Only 40% of 18 to 34-year-olds are currently sticking to a budget, according to a National Foundation for Credit Counseling literacy survey conducted in 2012.
For young adults — and college students especially — this is detrimental to their financial future, said Kent Ragan, department head of Finance and General Business at Missouri State University.
“You can make decisions while you’re a student that can affect you down the road for the rest of your financial future,” he said.
The average student loan debt is $25,250 for the class of 2010, according to The Project on Student Debt, and many students pile consumer debt on top of those student loans, Ragan said.
“A lot of students accrue student loan debt. . .but it’s the consumer debt that a lot of students get inundated with and carry around for years and years,” he said.
However, there is hope for you if you’re one of the millions of young adults without a financial plan. Below is a list of tips from Ragan, college students and the Federal Deposit Insurance Corporation to help you get started and take control of your financial future.
1. Put needs before wants
“There are lots of things that I want, but there’s only certain basic things I need — food, clothing, shelter,” Ragan said.
Instead of succumbing to peer pressure to have the latest products, put unnecessary wants into a luxury category and ask yourself, “What do I need, versus what do I want? And keep that in perspective,” he said.
2. Create a budget and stick to it
Taylor Dolence, a senior finance major at Missouri State University, said the best way to meet your financial goals is to create a budget.
“I set a monthly budget and then I break it down by week so I know what I can live off for a week that meets those monthly goals,” he said of his $100 a week budget.
To create his monthly budget, Dolence allots a set amount for rent and other bills, then sets aside a small amount directly for savings and uses the rest of his funds to live off for the month.
3. Go comparison shopping
Luke Reynolds, acting associate director for the division of depositor and consumer protection of the Federal Deposit Insurance Corporation, said comparison shopping to make sure you’re getting the most for your money is crucial.
He suggests looking around at various area financial institutions to set up a basic bank account where you can benefit from Federal Deposit Insurance, consumer protection, a relationship with an institution that you may need to borrow money from and automatic transfers.
4. Be wary of credit cards
Having “some credit history” is necessary after graduating from college and might mean using a consumer credit card, Ragan said.
“If you get a credit card, look at the benefits,” he said. “If there’s an annual fee, look at the perks that go along with it. Look at that interest rate and ask yourself, ‘Am I going to carry a balance or not?’ And if I’m not going to pay a balance, I’m going to pay it off every month, then I don’t care about the interest rate. I care about the perks they’re going to give.”
Making sure to pay your credit card bill on time is also important, Reynolds said.
“For someone who’s just starting now in their career who doesn’t have a really long credit report, one missed payment could result in a pretty substantial damage on their credit score,” he said.
Paying your bill on time and ordering a free credit report “at least every 12 months” to review it will benefit you in the long run, Reynolds said.
5. Get organized
Emerlyn Tseng, a junior business major at the University of California at Berkeley, said having an organized method to track your spending can help you control your finances.
Tseng uses a Microsoft Office Excel sheet to keep track of her purchases every day, she said.
“I split it up into food categories, transportation, shopping and school supplies — books and that kind of thing — and separating them by month,” she said. “It helps me keep track of what I’m spending every month and every week. It keeps me on track.”
6. Be innovative
If the standard Excel sheet isn’t for you, consider trying apps such as iBank which syncs your bank account to your computer and your iPhone for a small fee, Dolence said.
“It syncs up with your bank account and every time you make a transaction it can upload to iBank,” he said. “And if you go to that application, it can break down your budgets, your savings, all sorts of stuff, and you can do anything with it.”
Another innovative resource available free of charge is FDIC’s Money Smart program, Reynolds said, which is focused on educating consumers about aspects of personal finance.
Money Smart was created in 2001 and has since branched out to create a Money Smart for Young Adults program available on the FDIC’s website free of charge.
7. Start saving, immediately
Your first financial goal out of college should be to create an emergency fund of $1,000 and “establish a discipline for saving,” Ragan said.
“Pay yourself first,” he said in case you have an emergency — such as your car breaking down — so you can use those funds you’ve saved to remedy the situation.
Saving before, during and after college is also vital because it allows you to take advantage of compound interest, Dolence said.
“If with every pay check you put $10 into savings and set it up in an IRA (Individual Retirement Account), when you’re 20-years-old at 7%, you’ll have almost $500,000 by the time you’re 65,” he said, referencing a lecture one of his finance professors gave earlier in the semester. “If you start when you’re 30, that cuts it down to about $175,000 by the time you’re 65.”
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