Nathan Carmany, a Purdue Alumnus, is a Certified Financial Planner for Watermark Wealth Management
The spring semester is underway. Companies are recruiting and having conversations with
your professors about ideal candidates. You attend networking events, purchase new interview clothes, and hopefully land the perfect position for the summer. To stay ahead of your finances, you need to make a conscious plan for your earnings.
PAY HIGH INTEREST RATE CREDIT CARDS
The average balance for a college student in 2013 was $499. The average interest for student credit card interest is 13.42% stated as an APR, however, the effective rate after compounding daily is actually 14.34%. What better way to cut expenses than eliminating high interest obligations?
CREATE A SPENDING PLAN
Consider creating a spending plan for the summer and school year to stretch the duration of the funds. Paul Arden stated, “Don’t look for the next opportunity. The one you have in hand is the opportunity.” Think about what opportunities you may put into your own hand with a well thought out spending plan.
PAY FOR YOUR SUMMER CLASSES
Don’t overlook that your credits for the summer internship can cost money. Why not use some of the funds to possibly pay for those? Reduction of your total amount borrowed before interest is capitalized and recommended for faster loan payoff.
PREFUND YOUR LIVING EXPENSES
Seniors, set aside as much as you can. When you find your first apartment or home, somewhere the move will create an unplanned expense. Inevitably it happens, an extra day rental on the moving truck, needing kitchen utensils, towels, or boxes. The money will help cushion for the unplanned expense. Do not forget about the extra cost of hooking up utilities, cable, or the internet.
BUILD AN EMERGENCY FUND
Traditional financial planning calls for 3-6 months of living expenses set aside for an emergency fund. Most people will experience at least one significant financial emergency in a three to five year period. It can be difficult for college students to save a full 6 months of living expenses, but setting aside a modest amount may prevent you from making a call to your parents when something comes up. Like my grandmother taught me, place the money in a zip lock bag and freeze it in a container of water, then see how easy it is to impulse spend!
CONTRIBUTE TO A ROTH
The sooner retirement savings start; the less you have to save over the rest of your life. The compounding of gains and interest early on are difficult to make up if you delay contributing until later in life. By saving it in a Roth IRA, the earnings are tax free after age 59.5, as long a Roth account was opened 5 years ago or longer. That 5 year clock begins with the first contribution to your Roth. If you need access to the money, contributions are removed first without any penalty.
PAY DOWN STUDENT LOANS
Hopefully, you have been informed about the inability for most borrowers to ever declare this type of debt in bankruptcy and that prolonged periods of missed payments will lead to wage garnishment, a much larger loan balance, and the destruction of your credit score. The grace period on most student loans expires 6 months after graduation. Interest is capitalized (meaning that it is added to the loan balance) at that point unless you qualify under a different exemption. Paying down unsubsidized loans (make sure your loan servicer allocate it properly) with your earnings before the end of the grace period is a great way to cut the overall cost of the loan.
Think about your upcoming needs for the summer, school year, or beyond graduation. Pick one of the ideas to best suit your needs and work on an implementation plan. No matter which idea you execute, a well thought out plan will serve you well.