As the common notion goes, student life isn’t as stressful when there’s no financial responsibility involved. For most students, parents pay all yearly expenses early on, leaving them with the ability to utilize their mental capacity in academics fully. However, this privilege must not be construed as a pass to skip important life skills like financial management.
Good financial management is the key to achieving financial independence early in life. This can help a person retire early or utilize their funds for their own passion projects. Let’s explore ways in which students can learn how to manage their finances and plan out their future in ways to help them achieve financial independence.
1. Use a daily expense manager:
Apart from the cost of monthly accommodation and meals, a student may need to spend money on many other activities. Nonetheless, every student needs to know where their money is going.
A money manager app can help students manually log their daily expenses or automatically track expenses if the app is in sync with the digital wallet. Alternatively, a student may also use a paper-based log book as a daily expense manager. Regardless of the mode, a daily expense manager can uncover insights into a student’s financial behavior and help students devise ways to become more financially efficient.
2. Explore income-generating opportunities:
The standard way to become financially independent is by ensuring that money keeps coming in and most of it remains retained or invested. Apart from monthly allowances, students may explore ways to generate a side income if their schedule allows. This could include taking up an on-campus job, building a small business, doing a part-time job, or freelancing. Being able to generate an income can instill confidence and help students realize the true value of money.
3. Create a monthly budget:
Whether students earn their own income or are given monthly allowances, they should learn how to create a budget. A monthly budget should clearly outline the monthly goals that a student wants to achieve after accounting for all the planned and necessary expenses. Creating a budget can help students learn how to live within their means and get a realistic overview of their future expenses.
4. Invest in investment education:
Many working professionals agree that there are times when savings alone do not suffice. Students must realize this early on and explore ways in which they can finance a bigger expenditure later in life. Investing money is one way of doing so. While directly investing money may not be realistic for most students, they can start by taking up courses or seeking guidance from those who have experience in investing money.
5. Contribute some savings to an emergency fund:
Everyone has to face a time in their lives when they have to shell out funds for an unplanned but necessary expense. Such financial surprises can be a roadblock on the path to financial independence, but they can be easily addressed if one has an emergency fund. Once a student has started saving a part of their income or allowance, they should make it a habit to allocate a part of the savings toward an emergency fund.
The Bottom Line
Achieving financial independence can be easier if a person starts preparing early in life. Having sound knowledge of investments, inflation, savings, and other financial concepts can help a student forecast how much corpus they want to build to become financially independent in the future.