Chapter 3 Outline
Chapter 3: Handling Your Money Wisely
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Introduction: Where Does It All Go?
In 2007, a poll discovered that 57 percent of students worry about rising costs of tuition and other costs, and 21 percent expressed concern over insufficient financial aid. Becoming an adult means learning to take charge of each individual area of your life, and this chapter will help you learn to manage your finances.
I. Financing Your Life
Knowing where your money goes can help you plan better ways to spend it in the future. Suggestions include keeping a notebook of expenditures, writing a personal net worth statement, jotting down financial goals, reevaluate your net worth and goals each year, and design a budget that suits your lifestyle.
a. Budgeting Basics. Making a budget is as simple as making a list of fixed expenses.
i. Fixed expenses are items you must spend your money on like bills
ii. Variable Expenses are what you need to spend money on like groceries
iii. Discretionary Expenses are what you want to spend your money on like movies
As you make your budget, you will notice that not everything will fit into your available resources. Make tough decisions and decide your needs but remember to leave some money for fun.
b. Saving for a Rainy Day. Develop a savings habit. It is recommended to save 10 percent of income, but this might be difficult in college. Every 30 days, take your change and deposit it into an account. Learning to save now will greatly benefit you in the future.
c. Stretching Your Dollar. Make the most of the dollars in your wallet.
i. Be creative. Plenty of fun activities are free or low-cost.
ii. Clip coupons
iii. Buy used books
iv. Take advantage of free online downloads and shareware offers. Remember to be careful about divulging any private information.
v. Watch the bulletin boards at school. Keep an eye out for great deals from other students
d. Handling Credit. Seventy-five percent of college students have at least one credit card. Using a credit card wisely can build your credit score and student loans can break or make your credit as well. Make an honest evaluation of yourself and decide if you are responsible enough to have a credit card.
i. A credit card is not free money. Make sure to buy things that are within your budge because everything must be paid later.
ii. Pay in full monthly to avoid finance charges. Put only a small amount on the card so you can pay it off at the end of the billing cycle.
iii. Pay attention to interest rates and annual fees. Evaluate the offer before making a decision so that you get the best deal.
iv. Limit the number of cards you have. Stick to one card that covers everything.
e. Protecting Your Identity. During 2007, more than 162 million records were reported lost or stolen. Take precautionary steps to make sure your credit and assets are protected.
i. Never keep your social security card in your wallet. Keep it in a secure location.
ii. Buy a shredder. Shred all mail or unwanted documents that contain personal information.
iii. Keep track. Never leave your checkbook, credit cards or mail containing personal information lying around your dorm or apartment.
iv. Be aware. Put a minimum of personal information on social networking sites.
II. Financing Your Education
Paying for college today has become an increasing concern for parents and students. A two year degree can exceed $20,000 in costs, but also must be viewed as an investment in your future.
a. Getting Professional Assistance. If you are having difficulty financing your expenses, look to the professionals at your school. Financial aid officers and money-management counselors can help you create a personal budget and manage expenses.
b. Types of Financial Aid. Most students immediately think of FASFA (Free Application for Federal Student Aid). Government funding does make up the majority of student financing, but other help also exists.
c. Private or Specialty Grants. Non-profits and various foundations offer grants to students seeking a degree in their area of interest.
d. Scholarships. Two types exist. Public scholarships are given to students who do not have to be affiliated with the organization. Private scholarships are offered to students affiliated with the entity. Apply for scholarships every year of school. You can also double-check you GPA using a simple calculation. On a 4 point scale, A=4 points, B=3, C=2, D=1, and F=0.
e. Government Financial Assistance. Pell Grant, student loans and parent loans. Apply by filling out the FASFA. In 2010, legislation was passed to make loan repayment easier. Your campus financial officers should have interest on the latest federal aid regulations.
f. Work Study and Tuition Reimbursement Programs. Another federally funded form of assistance where colleges use government funds to pay students to work on-campus jobs. Also, some students work for companies that provide tuition reimbursement.
g. Tax Advantages. The Hope Scholarship Tax Credit is income tax deduction for students in their first or second year of college. In 2009 and 2010, the credit limit for this scholarship was raised to $2500, but the credit is based on income. The Lifetime Learning Tax Credit is for students ineligible for the previous one. The maximum benefit per year is $2000.
III. Professional Financial Management
In the professional world, you will be making more money than when in college. Career professionals need to be able to manage their personal, day-to-day finances, their short-term savings accounts and their retirement funds.
a. Back to Basics. Many graduates fall into the trap of spending more because they make more. Avoid this temptation by adjusting your income levels to your new salary and reconsider monthly obligations. You will now be able to secure loans for cars, homes, furniture, etc.
i. Reevaluate your goals. You may need to reset goals based on new circumstances.
ii. Don’t spend it just because you make it. Try to set aside 10-20 percent of your monthly income. Have an emergency fund.
iii. Form a slush fund. This is a savings account from which money flows in and out. Use it to pay for special things such as a vacation.
iv. Take advantage of a company sponsored savings plan. Most companies offer a 401k, which allow you to contribute pre-tax dollars from each paycheck. You will be able to direct how you want your 401k invested such as company stock, money market savings or mutual funds. You cannot draw any funds before you are 65 without being penalized.
v. Don’t get penalized. The 401k is designed for the employee’s retirement fund; therefore, any early withdrawing will earn a penalty. Make sure to know all rules and regulations of your benefits.
vi. Don’t forget insurance. Any solid plan for financial well being must include insurance. Most likely, your company will pay a portion of this. Remember that the health care reform, enacted in 2010, changed many things, so be sure to find out all of your new, current health care regulations are.
vii. Continue to pay cash. Purchase new items only when you can pay cash and watch for bargains so that you don’t rack up a huge credit card bill.
Making the transition from college to career will bring exciting opportunities both financially and personally. Lay the groundwork for a solid financial situation now to prevent stress in the future.