With unlimited youthful energy, a capacity to earn more and wonderful years ahead of them, students definitely need to learn about handling money matters early in life. Here's a good starting point.
Photographs: Francisco Osorio/Creative Commons
Financial management for life… how I wish this was a subject taught in school/college! Would it help educate young people to handle money matters better for the years to come? Definitely! However, for now we have no such subject and so we decided to put together this article, especially for young people.
Read on to know more.
All throughout schooling and college, the focus is on obtaining a degree and ultimately making money. The 'get rich' game comprises of two fundamental things. They are earning money and managing money. It is only much later in life, people start paying attention to the managing money bit. Obviously, not a good game plan. With unlimited youthful energy, a capacity to earn more and wonderful years ahead of them, students definitely need to learn about handling money matters early in life. The six pointers here are good starting points to help students think in that direction.
1. The budgeting bug!
Catching this bug early in life has amazing benefits. Chalking out a periodical budget and sticking to it is a sure shot way to manage your money and stay out of credit troubles. Budgeting is no rocket science. All it requires is an excel sheet, logic and discipline. Having your expenses laid out, planning and accounting for them will have half the troubles sorted there itself.
As students, you must start with preparing a monthly budget and allotting pocket money under various headers. Make budgeting a habit.
2. The card rules
You only have to wish for it and credit card companies will happily issue a card to you. Credit cards are great since they enable you to make an expense without paying for it immediately. However, what nobody explains to young card holders is how messy the whole credit card thing can get if you are unable to make a timely payment.
You need to remember that credit card is borrowed money with a notorious rate of interest. Missing on credit card payments will not only cost you more but also create a negative impact on your credit history.
Play by the rules when dealing with cards for maximum benefits.
3. Create an emergency fund pot
It hardly helps if you start digging the well when thirsty. Instead, plan and prepare for the future. Set aside a fixed amount every month for an emergency fund. The rule for this fund is to save and forget.
Dip into this fund only in case of an emergency. Very soon you will see the benefits of having this approach and start other funds of your own like home saving fund, vacation fund, retirement fund, etc.
4. Take charge of your finances
Nobody owes you riches! You are responsible for managing your own finances. So take charge of the situation. Educate yourself, speak to experts and read a lot. Learn from your experiences and take informed decisions. Simply relying on a financial planner's advice is not the right approach because you know your goals the best.
No harm in seeking advice but it must be agreeable to your logic, supported by your knowledge and aligned with your goals.
5. Track your money
Don't let the monthly dates decide how much money you have in your wallet! More often than not people feel rich for a couple of days after salary day and broke towards the end of the month. Does it happen with you too?
Also, people who exhibit this spending pattern will be unable to tell you the reason behind this behaviour. Well, it is because they do not know where their money goes.
Expensive coffees on the way to work, the things you don't need but were bought because they were on sale, fancy dining, etc account to large chunks of money which go unnoticed.
Knowing where your money is going will help you rectify the situation and stop that broke feeling from hitting you every month.
6. Basic hygiene: Pay your taxes and save
Sounds so simple and yet we have so many people going wrong in these areas. First let's focus on taxes. Speak to a professional and learn about which taxes are applicable to you and how much you need to pay. Now that you know about it, start planning. When it comes to saving, find out how much you can spare every month into the saving pool post all the expenses. Make saving a habit.
To keep yourself motivated, crystallise your goals and save for them. That feeling of accomplishment when you save and achieve them is unbeatable!
So basically, money matters need not get complicated if you create an action plan around the points mentioned above. With the right attitude towards money, a disciplined approach and willingness to learn, you can pretty much handle your money like a pro. And of course, many people learn about these things much later in life. So the early starter's advantage is yours here. Good luck as you set out on the road to riches. A prosperous future awaits you!
The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.