Moving away from home for the first time represents, for many people, the beginning of adult life. It may be the first time you are more or less fully responsible for yourself. How you take care of your space, how you allocate your time, and how you manage your money are up to you when you leave your parents’ home and start to create your own. Forming good financial planning habits during this time will serve you throughout the rest of your life.
If you are going away to college or otherwise moving away from home for the first time, you have a clean slate in many respects. You have a new living space that you can decorate, organize, and maintain as you like. If you have not already taken out an auto loan or begun accumulating credit card debt, you have a fresh financial start. Taking control of your finances now can make the rest of your life easier by freeing you from the complications that inevitably arise from a sloppy approach to money. Follow these steps as you begin your adult life, and your future self will thank you.
1. Assess your resources.
Take a clear look at what resources are available to you. Do you have a job yet? If not, how much do you have in savings? What regular income can you reasonably count on? Get an idea of exactly what you will have coming in each month, or if that is uncertain, think about how much you can draw from your savings and for how long before it runs out.
2. Look realistically at your costs.
Rent is likely to be one of your most significant costs. The standard advice is to try to limit your rent payment to no more than 1/3 of your monthly income. In fact, some landlords require that tenants have monthly income of at least 3 times the rent amount.
If you have never you’re your own grocery shopping, food is probably more expensive than you would guess. If you plan to live in a dorm and use a meal plan, then your cost is more fixed, but keep in mind that you will almost certainly want to eat out, buy snacks for your room, or order late night pizza now and then. If you are responsible for all of your own meals, then think about what kinds of items you want to have in your home. What are you able to cook? What do you like to eat? How much time will you be able to spend on meal preparation? Get an idea of what your weekly shopping list will look like. Then bring a calculator along when you go to the store with your parents, and add it up.
Entertainment will probably be an important part of your life, so make sure that you include it in your budget. Think about what kinds of things you like to do, how often you would like to do them, and how much they cost. Consider how much you can reasonably spend on dinners out, concert tickets, or weekend road trips. Once you have decided how much of your income you want to allocate for these expenses, stick to it.
Don’t forget about transportation costs. If you drive, consider gas and maintenance. If you will be using public transportation, find out how much it will cost you each month. Walking or biking as much as possible can help keep these costs down.
Finally, leave room for costs that you don’t expect; they will arise. You might need to buy extra materials for a class or get emergency repairs for your car. The restaurant where you found work may close. Whatever the unexpected need, you want to be prepared for it. Experts suggest having at least three months worth of living expenses set aside for emergenices.
3. Be responsible with credit.
College students are frequently inundated with credit card offers. Some begin their adult financial lives by treating these offers as free money. Before long, they realize that is not at all what credit is, and they often face a long road of recovery before they have repaired the damage wrought by reckless spending. It’s a good idea to have one or two credit card accounts, to use them for certain budgeted expenses, and to pay them off every month. If you can get a credit card that carries no annual fee, then this is a no-cost way of building your credit history. If you fail to pay off your balance every month, however, you will be charged interest, which is usually quite high for new borrowers. Late fees cost much more than interest, so even if you have to let some of a balance ride for a month or two, be sure to make at least the minimum payment (preferably more) no later than the due date.
Boelman Shaw Capital Parnters in Des Moines provides professional financial planning advice as well as tax, insurance, and business services.
Material discussed herein is meant for general illustration and/or informational purposes only. Because individual situations will vary, the information shared here should be used in conjunction with individual professional advice.