Personal finance is the last thing on students’ minds during dead week, said Phil Schuman, director of financial literacy at IU.
But as students cram for final exams, financial experts nationwide are taking part in Money Smart Week, an initiative started in 2002 by the Chicago Money Smart Advisory Council to increase awareness about personal finance management.
As summer and graduation approach, some IU faculty shared their best advice for using your time off of school to make the most of your finances.
- Make a budget and track it
Joseph Fitter, director of IU’s Strategic Finance Academy, recommends tracking every expense through a budget.
“You can’t control what you don’t measure,” Fitter said.
There are several online tools, such as Mint.com, to help students do this.
Todd Roberson, a professor in the IU Kelley School of Business - Indianapolis, suggests students prepare a monthly budget comparing their expected versus actual spending. If those variances are repeatedly positive, either find a way to make more money or accept that you cannot spend as much as you would like, Roberson said.
After you have established a budget, Roberson favors an envelope system to ensure you stick to it.
If your budget allots $200 for groceries, for example, put $200 into an envelope titled "groceries." Once that money is gone, you have no more money to spend on groceries for the month.
2. Use credit cards wisely, sparingly
While credit scores are beneficial later in life, Schuman said students should not obsess over their credit score.
“We don’t want you to focus on a metric that’s assessing how good of a borrower you are,” Schuman said. “We want you to focus on building good financial habits.”
Credit card debt forces students to pay for their past, while they should focus on paying for their present and future, Schuman said.
Roberson said every college student should get a credit card and put a Netflix subscription and a few other small automatic payments on it. Then cut the card into pieces and throw it away.
This way, students can start to establish credit without the temptation to spend money they do not have.
3. Save summer earnings
Schuman recommends students use summer earnings to fund school expenses and academic year income for lifestyle expenses. This helps avoid overspending by basing your spendable income off of your monthly salary.
Fitter said students might take advantage of school breaks by picking up an extra job or two and investing 20 percent of their summer salary in growth stock or mutual funds.
When students return in the fall, Schuman said students should take advantage of on-campus job opportunities.
“There’s always one out there, and the University pays better than any employer you’ll find in town,” Schuman said.
4. Resist the temptation to live lavishly after school
“You’ll put yourself in a position where, down the road, you’ll expect greater things out of your financial lives,” Schuman said.
Ideally, students will live humbly in their first few years out of school, Fitter said, and upgrade their lifestyle over time.
Housing and transportation are the most common areas where students overspend, Schuman said. He recommends students in the Midwest spend about 25 percent of their net income on housing and 15 percent on transportation.
5. Start saving for retirement now
Starting at age 22, if you save about 20 percent of your income for retirement, Fitter said you can become a millionaire by the time you are 50.
“Retirement is expensive,” Fitter said. “The sooner you start, the more your money will be able to compound.”
Schuman urges graduating students to immediately learn the nuances of their employer’s retirement offerings. Take advantage of your employer 401(k) program, Fitter said, especially if they offer to match contributions to your retirement plan.
6. Do not procrastinate paying off debt
Fitter recommends a snowball method. Start by paying off your smallest debt and work up incrementally.
“You can’t go on with the rest of your life if you’ve got this ball and chain around your ankle called debt,” Fitter said.
Schuman advises students to ignore the six-month grace period for repaying federal debt.
Not only does waiting six months accumulate interest, but it also misleadingly allows students to establish their new lives based on temporary financial standards.
It is also important that students do not take out student loans unless they intend to finish their degree, Fitter said.
“Too many students go to school for a year or two, and never finish,” Fitter said. “Now they have all this debt and nothing to show for it.”
Additional Resources
Student can visit moneysmarts.iu.edu for general financial advice, or to schedule an individual or group appointment with MoneySmarts staff.
