BY MELISSA BURNS
Personal finance is an incredibly important issue for college students, for many reasons. It is the first time most people acquire full freedom to earn and spend as they like. It is also the time people often acquire financial habits they retain for the rest of their lives. Which means that it is also the perfect time to start learning how to keep your personal finances in order. Here are some ways to do it.
1. Differentiate between Needs and Wants
There is a world of difference between a want and a need. A need is something you must have in order to survive: food, shelter, healthcare, transportation, clothes. A want is something you would like to have but what is, when all is said and done, is not necessary for your immediate survival. While people tend to have an ability to rationalize any purchase as absolutely vital, you will do yourself a world of good by learning how to separate wheat from chaff – both during your student years and later in life.
As many students seem to have hard time making enough money to cover their everyday expenses, the idea of investing during this period of life may seem ridiculous. However, it doesn’t mean that it is impossible – even if you manage to scrape up a small sum of money, e.g., $25 or $50, and keep yourself from spending it on one of the many silly things students tend to waste their money on, it can serve as a foundation of your portfolio. If you have no idea how it is done, use the services of a broker or an automated portfolio management system to invest your money.
3. Budget Your Money
An all-round useful habit for a student, and a vitally important to acquire at as early an age as possible. If your parents haven’t bothered to teach you basic financial literacy, it is your job to acquire it yourself. Budgeting your money is immensely useful for survival in our unstable world – and when you actually start managing the entire picture, you will automatically learn to treat money with greater respect.
4. Create, Maintain and, Ideally, Grow an Emergency Fund
An emergency fund is exactly what it says on the tin: it is a certain sum of money you set aside to deal with a possible emergency. The emergency may be anything from car repairs to a sudden injury. The usual recommended practice is to set aside from 3 to 6 months’ worth of living expenses – however, they cannot always account for sudden larger expenses associated, for example, with healthcare. If you follow our advice and budget your money, it is best to put emergency fund as your regular expense item.
Just like so many other things, better financial health is much more about the creation of proper habits than about immense feats that can be accomplished once and for all. Once you’ve turned these habits into an integral part of your makeup, you may be sure to improve the quality of your life both for now and for the future .
Melissa Burns graduated from the faculty of Journalism of Iowa State University in 2008. Nowadays she is an entrepreneur and independent journalist. Her sphere of interests includes startups, information technologies and how these ones may be implemented.