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Townhall...
A Short Course in
Student Loan Management
By Carrie Schwab Pomerantz
Dear Carrie: I’m in college, and next semester my student loan goes
directly to me for the first time. Since it must last the whole school
year, I’m worried it won’t make it.
I’ve already written out a budget, but I’ve never been able to stick to
one before, so I don’t have much faith in myself. What else can I do to
make this money last? -- A Reader
Dear Reader: Great question -- and so important, not only for managing
your school finances but also for preparing yourself for the not too
distant future when you’ll be out of school and on your own. So, start
by giving yourself a little credit.
You’re aware that you could have a financial problem and you’re looking
for ways to avoid it. That’s smart thinking. Now, let’s turn that smart
thinking into a smart plan of action that will help you live within
your means.
THINK DIFFERENTLY ABOUT A
BUDGET
A budget can often seem like a list of what you can’t afford to do:
can’t go out to dinner, can’t buy those concert tickets. But budgeting
is really about what you can do. In fact, don’t think of it as a budget
at all -- think of it as a list of goals you want to accomplish:
1. You need to cover essentials like tuition, rent, utilities, food,
schoolbooks and transportation.
2. You want to have some money for fun, whether it’s taking in a movie
or buying something new.
3. If you can swing it, you want to save some money for future needs to
cover an unexpected expense or a special event.
All these goals are important, and they can be a great motivation for
managing your money wisely. (Just think how good you’ll feel when you
achieve them!) Now, of course, you have to make it happen.
CREATE A MONTHLY
“PAYCHECK” TO COVER BOTH NEEDS AND WANTS
I’m going to assume that you’ll get your student loan money in a lump
sum each semester. Think of this as your income, dividing your semester
funds into a monthly “paycheck” for yourself.
Now put some realistic numbers on paper. First, list your essential
monthly living expenses -- your needs -- and the dollar amounts that go
with them. Then make a list of the extras you’d like to have but can
live without -- your wants -- such as entertainment, dining out, even
clothes. Estimate how much these might cost each month. Finally, add
these two together and subtract the total from your monthly “paycheck.”
Do you have enough to cover everything? Great, you can meet goals 1 and
2. Is there anything left over? Even better. You can meet goal 3. If
you’re falling short, don’t despair. You may need to make some
trade-offs, such as going out less often. You may need to get a
part-time job to make ends meet. But it’s your choice -- and you’re in
control.
OPEN THE RIGHT ACCOUNTS
A big part of staying on top of your money is having the right
accounts. A checking account with ATM access and a savings account are
pretty much necessities. Having both will let you, in effect, keep your
money in different “pockets” to more easily control your monthly
spending.
In your situation, I recommend putting your loan money in a savings
account and transferring a specific amount to checking at the beginning
of each month. Use only the money in your checking account for the
things you need and want. If you find that you actually have a bit left
over each month after a couple of months of careful management, open a
second savings account to stash away those extra dollars.
USE AUTOMATIC TRANSERS AND
PAYMENTS WHENEVER YOU CAN
Make it easier on yourself by setting up an automatic transfer each
month from your savings account to your checking account. That way, you
won’t be tempted to change your monthly draw. Also, consider setting up
automatic payments for recurring bills, such as rent and utilities. The
more automatic things are, the less you have to think -- and worry --
about.
BEWARE OF DEBT
I wouldn’t be doing my job if I didn’t warn you about credit card debt.
You may need one credit card (no more!) for practical reasons, but
promise yourself not to use it unless absolutely necessary. Never
charge anything under $10 -- and pay your entire balance on time every
month. Credit cards may seem to make life easier for the short term,
but credit card debt can create a lot of hardship later on.
BELIEVE IN YOURSELF
Controlling your money takes planning and discipline -- just like
studying and passing exams. You already have these skills. Now apply
them to managing your student loan. If you believe in yourself, I
believe you can do it. Good luck!
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