BY: WALI AHMED
As a university student, managing your money can get extremely overwhelming. Every year, we are bombarded with tuition fees, new textbooks to buy, rent payments, grocery costs, and several other purchases. It’s a shame that personal finance isn’t a course in high school, or we’d all be a lot better off financially. Luckily, I have compiled a list of 5 tips that you can implement right now to start building your wealth and be financially free!
One of the most important things to understand about your money is where it is going. The main reason you’re going to want to do this is to identify your spending habits. Do you spend a lot of money on food? Is shopping an issue? Too many Amazon orders? The answers to all these questions come up when you track your spending. If you don’t know where your money is going, you won’t know which habits to change to minimize your spending. Small purchases can eat up your money if you’re not careful about how often you spend on them. But don’t you worry! Tracking your spending is easier than ever with the Wally app. Wally allows you to connect every bank account you have and track spending on the go. This app helps you understand your finances like no other with its ability to track expenses automatically and categorize each transaction in real-time. I highly recommend this app to get on top of your spending.
Making sure your finances are organized with a budget is essential to your financial success. By creating a spending plan (budget), you can determine in advance whether you have enough money for the things you want and need. A budget allows you to outline your spending priorities and allocate enough money to your needs, wants, and savings. A standard methodology for budgeting is the 50-30-20 rule. It’s a simple rule popularized by Elizabeth Warren that states 50% of after-tax income should go directly to financial needs/obligations, 30% towards things you want, and finally 20% to savings. Your needs are bills that you must pay and other items necessary to survive. Some examples are rent, groceries, and insurance. Your wants consist of everything non-essential to your life. These include dinners, movies, Netflix subscriptions, etc. By recognizing what your needs and wants are, you’ll find creating a personal budget much more manageable. A great app to help you with your budgeting tasks is Mint. Mint helps you take charge of your finances with their online budget planner. This app brings together all your accounts to easily create budgets while also making personalized suggestions based on your spending. Using Mint will help you effortlessly manage your needs and wants in one place.
The terms “saving” and “investing” are often used interchangeably, but what you choose to do lies within your overall financial goals. Saving is putting away money away right now for future emergencies or purchases. This money should be able to be accessed quickly, easily, and with little to no risk. On the other hand, investing is buying into mutual funds, bonds, stocks, and other assets that are expected to make money for you. The key to both saving and investing is starting EARLY. As a young adult, you have the benefit of time being on your side. This is where the exponential growth of compound interest comes into play. Consider this example: if you invested $100 every month at 20 years old at an annualized interest rate of 5%, your investment would be worth $148,252.48 at age 60. That’s $100,252.46 of PURE INTEREST. However, if you started just ten years later, your investment would only be worth a measly $81,537.59. Almost a 70-thousand-dollar difference! This just goes to show that the earlier you start, the better off you’ll be in the future. Hence the name, Wealthsimple has made saving and investing accessible for everyone. Wealthsimple allows you to invest on autopilot with automatic deposits, dividend re-investing, and rebalance portfolios. With only a 0.5% management fee, Wealthsimple takes care of all your investing activities.
Once you turn 18, your bank reaches out to you with an endless variety of credit cards. However, if you aren’t careful with how you use them, you could end up in a horrible, never-ending financial situation. Think of a credit card as a loan you take on every month. It comes with a monthly bill that you must pay off and carries a balance that accrues interest if you make less than the full payment for that month. Using credit cards with caution is extremely important as they can make or break your financial future. Whenever you make a credit card payment, you are building your credit score. A credit score is a number that represents the risk a lender is taking when you borrow money. The higher the credit score, the lower the risk. A good credit score (700+) is essential to have because it shows banks that you can repay debts on time. This will ultimately help you qualify for mortgage loans when you want to buy a house.
If you’re going to build your credit score, make sure to follow these three core tips:
1. Pay credit card bills on time
2. Pay the full amount on the bill
3. Don’t spend more than you have
After you’ve followed these tips for a few months, sign up for a 30-day free trial with Equifax to check your credit score. If you’re using Mint, you also have the option for free credit score checks.
Financial goals, in a nutshell, are the personal objectives you set for how you save and spend money. Do you want to pay off your student debt? Save for retirement? Go on vacation? Well, all these objectives require feasible spending and savings plans to be achieved. By setting financial goals, your behaviour and spending habits are influenced because of that goal. Say you’re looking to go on a mini-vacation. You may cut back on eating out to reach this personal objective of yours. Overall, financial goals are imperative to set because they help guide you in your path to achieve monetary success.
A 3-step process to set the perfect financial goal is as follows:
1. Figure out what’s important to you
Ask yourself these questions: What are your goals for the future? Are they short, medium, or long-term goals? What goal takes priority?
2. Create a realistic budget
Figure out the costs of your goal and how much money you can put away each month to achieve it.
3. Check on your progress
Once you’ve identified your financial goal and created a plan for it, you want to make sure you’re staying on track.
At a glance, managing your money may look like a daring task. However, all it takes is 2-3 apps on your phone, along with building a few habits to steer yourself towards financial success. If you implement these five tips, your personal finance efforts today will pay dividends down the line – literally. Good luck and happy saving!