Money is a subject that’s often overlooked in the lives of students, until the reality of adulthood forces them to confront it. As students transition from high school to college and beyond, understanding how to handle personal finances becomes increasingly important. In fact, a U.S. Bank survey revealed that about 65% of students admitted to having only a basic understanding of finances and personal money management.
Why is this the case? Perhaps it's because the topic of finance can be daunting or even boring to some, or perhaps it's because students are more focused on immediate challenges like examinations, securing internships, or managing their social lives. Whatever the reasons, the financial literacy gap among students is a cause for concern and can only be addressed by encouraging students to set financial goals early in life. Here's a comprehensive exploration of why students should set financial goals and how to go about it.
Why Students Should Set Financial Goals
Financial Responsibility
The primary reason to set financial goals is to develop financial responsibility. This goes beyond merely budgeting weekly allowances or paychecks from part-time jobs. It's about taking full ownership of one's financial future. It involves knowing how much money is coming in, understanding where it's going, and having a plan for how it should be spent or saved.
By setting financial goals, students can develop a stronger understanding of their finances. They can make better decisions about their money, paving the way for financial security in the future. This is a crucial life skill that can help them avoid the pitfalls of debt and financial instability.
Debt Management
With the rising cost of education, student loans have become a common way for many students to finance their studies. However, navigating the complexities of student loans and other forms of debt can be challenging.
By setting financial goals early on, students can develop a proactive approach to managing and repaying their debts. They can build strategies to reduce their student loan burden, prevent the accumulation of bad debt, and prioritize repayments. This can alleviate financial stress and make the journey towards a debt-free life less overwhelming.
Future Readiness
The future is always uncertain. Economic recessions, job market fluctuations, health emergencies, and unexpected expenses are realities of life. Having a strong financial foundation can provide the much-needed resilience to weather these uncertainties.
Setting financial goals helps students prepare for the future. It allows them to build savings, investments, and an emergency fund. This not only provides a safety net during challenging times but also empowers them to take advantage of opportunities when they arise, such as starting a business or buying a home.
How Students Can Set Financial Goals
Boost Financial Literacy
The first step in setting financial goals is understanding the basics of personal finance. This includes concepts like income, expenses, savings, investments, interest rates, taxes, insurance, and debts.
There's a wealth of resources available to students who wish to improve their financial literacy. Books like "Rich Dad Poor Dad" by Robert Kiyosaki or "The Total Money Makeover" by Dave Ramsey provide excellent starting points. Podcasts, such as "The Dave Ramsey Show" or "Planet Money," offer insightful discussions on finance. Online platforms like Coursera and Khan Academy offer free courses on personal finance.
Additionally, high schools and universities often offer courses on personal finance, either as part of their curriculum or as extracurricular activities. Taking advantage of these resources can set the foundation for setting meaningful and achievable financial goals.
Identify Financial Goals
Financial goals will vary from student to student. Some might aim to save for tuition or to pay off their student loans quickly. Others might want to start saving for a down payment on a car or a home, or to fund a dream vacation after graduation.
When setting financial goals, students should ensure that their goals are Specific, Measurable, Achievable, Relevant, and Time-bound (SMART). This framework can guide students in setting clear and realistic financial goals and map out a plan to achieve them.
Create a Budget
Creating a budget is an essential step towards achieving financial goals. A budget is a financial plan that outlines anticipated income and expenses over a given period, allowing students to visualize where their money is going and how much they can save.
A budget doesn't have to be restrictive. It's a tool that allows for conscious spending and systematic saving. It can also help identify areas of unnecessary expenditure and opportunities for savings. By sticking to a budget, students can make consistent progress towards their financial goals without sacrificing their lifestyle or financial stability.
Build an Emergency Fund
Life is unpredictable, and financial emergencies can be distressing. An emergency fund provides a financial safety net for unexpected expenses, such as medical emergencies, urgent car repairs, or unplanned travel.
By setting a goal to build an emergency fund, students can ensure they have a buffer to tide them over in case of financial emergencies. This can reduce their reliance on credit, thereby preventing the accumulation of high-interest debt.
Consider Investing
Investments can be an excellent way for students to grow their money over time. By learning about and investing in stocks, bonds, mutual funds, or real estate, students can earn returns on their investments that can help them achieve their financial goals faster.
As a student, it's advisable to start with small, low-risk investments. With time and experience, they can gradually venture into more substantial, higher-risk investments. By investing early, students can take advantage of the power of compounding, where the returns on their investments earn further returns.
Regularly Review and Adjust Goals
Financial goals should not be static. They should be regularly reviewed and adjusted based on changes in income, expenses, financial circumstances, or priorities. Regular review allows students to track their progress, understand what's working and what's not, and make necessary adjustments to stay on course towards achieving their goals.
The Role of Financial Independence
Ultimately, setting financial goals is a pathway to achieving financial independence. Financial independence means having the financial means to make life decisions without being overly concerned about the financial implications. This doesn't imply being wealthy, but having enough financial resources to cover one's needs and desires.
By setting and achieving financial goals, students can prevent many of the pitfalls associated with financial mismanagement and enjoy the benefits of financial stability and independence.
In conclusion, the importance of setting financial goals as a student cannot be overemphasized. While it might seem daunting at first, with patience, discipline, and the right tools and knowledge, students can set and achieve their financial goals. The habits formed during the student years have a significant impact on the financial future, and the rewards of financial stability and independence are well worth the effort.