The goal for many students in college is for their degree to help them find a job for after graduation. However, most of us do not want to work till the day we die, we are looking to enjoy life too. One of the ways we can ensure that we do not have to work forever is to have a plan for our personal finances and a plan for the future. When managing personal finance, we have many different factors to consider. It is extremely personal, so it varies from person to person. However, there are some things that remain constant for all, which will be discussed throughout this article.
The first idea is living below your means. This simple idea is one that can set you up for success in personal finance for years to come. It means just spending less than what you make. If you are able to save for the future, you will be able to live more freely later in life. The only way to do this is to spend less now. One of the things holding us back from living below our means is the idea of “keeping up with the Joneses.” This is what pushes so many of us away from living below our means and in some cases pushes us to live above our means, forcing us into debt. Obviously, treating yourself every now and then can be a good thing, as it allows you to work towards a goal or to mark a major life event (graduation!), but the trap of keeping up with the Joneses has us buying goods that we truly don’t need.
The next idea, which goes hand in hand with living below your means, is having a budget and sticking to it. Knowing what each dollar’s purpose is before you have them in your account can save you a decent amount of money. Knowing that you have a certain amount of money you can spend on going out ensures that you do not overspend. If you fail to stick to the budget, it defeats the purpose of having one. Dave Ramsey, a personal finance professional, has the idea of assigning every dollar a “name” so you know what to do with it once you have it.
The budget is where personal finance gets really personal. There is no one-size-fits-all budget — it is based on your spending habits and also your income. Additionally, it could be different due to the situation you are in. You may need to factor in things like costs of medications you use, or if you like to work out, having a gym membership. If you are saving to buy a house or car, you might want to put more money aside for those purchases. Knowing what you need and what you spend your money on will help you set up a budget.
A way to ensure that you are set up for success later on in life is to invest the funds you have saved in accounts for retirement. These investments could be things like a type of IRA, 401K or another account. When investing into these accounts, remember that these are for the long-term. They have penalties for pulling out funds early with certain exceptions. Additionally, every investment has risk and when investing, you must be prepared for the possibility of losing some of that money.
If you are interested in learning more about this topic, there are great books and podcasts about this, such as The Ramsey Show, The Richest Man in Babylon and The Psychology of Money.
Brian Long is a fourth-year Economics and Finance double-major with a minor in IT. BL965811@wcupa.edu