As an attorney focused on helping individuals and businesses with debt relief, the apparent reasons for financial problems are as numerous as the stars in the sky including excessive student loans, job/ income loss from being fired/ downsizing, medical problems, divorce, or failed business/ investment. Although it is sometimes because of a major unfortunate uncontrollable life event, I also often see clients who started struggling financially when they first went out on their own and overspending, not strictly budgeting/ living within their means. .
Whatever the reason, I have four goals for my clients: 1. To get out of the mess; 2. To stay out of the mess; 3. To have regular credit again; and 4. To have a vision of a successful financial future, which, to me, is where clients have money in the bank, own their own home and are ready to retire.
One way to achieve these goals is to learn to live on a budget.
It is important, especially when you are starting to become financially independent, to understand the importance of managing money, living on a budget and making smart financial decisions. There are many websites and books dedicated to this topic but below are some tips:
1. Work on a budget. For example, a college student’s budget might look something like this:
|
Expense |
Estimated |
Actual |
|
Rent |
$600.00 |
|
|
Utilities (water/ Electricity) |
$100.00 |
|
|
Cable/ Internet/ Cell Phone |
$200.00 |
|
|
Food (Groceries/ Restaurants) |
$300.00 |
|
|
Car expenses (Car payment, Gas/ Auto Repairs/ Oil Changes, Parking, Taxes/ Insurance) |
$300.00 |
|
|
Clothing |
$100.00 |
|
|
Recreation/ gym |
$100.00 |
|
|
Personal (Toiletries, household goods) |
$100.00 |
|
|
Health/ Medical (Doctor/ Hospital Bills/ Medicine/ Health Insurance) |
$100.00 |
|
|
Pet expenses |
$50.00 |
|
|
Charity |
||
|
Tuition/ books |
- At the end of the month, track your monthly spending and add up all of your expenses. Compare estimated to actual and adjust as needed. Take your income less your expenses and, if you have money left over, put it into savings to cover any unexpected future expenses. If you are short, see if you might be able to earn a little extra income with a part-time/ on- campus job or Uber in your spare time; see if there might be any scholarships available; and see where you might be able to cut expenses.
2. Tips for young adults/ college students to cut expenses:
- Find a roommate to share rent and utilities; see if living on campus might be less than off-campus; consider living at home during the summers.
- Check different providers/ best rates for cable/ internet/ cell phone. Consider using a steaming service like Netflix instead of cable.
- Instead of spending money on dinners/ drinks out, get your friends together at home and ask everyone to bring something to share. Make meals/ coffee at home.
- Buy used textbooks instead of new.
- If you are unable to give money to charity, give your time and talent.
- Bike or use public transportation instead of driving, if possible, to save gas and other vehicle expenses.
- If you need to make a big purchase such as furniture, check different stores/ websites as prices vary or check Facebook Marketplace.
- Look for student discounts.
- Choose your school wisely. Consider the cost. Consider an in-state school.
- Watch movies at home instead of the movie theater; borrow books and movies from the library.
- Request generic prescriptions instead of name brand; check prescriptions prices using a website such as goodrx.com as medicine prices can vary by pharmacy.
3. Research the income/ job market for the career path you plan to pursue.
4. Avoid using credit cards and take out as little student loans as possible. Only borrow what you need. If you have to take out student loans, below are some suggestions:
- Choose federal loans over private loans if at all possible.
- Federal loans usually have lower/ fixed interest rates which means the payments won’t fluctuate (go up and down), deferral/ forbearance options (delay/ suspension of payments), flexible repayment options and usually have need-based or income-contingent programs available. Federal loans are sometimes discharged/ forgiven after certain period of regular payments (usually 25 years) and have possible public service discharge if you work for the state/ government for a certain period of time (usually 10 years). Make sure your loans qualify especially if the objective of choosing career in the public sector is loan forgiveness.
- You should only take out private student loans if there are no other options. Private loans have variable interest rates (which can be very high- depends on market rate and credit history) so payments can increase significantly over time, the payments are due immediately after graduation regardless of whether you have a job and limited forbearance/ deferral options/ discharge options.
- Be careful about getting your parents or grandparents to co-sign for you on student loans.
- Look into the military or reserves which might pay school loans in exchange for service.
I hope these suggestions help give you some ideas on how to save and manage money and live on a budget and set yourself up for success. Live like a student now so you don’t have to live like a student later. Understand the difference between a need and a want. If you live within your means with the help of a budget and make smart financial decisions, you’ll hopefully be prepared for any unexpected expenses and be able to save for things you want and enjoy them without getting overextended.
*I am one of the volunteers with the Bankruptcy Court’s Credit Abuse Resistance Education Program (“CARE Program”). The CARE Program is a financial literacy education program for students and young adults taught by bankruptcy professionals. Its goal is to improve the financial literacy of students and other young consumers. The CARE Program provides practical advice on the true cost of consumer credit and the difficulty of repaying debt. CARE presentations are taught by experienced bankruptcy practitioner volunteers who use relevant examples to engage their audience. The CARE Program also addresses the important topic of student loan debt which is one of the biggest problems facing young people today and explains the different types of student loans and how to choose among them wisely. Presentations are flexible and can be specifically tailored to address a group's specific needs/ time frame. CARE presentations free of charge. If you are interested in scheduling a presentation for your group or class, you can find more information HERE