Financial planning can assist students in managing their student loans and developing healthy money habits. Furthermore, it teaches them how to save for long-term goals such as paying off debt or saving up for a home down payment.
Young adults should seize this opportunity to experiment with budgeting without incurring heavy penalties for mistakes.
1. Determine Your Tuition Costs
Step one in creating a financial plan should involve research tuition costs for the colleges you are interested in attending. Be sure to include not only tuition but also additional fees, textbooks and supplies - but remember that sticker price doesn't reflect true costs of attendance; cost of attendance takes into account living expenses such as room and board, transportation and annual health insurance premiums.
Consider all sources of income, from savings from previous college expenses and part-time work to summer employment and summer jobs. It may require cutting back paid work in order to dedicate enough time for studying, but it is still worthwhile making sure your expenses can be covered without solely relying on student loans and debt repayment. NerdWallet's Budget Worksheet can help you understand how much money is necessary; early identification of priorities such as tuition will allow you to set priorities before spending money unwisely (like buying new shoes). Also learning to manage with less can teach better judgment when spending decisions!
2. Create a Budget
Budgeting can be a helpful financial tool for all, regardless of their current financial state. A budget allows you to gauge what income comes in, what expenses go out, if savings or paying down debt is possible, etc.
To create a budget, first calculate your net income, which is the amount left after taxes have been deducted. Next, list all of your recurring expenses such as rent, utilities, food, school supplies and transportation costs; using past credit card or bank statements may help estimate these costs more accurately.
NerdWallet suggests allocating 50 percent of your take-home pay towards needs, 30 percent towards wants and 20 percent toward savings/debt repayment goals. If your estimated expenses exceed your estimated income, look for ways to either decrease expenses or increase income.
3. Set Goals
No matter your financial goal is--paying off debt, building savings or saving for retirement--it is important to set realistic and obtainable goals. A clear picture of your monthly cash flow can provide insight into ways of allocating funds toward short-term or medium-term goals.
Establish an emergency fund to cushion unexpected expenses like medical bills or car repairs, save for down payments for your new house or car purchase and plan a pension savings strategy.
Filling out the Free Application for Federal Student Aid (FAFSA) will enable you to reach some of your educational goals through grants, scholarships or work-study programs. Once complete, this step will determine eligibility and access. In addition, employers may offer tuition reimbursement programs as an additional funding source for employees pursuing higher education.
4. Make Payments
Education is a worthwhile investment in both yourself and your career, yet the costs can add up quickly.
Many students use financial aid, loans and tax breaks to manage the costs of college. Adults may look into less traditional options such as community colleges or trade schools as ways to save money while fulfilling their education needs.
Scholarships are financial awards that don't need to be paid back and can offset some tuition expenses. Adults can find scholarships through schools, third-party organizations and employer benefits programs.
Filling out a FAFSA (Free Application for Federal Student Aid) is essential to finding government-provided financial assistance. Many schools require this application in order to qualify for work-study programs, grants and work study grants (even those available to adult learners), along with loans with more favorable repayment terms than private loans.
