Managing finances can be tricky for young adults. The good news is you can educate yourself about responsibly managing your finances and avoid potential mistakes from which it could take years to recover. Learning how to manage your finances early on is an important part of financial education for students and will guide you on a path to a healthy financial future. 

1. Open a bank account. 

This may seem obvious but if you don't have one, you are going to have a tough time managing your finances. Start off with a checking and savings account. 

2. Set financial goals.College_Pathway_Web

Setting financial goals is a smart choice and can be very rewarding. Instead of wandering aimlessly, you have something to strive for and a clear path for getting there. To set financial goals, first define what your goals are. Write them down and set milestones along the way to help you achieve them. Prioritize your goals and put together a plan of action. Just remember to be realistic when setting financial goals. You want to set a goal that is reasonably attainable. 

3. Create a budget

Creating and following a realistic budget helps you avoid making purchases you can't afford, missing payments or defaulting on your loans. These mistakes can hurt your credit history and therefore your ability to: rent an apartment, borrow to purchase a home or car, or most importantly, get a job. To create your personal budget, use our calculator.

4. Pay yourself first.

Making money – and spending it – can feel very rewarding. However, saving can help you reach many of your financial goals. From every paycheck, automatically deposit a set amount of money into your "emergency fund account" and your "regular savings account." Starting small is okay; you can always increase the amount in the future. Consistency is the key to developing a successful saving habit. After paying your monthly bills, consider putting any extra money in your savings account immediately rather than waiting until the end of the month to see what is left over. This will prevent you from spending your extra cash on unnecessary purchases that can interfere with meeting your financial goals. When you save money, remember to do so in an interest earning account. Compound interest helps you reach your goals faster.

The Impact of Compound Interest

Saving $1 a day

  No Interest 3% daily compounding 5% daily compounding
Year 1  $     365  $371  $374
Year 5  $ 1,825  $1,969  $2,073
Year 10  $ 3,650  $4,256  $4,735
Year 20  $ 7,300  $10,002  $12,542
Year 30  $10,950  $17,757  $25,413

 Saving $5 a day

    No Interest 3% daily compounding 5% daily compounding
Year 1 $1,825 $1,853 $1,871
Year 5 $9,125 $9,844 $10,366
Year 10 $18,250 $21,282 $23,676
Year 20 $36,500 $50,009 $62,710
Year 30 $54,750 $88,786 $127,065

5. Spend responsibly.

Small purchases can really add up. Take a look at the chart below. Try to minimize these types of costs - not only will you save money - you will also live a healthier lifestyle.

         
Item Frequency Cost Per
Unit
Monthly
Cost
Annual
Cost
Coffee 5 x a week $3 $60 $720
Takeout/Pizza 4 x a month $15 $60 $720
Movies 2 x a month $20 $40 $480
Vending machine snack 3 x a week $1 $12 $144
  Total $172 $2064
       

6. Don't overborrow. 

If you need to borrow, whether it is a student loan or a car loan, you need to make sure you are borrowing within your means. Read these strategies on responsible borrowing

 

Next topic: Understanding Credit