Take the Fear out of Financial Planning

Guest post by Sarah Dunbar ’16

Most days it’s hard to read through the headlines without seeing some mention of college student debt or the lack of financial planning skills of recent grads. It’s scary when you hear numbers like $1.1 trillion, the level of national student loan debt, or $26,000, the average amount of debt students have accrued over their education. These numbers, and the lack of understanding around financial concepts are leaving students in poor shape to manage their finances after graduation.

I know this sounds bleak, but there is hope! PSU and other organizations provide plenty of resources and information to help tackle this issue. Here are some of the big concepts you need to know and tools you can use to be successful in managing your finances while still in school.

Creating a budget… and sticking to it
The money you spend on morning coffee and lunches with your study group can add up quickly if you’re not paying attention. The basics of budgeting focus on documenting how and when your money is coming in and where it’s going. The first challenge I was given when I started budgeting was to write down everything I spent money on for one week. It was surprising how much I was spending on social activities compared to standard expenses (bills, gas, etc.).

There are plenty of budgeting apps and online calculators, including one from 360 Degrees of Financial Literacy, which can help you set a budget and stick to it. Many programs will notify you when you’re getting close to hitting your pre-set limits on each of your expense categories. Partner up with friends and make setting your monthly or yearly budget a fun activity.

Starting an Emergency Fund
If your car broke down, or your pet had to go to the emergency room tomorrow, would you be able to pay for those unexpected expenses? Most of us would not be able to sustain a blow like that to our bank accounts. That is why having an emergency fund is so critical to long-term financial health. Most finance professionals recommend maintaining the equivalent of three to six months of living expenses in your fund. Another way to determine your ideal fund amount is to calculate everything that could go wrong and have enough money to handle all of them happening at the same time.

Now I know that sounds daunting, but it is possible. If you don’t already have a fund started, build it into your budget as a component of your savings. Start by allocating a certain percent of your income to the fund or by reducing your social/entertainment budget and putting that extra aside.

Value of Investing Early
Most of us think that investing requires thousands of dollars to be effective, but that’s not the case if you start early enough. The real value driver is time. With the magic that is compounding (generating earnings from previous earnings) the longer money is put to work the more wealth it can generate in the long run.

Source: TD Bank Infographics

There are several benefits to investing early, including the ability to take on more risk and learning through experience. Those who have plenty of earnings years ahead of them are able to build more aggressive portfolios that stand to produce greater gains. Similarly, investing early allows you to learn more from the successes and failures of the portfolio and helps to guide your long term investing strategy.

For more information and guidance check out College Investor and 360 Degrees of Financial Literacy.

Student Loans and Debt
Whether you’re a few years away from graduating or if this is your last term at PSU it’s never too early to start thinking about how you’re going to manage repayment of student loans. The Institute for College Access and Success (TICAS) has a list of helpful tips on managing loans after you graduate. The most important is understanding your loans. What is the difference between subsidized and unsubsidized loans? What is the difference between Stafford and PLUS loans? This handy chart can help you better understand your loans and what the repayment options are after graduation.

DominoEffect_FB_bannerUnderstanding your loans and managing repayment can have a huge impact on your future financial well-being. Many people are postponing major life events, such as buying a home or having children, because they are worried about being able to afford loan payments. But that doesn’t have to be the case. There are ways you can incorporate smart and beneficial financial decisions into your everyday life and have fun doing them!

Start the conversation around student debt by attending a free event featuring Adam Davidson from NPR’s Planet Money on Wednesday, May 6th. Adam will be discussing the domino effect of student loans and what we can do today to minimize the impact they have on our futures. Space is limited so register yourself and your friends today!

 

sarah dunbarSarah Dunbar is a Portland State accounting student and President-Elect for the PSU chapter of Beta Alpha Psi, International Accounting and Finance Honor Society.

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