If you’re a student who’d like the guidance of a financial planner but can’t afford the ridiculous price tag, then follow these simple steps and take control of your own financial situation.
Step 1: Take Your Financial Snapshot, Right Now.
First, you need to know exactly what you’re situation is. Look at your assets, liabilities, expenses and income. By recognising these items you’ll be able to manage your money now and well into the future.
Assets are obviously the things you own. As a student you might own a car but probably not a property unless you are extremely wealthy already. Liabilities are all the things you owe – your student loan, credit cards, student overdrafts, loans from friends etc.
For some fun, you can calculate your individual net worth. Write down all of your assets and liabilities on a sheet of paper and assign dollar values to each of them. Now, subract your liabilities from your assets and this is your net worth. Is it plus or minus?
Step 2: Define Your Monetary Goals
For some more fun and also some motivation, take the list of assets and liabilities you wrote down and next to them write what you would like to own and what you’d like to owe (i.e. Nothing).
There is no wrong or right answer here. Also, your goals don’t have to be limited to just ‘assets’ and ‘liabilities’. Think of holidays, presents, and your family, too. Once you’ve written down your list of goals, put them in order of importance.
By writing down your goals and prioritising them, you’re already on your way to achieving them. Writing down goals is critical to achieving them!
Step 3: Manage Your Cash Flow
In order to achieve your goals, you need to manage your cash flow in such a way that allows you to fund your goals. Your cash flow program will need to be tailored to your individual specific needs.
This is the most important part of your financial plan. A simple cash flow worksheet gives you the opportunity to quickly identify how much you spend, how much you earn, whether you have a monthly cash flow profit or loss, and how much more you need to earn to turn a monthly loss into a profit.
To set up your cash flow worksheet, first write down all of your income sources. This may include: Your job or jobs, stock dividends, interest, inheritance and gifts from friends and family.
Below that, note down your expenses by breaking them down into two fairly broad categories: 1. Fixed expenses (housing, food, all types of insurance, transportation, etc.) and 2. Discretionary expenses (entertainment, holidays, recreation, etc.), followed by the individual spending categories. To make sure your estimates are correct refer to old credit card bills, online bank statements, and any saved receipts you have.
Next, you should total your income and expenses and find out what your monthly profit (or loss) is – it’ll be much easier if you do this in a spreadsheet. Once you do this exercise you’ll see for the first time what your spending patterns are and where money is falling out your back pocket. It can be incredibly surprising where some people leak money.
Now that you know exactly what you’re spending money on you’ll be able to see where you can scrape back and how much more you need to earn to get to that break even point. If you have a profit, it’s time to start building a cash reserve.
Step 4: Build a Cash Reserve
Building a cash reserve is important for 1. Any financial emergencies that occur and 2. Getting into that saving mentality when saving for big purchases such as a house.
How much is enough? The minimum it should be is 3x your monthly expenses. Aim for 6x.
You should keep your cash reserve in a savings account or an ISA. The great thing about these options is that your money will earn interest which means it’s working for you even when you’re not. Even if savings rates aren’t great at the moment, they will rise.
Remember, it’s never too early to get serious about your money and future wealth. You’re also never too young to learn!