People work hard for their money, but don’t make their money work hard for them. It’s time to fix that. Economist whips your income into shape with smart, practical advice.
Photo by wvs from the Torontoist Flickr Pool.
While on vacation, Economist overheard a man talking about his experience at Purdue: “In America, you have to do four years of university. It’s not cheap either. It’s like $2,000 a year.” The Economist almost choked on pool water. Of course, the man looked in his late-thirties, and a quick peek at the Purdue website shows that current fees and tuition are at a more reconcilable $8,000 a year.
Ostensibly, most students (and their parents) put a large financial investment into university with an expectation that the education will prepare them for a career after graduation. But universities usually fail in preparing their students with the financial know-how to help pay back those hefty student loans. According to Statistics Canada, only half of students aged 18 to 24 have any money saved for post-secondary education. We can talk until we are blue in the face about rising tuition fees, but the most practical and applicable thing is to shape up the lacklustre budgeting skills of most students. With limited income and time to work with, the task can be daunting—but it isn’t impossible.
A good diet focuses on minimizing calories while increasing exercise. Similarly, the best fiscal diet consists of minimizing costs and increasing income. The first thing to do is to physically limit the amount of money you have to spend. One way to do this is to automatically move money into a high-interest savings account that you won’t touch. However, there are day-to-day instances too. For example, before a night out, it sounds good to bring a little extra just in case cash. But how often does that money end up going toward extra drinks? By limiting your access to cash, it’ll be easier to keep in mind your budgeting efforts, whether you’re heading out to a bar, a restaurant, or a mall.
Photo by laffy4k.
University will be the first time that many frosh will be away from their parents. It’s also a good time to distance themselves from how their parents spend too. Consider that people can spend over $1,000 a year on mobile costs. With constant access to a computer, combining a VoIP like Skype with a prepaid mobile service like Virgin could save hundreds of dollars. Another easy expense to cut is television: between studying, going out, legally streaming television shows, watching DVD boxsets, Wii-ing, and on and on, is cable really worth it?
Working during university is also a worthwhile venture. Each person gets $9,600 of non-taxable income, which means that each and every dollar under that amount stays in his or her pocket. A student with a $10-an-hour job has the same spending power of a full-time worker with a $13-an-hour job (assuming most people pay 25% in taxes). This strategy applies for more than undergraduate students: for graduate students, stipends and scholarships are non-taxable. A stipend of $20,000 is thus worth $27,500. If they can make money as a teaching assistant or through a part-time job to earn the $9,600, their post-tax income is equivalent to a full-time worker’s pre-tax income of over $40,000!
If all of this saving stuff sounds serious, it should. The good economy for the last few years has allowed many people to get accustomed to overspending, and this sharp downturn will catch many off-guard. Still, there are ways to have fun with your finances. Lucky for students, Toronto has a lot of places that offer discounts for students. And, here’s a novel idea: divide the stores between you and your friends, have each person pick up a part-time position, then share the 50% off. And, if, ahem, anyone is inspired by this, remember that Economist loves the fit of H&M.