16 Jul 2007

Formula for Finances

College and money – it seems kind of silly to put those two words in the same sentence.  Who has money during college?  Going to school is a full-time job in and of itself, and with the ever-increasing price of tuition, books, room, food and living expenses, it’s pretty tough to make ends meet during college, let alone get ahead. 

It is quite possible, however, to lay a financial foundation for your future, even during the lean college years.   The formula is quite simple, even though it’s not necessarily easy.  J   That foundation is built on habits that you form, and those habits will ensure your financial success in the future.   The Formula is:

1.  Manage your expenses

2.  Save

3.  Give

4.  Avoid debt

1.  Manage your expenses:  

Make sure you have put aside money for your fixed expenses, like car insurance, gas, food, rent, etc., separate from your “spending money.” Some people use either a separate savings account or a cash envelope system to set money aside for large future bills. 

Before buying anything – ask yourself – “Do I need this, or do I want it?”

2.  Save:

Open a savings account.  Get in the habit of saving money, even if it’s only one dollar a week.   Keep that money for long-term savings that you don’t touch.  Make saving 10% of your income your long-term goal.  Even small amounts, building incrementally and with compounding interest, can add up to a surprising amount of money over your lifetime.  During the college years, it’s not about how much you’re saving as it is developing the habit of saving. 

3.  Give:

It’s been documented that people who give receive the biggest blessings in return, both financially and emotionally.  Set aside an envelope for giving.  Start out with a dollar a week.  Make giving 10% of your income your long-term goal.  Yes, there is a person or cause who has less than you do and needs to know that you care.   Instead of buying a latte, put the money in your envelope.  You won’t believe the rush you’ll get in knowing that you helped someone in a significant way.  Once again, to you give only a small amount may seem trivial, but you’re developing a habit of giving that will stick with you after college.   

4.  Avoid Debt:

This is the single most important habit you can learn.  If you have had to get student loans to pay for college, it’s even more important.  You don’t want to graduate and start your life buried in a financial hole.  If you have a credit card, commit to paying it off in full each month.  Instead of charging it, save up for that special item you’d like to have – it’s a lot cheaper (no interest) and it’s such a feeling of achievement knowing you don’t have a bill looming over your head! 

By following this simple formula, you will be proactive and intentional with your finances.  It takes discipline, but if you develop these habits, you’ll ensure your financial independence and freedom for the rest of your life!