PAC Money

.I’m newly a college student after taking a gap year to travel and work on organic farms. I had to take care of myself while I was abroad, but right now I don’t have a lot of expenses except for my education. Traveling, supporting myself, and then seeing the sticker price has got me thinking about my financial goals. Unfortunately, I haven’t really been taught how to handle money over long term and it’s something I realize I have to take into consideration when I’m looking at a major. Are there any tips for setting myself up for a strong financial future?

Financial advice for young people typically follows a three-step process: get an education, set up a budget, and start saving. These are all solid pieces of advice, and they’re often broken down into specific subcategories. However, for the most part these three pieces of advice hold steady. 

Choosing a major is an important decision, and one that should take careful consideration when deciding your financial future. A major like computer science or chemical engineering could set you on a pathway towards a high-paying career. A career in the health sciences, which may involve enrolling in a pre-med or RN-BSN program, can also lead to a lucrative profession, though medical school will probably require you to pile on debt. Finally, though STEM (science, technology, engineering, and mathematics) majors are typically thought of as the most secure, don’t discount the value of majoring in the liberal arts. According to the Chronical of Higher Education, though STEM majors earn more initially, humanities majors end up closing the gap over time. In other words, do not stress too much when it comes to deciding your major; you should choose a major that you are good at, and what you are passionate about.

Setting a budget is important, and it is critical to achieving your future financial goals. The key is finding a budget that works for you. You need to take a realistic look at your income, expenses, and savings goals to develop a budget plan. Furthermore, you have to take your values into account: what do you want to spend money on, and what do you want to prioritize? A good rule of thumb is to budget yourself at 50/30/20: fifty percent of your budget goes to your needs and necessities, thirty percent goes to things you want, and twenty percent goes to savings and paying off debts. 

So what do you do with that twenty percent? If you have read even a little bit of the info available to young people, you have probably come across the term “Time Value of Money.” TVM is basically the idea that a dollar today is worth more than a dollar tomorrow, but there is a limit to that value. If I offered you a dollar today, and a dollar and twenty five cents tomorrow, that may even out the value of having money now. A smart investor will invest money early in their lives, and allow compound interest to deliver their returns. However, saving in this way doesn’t necessarily have to be a priority, and there are several other options you should consider when laying out the groundwork towards financial security. 

For example, you want to pay off high-interest debt (such as credit cards) before you start saving, and when you start saving you want to prioritize an emergency fund over a retirement account. While you may be counting your pennies now, following careful investment advice early allows you to make more substantial investments later — eyeing out the best returns on an investment account can find you researching the best loan rates for investment homes twenty years from now. The trick is to start early, and start smart.

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