Thursday, October 17, 2019

Ten Key Personal Finance Recommendations for College Students

I recently guest lectured about personal finance for a class of non-finance majors at Rutgers University. Below are ten key “evergreen” recommendations that I shared with the students:

Develop a Spending Plan (Budget)- Tweak income and expense numbers until positive cash flow is achieved. Include savings for future financial goals and/or emergencies as a “fixed expense.” Use apps like to keep track of spending.

Don’t Spend What You Don’t Have- Avoid costly debt by living below your means. Shop inexpensively for clothing and home furnishings at thrift shops and look for “deals” with online coupons and promo codes.

Pay Yourself First- Save early and often and do it automatically, if possible, through an employer-based credit union or tax-deferred retirement savings plan. If your employer matches your savings, save at least the maximum match amount.

Appreciate the Awesome Power of Compound Interest- Compound interest is your BFF if you are investing money and building wealth over time. It is your worst enemy if you are making minimum payments on credit cards and paying interest.

Make the Most of a Precious Resource: Time- Save for multiple financial goals concurrently, instead of sequentially, so that retirement savings begins in your 20s instead of waiting until after you pay off student loans and/or buy a house.

Protect Your Identity- Shred documents with sensitive personal identification information (e.g., bank and credit card account numbers), keep credit and debit cards in sight at all times, and limit the amount of personal data that is shared online.

Build an Emergency Fund- Try to save 3 to 6 months expenses, even if it takes several years to build up to this amount. In the meantime, any savings for emergencies is better than none.

Keep Track of Your Net Worth- Calculate your net worth (assets minus debts) regularly. It is not uncommon for students with college loans to have a negative net worth. Over time, it will increase with regular savings and debt repayment.

Write Down Your Financial Goals- Include an estimated cost (e.g., $8,000 for a “new used” car) and a time deadline (e.g., December, 2021). Then “do the math” to calculate the savings required each month or pay period.

Never Stop Learning About Personal Finance- Devote at least 15 minutes a day, or longer on weekends, to learning something new about money management. Information sources include web sites, Twitter chats, seminars, and mass media.

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