As a student or a fresh graduated person, it’s easy to overlook the importance of financial planning amidst the hustle and bustle of academic life. However, making a right start in managing your finances is crucial for a secure and prosperous future.
In this article, we’ll explore some key principles and strategies that can help everyone in becoming financially smart.
The 50-30-20 Rule
The 50-30-20 rule is a simple yet powerful budgeting method that can help students manage their finances effectively. This rule allocates 50% of your income for needs (such as rent, groceries, and bills), 30% for wants (like dining out, entertainment, and shopping sprees), and 20% for savings (including emergencies, investments, and financial goals). By following this rule, anyone can ensure that their spending is balanced and aligned with their financial goals.
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Start Financial Planning from Your First Paycheque
Many students receive their first paycheque from internships or when they secure their first job. Challenging, as it may sound, but it’s essential to start financial planning from your first paycheque. This means setting clear financial goals, creating a budget, and tracking expenses. Starting early allows students to take advantage of the power of compounding, which can significantly increase wealth over time.
Create a Budget and Stick to It
Creating a budget is crucial for everyone. It allows them to track their income and expenses and make informed decisions about their spending. To create a budget, students should list all their sources of income and their fixed expenses (such as rent, utilities, and groceries). Then, allocate a portion of their income for variable expenses (like dining out, entertainment, and shopping). Finally, set aside a percentage of their income for savings and investments. Budgeting lends a discipline to the way we spend and is a great tool to manage funds in long run.
Set Financial Goals and Work Towards Them
Setting clear financial goals is another important step for the students. Whether you want to save for a trip, buy a car, or pay-off student loans, having specific goals can help students stay focused and motivated. To set financial goals, students should identify what they want to achieve and when they want to achieve it. Then, break down their goals into smaller, more manageable steps, and create a plan to achieve them. At this stage, it may be worthwhile to consult a Certified Financial Planner (CFP®) professional, who can professionally guide you to put together a financial roadmap to achieve these goals and lead a quality life alongside.
Educate Yourself About Finances
Finally, educating yourself about finances is crucial for everyone. This means learning about topics like budgeting, saving, investing, and managing debt. There are many resources available to help students learn about finances, including books, websites, and financial advisors. By taking the time to educate themselves, anyone can make informed decisions about their finances and achieve their financial goals.
To conclude, making a right start in managing finances is essential for students or gen Z. By following the principles and strategies outlined in this article, they can become financially smart and work towards financial independence and security. Remember, it’s never too early or too late to start managing your finances and working towards your financial goals.
(By Krishan Mishra, CEO, FPSB India. Views are personal)