when they suddenly have access to this type of money. There are some simple steps students can take to avoid running out of money before the end of the school year and acquiring unnecessary debt.
Basic Budgeting
Every student needs a balanced budget to make sure they’re not spending more than they’re bringing in. Students have to add up their monthly expenses like tuition, rent or dorm fees, groceries and entertainment, and ensure the total is equal to or less than their income, including savings, student loans, the bank of mom and dad and part-time employment.
They can think of budgeting money like they do rationing out a meal plan in residence. You don’t go hog wild on the meal plan in the first few months and then have nothing to eat for the last few months. It Should be the same with the money they are getting
Track spending
Students should track their spending for a few weeks before creating a budget to ensure their numbers are realistic. Often, students perceive they’re spending less in certain areas than they actually are. Students may be shocked at how much money they’re spending. Common areas students overspend in are groceries, entertainment, cell phones and coffee. They need to be up front and real with themselves. It is a really important exercise.
Craving Credit
Without a realistic budget, it is easier to overspend and rely on credit to cover the shortfall. Financial institutions prey on students and are practically guaranteed approval for a credit card. Credit cards have some of the unacceptably highest interest rates. Some students can find easy credit hard to resist. As we know, not paying off a credit card balance comes with a stiff penalty.
It may be tempting to use credit to cover little things here and there when it seems like everyone else on campus is spend-happy. People who constantly spend without thought are usually financed through family or debt. The problem is that you don’t know if they are in debt trouble. Students shouldn’t base their spending habits in comparison to others.
The best antidote is to crunch the numbers. By doing some basic math, students can clearly see the true cost of credit and what happens if they are not in a position to repay their cards completely when due. When students feel tempted to reach for a credit card to pay for something they want, but don’t need, they should question how long it will take to pay off the card balance.
Expect Emergencies
Students should try and have a bit of money set aside in an emergency fund especially to avoid having to rely on credit when they’re in a bind. They like to see themselves as young and invincible and that they’ll stay healthy and nothing will happen.
The fact is, that no matter how we live our lives, we cannot control all aspects that may affect our health and safety. Unforeseen emergencies can happen. It’s nice to have that money available instead of having to reach for a credit card and not knowing how you’re going to pay it back.
Be Balanced
The bottom line is that it’s all a matter of balance In your spending. It’s important to make a budget before starting school to discover any unexpected problems. Perhaps a student will learn their education and living expenses outweigh their income. It can come down to making choices or doing without. Everyone suffers from the challenge of balancing their needs with their wants. The easiest strategy to follow: needs win, wants don’t.
Students, by thinking ahead about their saving and spending strategies, can come out ahead by asking themselves how can I fix any potential shortcomings. They can consider picking up more part-time hours or applying for additional scholarships before it becomes a real problem. Student life is not an easy life. A lot of times it means working while you’re in school or living on a strict budget. The wrong strategy is just to let your spending accrue as debt. It needs to be serviced and not just accrue. The concept of balance is critical. Contact Northern River Financial at 1.855.5NRIVER or info@NorthernRiverFinancial.ca to find your balance. It’s ensures students are Keeping Life Current.
