Extra Summer Job Earnings? Before Spending a Penny, Talk to Your Student About These 4 Ways to Budget
1. Stick to a savings plan
A good rule of thumb is save first and spend what you have left over. Agreeing on a savings plan ahead of time will make it easier to part with a chunk of the money. A popular (and fair) budgeting technique is the 50/30/20 budget:
50% → Necessities
30% → Wants
20% → Savings
Let’s say your student earns $3,000 from their summer job. First of all, congrats on the hard work! Secondly, deciding on the 50/30/20 budget will give them $1,500 toward the things they need (books, tuition, etc.), $900 for stuff they want, and $600 goes directly into a savings account.
That way, they’ll feel motivated by the 30% to get that new computer or outfit. They’ll also be proud they can still stash away 20% for a rainy day.
There are tons of budgeting plans out there, so figure out what works best for your family. To see how the 50/30/20 budget would divide your student’s after-tax earnings, check out this handy Nerd Wallet calculator.
2. Explain the long-term pains of debt
Understanding how debt works may be one of the most (if not the most) crucial parts of financial planning. This idea may be lost in the relaxation of summer days, but using your student’s off-time is a perfect opportunity to introduce them to the wild, wild world of debt.
Don’t just give them a quick overview and let it go, either. Give real-world examples calculating student loans, credit card interest rates, auto loans, mortgages, and personal loans.
This will make debt easier to understand and give them mental bookmarks when credit card companies offer 0% APRs or student loan breaks.
3. Take advantage of company benefits
Your student’s employer may be more generous than you think. Check to see if your student’s summertime gig offers any college plans. Not all of them promote these details in the hiring process.
One example is Starbucks, who launched their College Achievement plan in 2014. It gives part-time and full-time employees full tuition coverage for courses that go towards earning their bachelor’s degree.
4. Only borrow if you need to
Student loans may seem unavoidable. It’s no surprise students and parents feel this way; they’re everywhere! But you do have other options.
Using a portion of student summertime earnings is one. Another may be student earnings from work during the school year. Scholarships are a great way, too.
Whichever plan or combination you choose, always minimize your losses, identify financial goals, and find out ways to access money so borrowing is last on the list.
Westface College Planning helps take the stress out of paying for college. To get a jump-start on your college financial plan, sign up for a Tackling the Runaway Costs of College webinar or schedule a free consultation with Beatrice Schultz, CFP®.
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