Money Management Strategies for Your College Student or Recent Graduate
Whether your adult child is a freshman at a university or you have a recent graduate, he or she may struggle to stay on a budget and even save. Here are a few ways you can point him or her in the right direction.
Q: How Can We Teach Our Son About Budgeting?
A: A recent survey of college students found that 53% of Gen Z students rank money management as the biggest challenge they face today. In addition, 78% of college students feel they don’t have the information they need to pay off student loans.1
Probably the easiest way to get your son to start a budget is to encourage the use of a budgeting app, a simple spreadsheet or even putting a note in his phone to start tracking monthly income and expenses. It’s a good idea to encourage him to set aside a little extra to cover the unexpected like a flat tire or a broken computer. While he may have grown up in a wealthy household, college is an opportune time to let him become independent in every way including money management.
A useful rule of thumb is the 50/30/20 rule:
- 50% of his income should go to basic living expenses
- 30% should be for entertainment and fun activities
- 20% should be set aside for savings or investments
These percentages will need to be tweaked if, for example, nondiscretionary expenses like rent make up 53% of his budget. Encourage him to put money toward savings first to benefit from the power of compounding interest over time. Even if he dips into savings, he’ll still be learning.
If he feels overwhelmed by the idea of budgeting, take some time when he comes home from college for a visit to check in and see how budgeting is going. Think about where you could offer some tips based on your own experience to make the process as easy as possible.
Q: Our College Graduate Has Landed Her First Job. What Advice Can We Give Her?
A: Presuming she is able to successfully manage a budget and is earning a salary, she’ll want to:
- Pay off federal student loan balances, first using any residual funds in her 529 account plan.
- Enroll in her company-sponsored 401(k) plan and make the minimum contribution to qualify for an employer match. As her salary increases, she should consider increasing her contribution amount along with it.
- Apply for a credit card and pay off the full balance due every month to avoid high interest rate charges. Establishing good credit will help her when making major purchases such as buying a car or home.
- Continue to add to her savings account regularly by setting up automatic payroll deductions.
- Contribute to a retirement account if she works for an employer that offers this benefit. Again, the earlier she starts saving, the more she’ll benefit from compounding interest over time.
The healthy money management habits you can encourage your adult child to make now will help build the foundation for a more secure financial future.
This article is provided for informational and educational purposes only, and the views expressed do not take into account any individual personal financial, legal, or tax considerations. As such, the information contained herein is not intended to be personal legal, investment, tax advice, or a solicitation to or recommendation to engage in any strategy mentioned. Any opinions expressed are based on information and sources of information deemed to be reliable, but Mariner Wealth Advisors does not warrant the accuracy of the information. Please seek advice from qualified tax, legal, and financial professionals before making any financial-related decisions.
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