• Financial Planning

    Financial Planning

    Financial planning is a very important topic that generally is not taught in the classroom. Knowing how to manage your finances while in school and after graduation, will set you up for financial success in the future. You may need to consult with professionals for help in this area. A great place to start is Hamline’s Financial Aid office. They have many resources available to you regarding your finances.

    Resources for Money Management

    Bankrate.com - managing debt as a student and consumer
    CashCourse.org - provided free by the National Endowment for Financial Education
    EducationCents.org- free tools on financial literacy
    Financial Literacy Basics - eight free guides
    JumpStart.org - money management for students
    MyMoney.gov - money management information and toolkit
    SaltMoney.org – resources to remove financial barriers to education
    SmartAboutMoney.org - free online courses

    Budgeting

    One of the first steps in planning is determining your financial goals. Make a list of all the things you want to accomplish- travel, attend school without taking out loans, pay back loans in 5 years, manage credit card debt, buy a car, buy a house, etc. After you’ve determined your goals and prioritized them, you need to make a plan. Creating a budget will help you identify sources and amounts of income as well as expenditures. You can find many budgeting templates online or even sites that will automatically track your income and expenses for you such as www.mint.com. When creating a budget, include fixed expenses (rent, cell phone, insurance, etc.) as well as variable expenses (entertainment, groceries, personal care, etc.). You may want to track this information over a few months to get accurate information. This will allow you to see if you have a surplus at the end of every month or a deficit. It also allows you to see areas you may be able to cut back on.

    Loans

    Many students need loans to be able to attend school. Understanding what types of loans you have is important. The most common types are Federal Stafford Loans (subsidized and unsubsidized) and alternative/private loans. Each type of loan will have its own terms and requirements. Get familiar with your own loans. Piperline lists all of your current loans. You will want to know your loan amount, interest rates, grace period, and loan repayment options.

    • Nslds.ed.gov- National Student Data Loan System; you can retrieve your loan information on this site.

    Loan Repayment

    Students have many options for repayment:

    • Standard Repayment, with equal payments for up to 10 years with a minimum payment of $50.00 per month
    • Graduated Repayment, repayment is still 10 years, but you pay small payments in the beginning and large payments in the end
    • Income Sensitive or Income Contingent Repayment, payments are based on your income and family size
    • Extended Repayment, an option if you have over $30,000 in federal student debt. The repayment term may be as long as 25 years
    • Income Based Repayment/Pay as You Earn, in which payments are capped at percentage of disposable income and you must demonstrate hardship with current student loan payment

    There are many online calculators to help you determine how much your loan will cost you with different types of repayment plans.

    Credit Reports

    Obtaining a copy of your credit report can be helpful. The Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion —to provide you with a free copy of your credit report once every 12 months. A credit report includes information on where you live, how you pay your bills, and whether you’ve been sued or have filed for bankruptcy.

    Nationwide credit reporting companies sell the information in your report to creditors, insurers, employers, and other businesses that use it to evaluate your applications for credit, insurance, employment, or renting a home.

    Insurance

    If you’d like to protect yourself from a financial disaster, then insurance is a must! As a current college student, you will most likely need four or five types of insurance: auto, health, life, renters/home owners, and disability insurance. Purchasing the correct insurance coverage is generally not that expensive. Making sure you choose the right provider will help. Many employers will offer assistance with insurance as part of the compensation package. In addition, due to the Affordable Care Act, students are allowed to stay on their parents’ health insurance until the age of 26. Research your options and determine what the best fit is for you. Similar to loans, you should understand insurance terms such as premiums (fee you pay for coverage), deductibles (amount of money you have to pay on a claim before the insurance kicks in), co-insurance (percentage of each claim the insured has to pay over and above the deductible), and copayment (amount you pay each time you see your health care provider). You may run into more terms you may not understand, so do some research and ask for help as needed.

    Investing and Retirement

    Investing is one way of meeting your long-term financial goals. It’s different from savings in that your money isn’t always readily accessible when you need it (much like your savings account is). Investing also involves a certain level of risk (possibly losing money) but also yields a greater return (gain money) than just using a savings account. Experts suggest you may not be ready to start investing if you do not
    have an emergency fund of at least three months’ living expenses, do not have adequate insurance, have credit card debt, or are not contributing to a 401K or other retirement savings plan. If you decide investing is a good option for you, there are many types of investments. The most common are bonds, stocks, and mutual funds.

    Make sure you are contributing to a retirement savings account before investing in any other avenues. The sooner in your life you start investing in your retirement, the more you will have when it’s time to retire. Consider the following example.
     

    Recent Graduate

    Not-So-Recent Graduate

    • Begins investing for retirement at age 21.
    • Invests $2,000 each year until she is 29, and does NOT invest any more money for her retirement after that.
    • Total contributions: $18,000 at a 10% compounded rate of return.
    • Value at age 65: $839,556
     
    • Begins investing for retirement at age 30.
    • Invests $2,000 each year, and continues to do so until she is 65.
    • Total contributions: $70,000 at a 10% compounded rate of return.
    • Value at age 65: $598,253
     

    Source: Your Financial Future: A Guide to Life After Graduation

    As you can see, the earlier you start investing, the more your money will work for you! Many organizations offer employer-sponsored plans. These plans allow you to contribute money tax-free. After enrolling, the investments are handled automatically when you receive your pay-check, and some employers will offer a contribution or “match” to the funds that you are putting into your plan. Usually the match is a certain percent of what you contribute- which is free money! If you are able to take advantage of an employer match, be sure to do so.