How can I effectively manage my finances as a student?
15 August 2023 0
15 August 2023 0

Enriched Academy Staff

Managing your finances as a student requires discipline, planning, and smart decision-making. Avoiding common budgeting and spending mistakes and developing responsible money habits will help you make the most of your student years.  Graduation will be a lot more promising if you are financially stable and ready to take on your new career. Here's some advice, information, and financial tips for students you can use right now to get your finances in order.

What is the first step to effective money management for students?
While student life may seem temporary, it's important to consider your long-term financial goals and how the total cost, and any debts you take on to fund your education, will affect your lifestyle and long-term financial goals post-graduation. For example, if you are planning to buy a home or even finance a car after your studies, you should at least do some basic calculations on what your student loan repayments will be. You have to start repaying them six months after graduation and although Canada Student Loans now carry no interest, repayment of the principal can still be substantial.

Focusing on the present and loading up on student debt while counting on a high-paying job after graduation to bail you out is a recipe for disaster. That job may not materialize and even if it does, you may find that salary doesn’t go near as far as you thought it would once you start living in the real-world. While financial aid is helpful, relying too heavily on it can lead to overspending and financial strain after graduation. If you need to take out student loans, borrow only what you truly need and understand the terms and interest rates associated with them.

How can I handle my student loans responsibly?
The average Canadian student loan (not just the federal portion) for a 2-year college is around $15,000 and $28,000 for a 4-year degree. Student loan repayment terms are flexible and you can adjust the amount and frequency of payments along the way as long as you meet the minimum requirements. If you are thinking bankruptcy might be a way out, keep in mind that this will have very serious repercussions on your credit availability and lifestyle for many years. Student loans are not forgiven if bankruptcy is declared within 7 years of graduation.

While too much debt is a danger, there is no need to completely avoid debt to fund your education. It is often the only option to pay for our studies and education usually provides an excellent, lifetime return on your investment. However, your income as a student is very low and keeping costs to a minimum will put you in a much better position to save, invest, and reach your financial goals once you graduate and enter the work world. It should go without saying, but one of the most common money management tips for students is to continuously search for scholarships, grants, or financial aid opportunities to help limit your student debt.

What are some common budgeting mistakes students should avoid?
The biggest mistake is not having a budget at all. Without a budget, it's easy to overspend and lose track of your finances. A lot of students start out the year in September with a big pile of cash either from a loan, a summer job, or maybe the bank of mom and dad. Ideally, you should pay for your big-ticket necessities right away – tuition or other school fees, dorm fees and meal plan if in student housing, and textbooks or other school supplies. You should also consider some travel costs at this point, are you planning to fly home for the holidays or go on a ski trip at spring break? After you have the big items taken care of, then you can look at how to allocate what’s left on a monthly (or weekly) basis. You don’t want to be out of cash in late February when final exams aren’t until mid-April!

What should I prioritize in my student budget?
The problem with budgets is sticking to them and knowing exactly where and when your spending has gone off the rails. It isn’t that difficult to set up a student budget and assign certain amounts on a weekly or monthly basis. Some expenses like rent, a transit pass, or your cell phone plan are the same every month and you can easily slot in the amount. Other expenses like groceries vary more but you can probably dial in the amount after a couple of months. The real problem is entertainment, dining out, travel, hobbies, or other leisure time activities — spending on these can quickly spiral out of control and leave your budget in pieces.

How do I create a realistic student budget?
The key to effective money management is to track all your expenses and categorize them according to your budget, so you can always see a running total of where you are at. Small, frequent purchases can add up quickly. There are lots of apps to manage finances, or you can use a Google sheet or Excel file... even paper will work! Just makes sure your expense tracking system is quick and easy and get in the habit of updating it at least every few days.

After a few months, your monthly budget planner may need some adjustments.  Your expense tracking may show your original cost estimates are not realistic or maybe you got a part-time job. Your budget is not written in stone and needs to be achievable, so feel free to make changes — as long as you are living within your means and not racking up any additional, unplanned debt.

Impulse buying can easily sink your budget, so take some time to consider if a purchase is really necessary. Be strict with yourself when differentiating between essential and non-essential items and stick to your budget. Take advantage of discounts available to students. Many campus events and activities are free or low-cost. They provide entertainment and opportunities to socialize without straining your budget. Many businesses offer reduced rates for students on transportation, technology, software, entertainment, and more. One of the best way to save money is to cook meals at home or eat in your dormitory cafeteria and limit your restaurant budget to a few special occasions.  If you do split household expenses with roommates, make sure the division of shared bills is fair and worked out beforehand, and that everyone pays on time.

How can I build and maintain a good credit score as a student?
That shiny new student visa card you got from the bank is a great thing to have, but you need to pay it off every month by the due date. In fact, using your credit card for a few purchases each month and paying it off on time will help to establish your credit rating. Paying back your student loans after graduation will also help greatly with your credit rating. On the other hand, not paying off your credit card balance in full is a lot more costly than most people (especially those new to credit cards) realize. If you splashed out $1000 for a spring break trip to Florida and can now only cover the minimum monthly payments, you are going to be paying for that trip for the next 131 months and be on the hook for almost another $1000 in interest charges!

What are some practical ways to save money as a student?
Saving may seem like a luxury as a student, but contributing even a small amount to a tax-free savings account each month from age 18 could be a life-changing habit. They are free and easy to open at an online brokerage and the annual contribution limit of $6500 is the same for everyone and not dependant on employment income. If you ever need the money down the road a few years it can easily be withdrawn and even $100/monthly over the course of your working life from age 18 will compound into hundreds of thousands of dollars by retirement age.

If your schedule allows, consider getting a part-time job or freelancing gig to supplement your income. Just be careful not to overload yourself to the detriment of your studies. Be conservative when estimating your income to avoid budget shortfalls and try to set aside a portion of your income for an emergency fund to cover unexpected expenses and reduce the need to rely on credit cards or additional debt.

Failure to manage your money as a student doesn’t bode well to manage your finances as an adult. Remember, the habits you develop as a student are hard to change and will shape your financial future. Self-discipline and making informed decisions are key to effectively managing your money. Financial education pays and improving your financial literacy will only become more important and more valuable as you grow older. Developing good money management skills as a student will benefit you long after you graduate.

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