Originally published on gapajobmagazine.com, 2013.
Nine finance tips for students who are sick of living like students
1. The 10% rule.
Save 10% of everything you receive. If you want to save your money but you’re not sure how much is realistic and worthwhile, then 10% is a good rule of thumb to go by. Put it in a bank account you can’t access from an ATM. After all, it is important to pay yourself first. Think about it: if you slave away for X amount of time every week over a 12 month period, don’t you want something to show for that?
2. Make your money reproduce!
Why not make your dollars create little baby dollars, which grow up to have more dollars? Place your savings in an account that offers a good interest rate. It’s all well and good to have $2000 stashed away somewhere but if you have to spend it on an emergency, you’ll have to start all over again.
Instead, find a savings account that offers you a reasonable amount of interest (between 3-5% is fairly standard at the moment). Then use the handy savings calculator on your bank’s website to get an idea of how much interest you will earn over time. For instance, it can be pretty easy to skip your savings contribution if you only put away $200 a month, right? It may not seem like it’s really going to get you anywhere. But if you jump online and use a savings calculator it will tell you what you’ll eventually end up with. For instance, after three years of steadily throwing $200 a month into an account that started with a balance of $500, you will have $7700 plus $652.69 of interest, totalling $8352.69. That $652.69 is money that you didn’t have to earn. In other words: free money. Now imagine if you added another $100 a month to that. Suddenly you have $937.27 interest and $11,300. Your money has earned you almost a grand, without you lifting a finger.
Budgets may not be sexy, but in two years time when you’re debt free with money that earns you money it will be pretty damn sexy. Once you’ve figured out your savings goal (hint: it’s 10%) figure out what your expenses are and draw up a budget. There are numerous budget planners online or you could just work out what you earn every pay period and go from there.
Few people actually know how much they’re spending on coffee, vodka, shoes or convenience store goods (which I read can charge up to 45% more than supermarkets). Knowing how much you have for the things you really want is a good thing! For instance, instead of wasting all your cash on cheap snacks you don’t really want you could put it all together and buy one truly amazing bottle of single malt scotch. Or whatever floats your boat (my boat sails on an ocean of single malt 🙂
Part of having a budget means reappraising your expenses. What are you spending your money on that isn’t enhancing your quality of life? That’s what our money should really do for us. Oh, and if you happen to have a bit leftover, using it to enhance some one else’s life is the power of money at its most awesome. Are you paying for a phone contract you don’t really need? Are you buying clothes that don’t really flatter you just because they are on sale? Or maybe you’re spending more on Friday night piss ups than you’d really prefer to. Decide what you’re paying for that youdon’t even want. That way you can figure out how to get what you really do want.
Avoid or prioritise debt. You know how they say don’t get a credit card? I’m going to say it again. I am speaking from personal experience and a 13% interest rate here. Too late, you say? Here’s that percentage principle again. Put 20% of your income into your debt. Don’t underestimate the power of interest in the reverse- if three years of 5.16% interest can get you almost a grand, imagine what 1 year of 13% interest will have you paying! You will save hundreds of dollars by getting it paid off asap. Don’t forget- as long as you’re in debt your money isn’t really your own. Don’t you want full control of your life?
6. Earn it!
So many people find part time work and then try to make their income stretch as far as it can. Whilst there is nothing necessarily wrong with this, money can definitely work the other way around. You can say ‘This quarter I intend to earn X amount each month’ and then seek out the work. Just as people often don’t understand how much money they are wasting on unwanted items, they also may not understand how much time they are wasting on activities that neither fulfil them nor add value to their lives. Once you remove those, you may find you can invest that time into earning extra money, whether through a second part time job or through picking up work through a site such as gapajob.com. That way you can put the extra cash to boosting your savings account and earning interest on it.
7. Educate yourself
We go through 13 years of education, plus university, yet so many of us are never taught how to manage personal finance. To me this seems completely backward! This is pretty much ‘Life 101’ stuff. Having sound financial practices is just like anything else we need to learn. So educate yourself. Don’t feel stupid reading books or asking people about it.
8. Appreciate it!
Learn to appreciate what money can do for you. Without a functional and successful way of managing money we don’t stand to get very far. There are lots of mixed messages about money out there: that it is unimportant, evil, that it will make you happy. All of those are wrong. I’m just going to say it- they’re wrong. Money, like it or not, is personal freedom. It’s a resource. It provides the most basic necessities: nutrition, shelter, clothing. If you’re driven to create things or help the world, how are you going to do that if your resources are depleted? But if you think money is something that’s going to make you happy on its own, you’re misguided. What it will do for you is help you pay for the things that truly fulfil you (travelling to exotic but impoverished locales to start an eco business employing poor families at full wages, or teaching holiday makers to dive on your summer break for minimum pay because hey, you can afford to work for minimum pay).
If this whole thing could be summed up in a nutshell, it’s this: money is a tool. Learn to use it.
Further reading: The percentage rules listed above are a concept read about in ‘The Richest Man in Babylon’ by George S. Clason, a parable style book on personal finance. It’s excellent reading, very practical and achievable (as opposed to finance books aimed at investor-wannabes which is fine, but not really for the student demographic). I highly recommend reading it.