Tag Archives: budgeting

Financial Fitness for Freshmen

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The following Money Management column is provided jointly by the American Institute of Certified Public Accountants and the Indiana CPA Society as part of the CPA profession’s nationwide 360 Degrees of Financial Literacy program.

As you get ready to go away to college for the first time, this is a good time to expand your knowledge of day-to-day money management, including smart budgeting and debt management steps. The Indiana CPA Society offers these tips to students who want to get through college with the right financial footing.

Start on a Budget

You may be surprised at the high everyday costs of college, including books and supplies, daily living expenses and travel to and from school. That’s why it’s a good idea to get a sense of what you will spend – outside of tuition costs – before you begin each semester. Include savings you plan to use, any money you may receive from your family and the income you can expect from any jobs.

According to a Nationwide survey, the average student income is about $1,400 a month from part-time jobs and parents. Semesters usually last about four months, so divide your projected total to determine how much you can spend each month, after deducting the amount you can expect to pay for books at the beginning of the semester. It’s also a good idea to track your actual spending throughout the semester, so that you can more accurately project and adjust your budget for the years to come.

Get What You Need

Once you know your income, determine a list of expected expenditures each month. Be sure to remember the difference between wants and needs. Textbooks and supplies are clearly mandatory, but weekend trips, nights out and new clothes are not. Even a car can quickly drain your resources if you’re cash strapped.

Feed the Pig, the AICPA’s financial literacy site aimed at young people, recommends recording every time you make a purchase so that you get a good sense of where your money goes. Then categorize all the items, to see if you’re spending as much on morning coffee as you are on weekend entertainment. These steps allow you to understand where you might need to cut back or reconsider your spending choices. If you’re honest about your real necessities, it will be easier to create a workable budget, and find ways to save.

Avoid Credit Card Debt

College seniors with credit cards graduate with an average of $4,100 in credit card debt, according to the Nationwide survey. The importance of budgeting is clear when you see the consequences of spending beyond your means. Many students use credit cards to stretch their spending money, but given the high interest rates involved that can be a costly choice.

For example, if you have a $4,100 credit card balance, at an 18% interest rate and you make a $200 payment each month, it will take you 25 months to pay off that balance and it will cost you a whopping $836.27 in interest, money you could have spent on other purchases or put aside in savings. That debt is a big burden to carry, especially since so many graduates also have significant outstanding student loan debts.

Debt can make it more difficult to find or afford your own place or to qualify for an auto or other loan. The best advice: If you’re going to reach for the plastic, make sure it’s a debit card. That way you will spend only what you have in your bank account now and avoid overextending yourself.

Your Local CPA Can Help

College is an exciting time that offers many new experiences, including managing your own money. If you or your family has questions about financial topics, be sure to consult your local CPA. He or she can help you address all your important financial concerns.

Survey: Many Americans Living Paycheck to Paycheck

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Most national news stories right now are focusing on the seeming ineptness of our Congress and Presidential administration to agree on a plan to avoid the so-called “Fiscal Cliff.” While an agreement has now been reached, none of the information surrounding how this deal came to be is positive.

Americans are mostly annoyed and aggravated, some downright outraged, about this. And we absolutely should be – we elect these people to act on our behalf, not like squabbling children (sorry, that’s offensive to all children).

But maybe we also need to point a finger in the mirror. At least, one in every two Americans should do that, as apparently we’re not much better off at handling our own finances than the federal government is at handling its finances.

A December survey from online lender NetCredit.com has discovered that almost half of Americans indicate that they are living paycheck to paycheck and 44% of Americans are just trying to stay current on their bills and avoid debt and bankruptcy.

Using 1,000 Americans in the poll, there were some demographics that stood out as the most likely to face this financial reality, including: 62% of Americans in their 30s; 54% among those Americans under age 60; 57% of families with children; 64% of families with five or more people in the household; and 53% in southern states, versus those in the northeastern U.S.

Also mirroring our political leaders, borrowing money seems to be the go-to answer in case of an emergency (car repairs, medical bill, high utility bill, etc.).

Twenty-three percent of these Americans would whip out a credit card; 16% would hit up their families and friends; 5% would head to the bank for a loan and 2% would use installment loans. Other possible solutions include using general savings or a separate rainy day fund, selling or pawning items or short-term cash advances.

But the poll’s press release also noted that a recent FDIC study found that nearly half of Americans can’t come up with $2,000 in 30 days if an emergency did arise and they used these options.

So what can be done to prevent this? The first advice I’ve seen from anyone who deals with money and finances is this: have an emergency fund. Start small; say $1,000 in a savings account (separate from the checking account). The ultimate goal is to have three to six months of living expenses in an emergency fund, which would cover a sudden loss of income and delay the added stress that would come with a job loss.

Slow and steady wins the race though; it’s not a quick thing to have six months of living expenses sitting in the bank. Create a budget and stick to it. Live within your means.

Now, would anyone like to share this with the federal government?