While it’s never too late to discover things when you’re older, it’s best to start learning things while you’re young. Doing so saves you from future headaches and allows you to build strong foundations, especially if we’re talking about learning financial skills. So, here’s a list of the best financial skills you should learn as a student.
Budgeting means understanding your income and expenses and planning how you’ll use your money. You already do this when you try to make your allowance last until the end of the week or month. However, you also know you have your parents to fall back on for extra money. You may not have this luxury when you start living independently.
So, start learning to budget your money while your expenses aren’t as high. This should make you comfortable with the idea that you have limited resources and must prioritise. Create lists or download an app, or follow the envelope budget system.
Remember that expenses don’t just mean phone or gas bills. Consider your invisible expenses, like insurance, taxes, gym membership, drinks, take-outs, or dinners with friends. Likewise, think about your lifestyle and hobbies.
For instance, if you like travelling or getting the latest gadgets, plan for those by setting aside a small amount every month. If you like online shopping, set a budget and ensure you don’t spend more than that amount.
Try to follow the 50:30:20 rule when budgeting: use 50% of your allowance for needs, 30% for wants, and 20% for savings. Of course, you can adjust the percentage accordingly, but it should help you figure out how much you can spend on each category.
Good budgeting skill allows you to plan and enjoy what you love, but don’t forget to avoid common budgeting mistakes students make by familiarising yourself with them!
2. Balancing Chequebooks
We’re in a digital age with declining cheque usage, but it’s still important to learn to balance cheque books as a student. You’ll need to ensure your chequebook is balanced to avoid overdraft fees.
For instance, if you have to pay 800 SGD for rent but only have 500 SGD in your account when the bank processes your cheque book, you’ll either have to pay a fixed overdraft fee or the overcharge and its interest.
So, ensure you have enough money in your account by tracking your spending and knowing your actual balance. With a proper budget and financial discipline, this is quite easy to achieve.
Of course, before learning to balance cheque books, learn how to write and bank a cheque! Even if you don’t need to balance cheque books, you’d still need cheques for large payments that you can’t perform online.
You can easily write a cheque by writing the date, your recipient’s full name, the amount you’re paying, and signing the cheque. If you’d like your fund to be taken only by the person you’re paying, cross our “Bearer” and draw two diagonal lines on the upper left corner of your cheque.
3. Building Credit
Credit scores and credit cards go hand in hand, and there’s no better time to learn about these than as a student. It’s also one of the best paths to building good credit if done right. Did you know your credit reputation affects many things? Your credit history essentially influences your access to future financial-related things.
The easiest way to build credit is to obtain a credit card. Student credit cards are tailored to students, with perks such as cashback for good grades, increased rewards for paying on time, and others. These are easy enough to apply for and can help you learn how to manage credit.
Likewise, you may ask your guardian to designate you as an authorised user on their credit card. That way, you’ll be able to use the card and benefit from its perks. Just ensure their card issuer reports you’re an authorised user to credit bureaus so you can have a record.
Alternatively, you may open a secured credit card. This works if you have some savings. You can deposit an agreed amount to fund your card, which sets your credit limit. It would work like a debit card, except this card’s activity would be reported to credit bureaus.
When building credit as a student, stick to one or two cards. Applying for multiple credit cards raises a red flag on your credit reputation and can even temporarily lower your credit score.
It’s also best to limit your spending to just 30% of your credit. This should be easier to repay and still help you earn good credit. Moreover, if you max out your card, you may eventually find it hard to afford anything besides paying your credit.
4. Long-Term Strategic Planning
Long-term strategic planning is essential. It’s tempting to think you are safe as long as you budget and spend within your means. However, living paycheck to paycheck won’t help you to achieve your dreams, especially those that involve financial matters.
For instance, if you want to buy a house, you need to pay a mortgage. Likewise, if you want to further your education, you must pay tuition fees. You also won’t be working forever. You will eventually retire, and at that point, it’s ideal to have a passive income to sustain your lifestyle.
So, as a student, learning to plan your finances means setting financial goals and prioritising them. It also involves developing a concrete, realistic plan. This will prepare you when stepping into the world alone; adulting requires you to do plenty of budgeting, goal-setting, and planning.
Your significant future expenses could include getting a house or a car, obtaining a Master’s degree, paying for your children’s education, saving up for retirement or emergencies, setting up vacations, losing your job, fixing broken appliances, paying off debts, and others.
It’s never too early to consider these things; time goes fast. Of course, creating a strategy to enjoy a financially independent future using long-term goals doesn’t mean you can neglect your short-term or middle-term goals. Think about those, too, when planning your financial future.
When setting financial goals as a student or otherwise, be sure your goals are Specific, Measurable, Achievable, Relevant, and Timebound. In other words, be SMART. Have clear and trackable targets, always check if they’re realistic, and see if they align with your life goals. More importantly, set deadlines!
5. Exploring Insurance
You don’t think about insurance when you’re a student. If you get sick and need checkups or medications, the expenses aren’t as hard right now, are they? Unfortunately, this wouldn’t be the same after graduation. Medical fees in Singapore can be costly.
So, explore your insurance options. To get the most out of your insurance, look for one that features cashback. They can offer a fixed amount from a portion of your premiums once your term ends or a percentage amount that may or may not be lower or higher than what you’ve paid.
If you want to save up while paying insurance, you can apply for insurance with an endowment plan. With that, your payments will be split into two parts: insurance coverage and a savings component. Once your insurance ends, your savings will be returned to you, and the amount should depend on your policy’s terms.
However, if you want to invest while being insured, choose insurance with an Investment-Linked Policy or ILP. You can treat an ILP as an investment plan with some healthcare coverage. Instead of having some funds set aside as savings, you can use those funds to invest in your insurance provider’s investment products.
The difference between insurance with endowment and an ILP lies in the cash you’ll receive when your term ends. Endowment policies feature a guaranteed amount, while ILPs don’t guarantee what you’ll receive. Essentially, the amount you’ll get on an ILP depends on your investment skills and the market.
With insurance, you should be able to rest easier knowing you’re protected healthwise or even have some cash waiting for you once your term ends. This is a huge step away from needing to live paycheck to paycheck or have little to no savings by age 30.
6. Saving For Emergencies
One of the most important financial skills you should learn as a student is learning to save. When you start at an early age, you’re building a habit that’s hard to break. You’re also ensuring you’re always setting aside money and controlling your impulse to spend everything you have.
Try to save at least 10% of your allowance whenever you receive it, and only use this budget in case of emergencies. It can be tempting to spend as you like because the fund becomes more significant after saving for a while.
However, consider that unexpected things can happen, such as the loss of income, the need to replace your gadgets or appliances, health emergencies, or accidents. It’s actually best to save about three to six months’ worth of expenses in your emergency fund.
For people living a relatively comfortable life, three months’ worth of expenses should be enough. Meanwhile, people living with medical expenses or in places that are expensive should consider at least five months’ worth of expenses as savings.
Of course, you can customise it to your needs. Since you’re a student and simply trying to learn saving for emergencies as a financial skill, you can have a smaller amount as your goal. You might just want to aim for one to two months’ worth of expenses to get you into the habit of saving.
Another financial skill to learn as a student is investing. A common misconception is that you can only invest if you are an investor. That is not true. Anyone can invest; the earlier you start, the better you can take advantage of compound interest.
However, ensure that you familiarise yourself with your options, such as stocks, bonds, unit trusts, and many more. It would also help if you knew about the Rule of 72, which can help you figure out the years it’ll take your investment to double.
Simply put, if you divide 72 by the interest rate, you will get the years it will take for your investment to double. For instance, if your investment earns 6%, it’ll take 72/6 = 12 years to double your investment, and so on. This works best on compound investments, and you might even be able to retire early if you can start earlier!
Another handy tool you can use is Compound Interest Calculator. With this tool, you can specify the monthly contribution amount, yearly interest rate and the length of time you plan to save. The tool will calculate your sum at the end of the saving period.
As mentioned before, though, you have plenty of other investment options. You can always choose between short-term and long-term returns and even low-interest, low-risk or high-yield, high-risk investments.
Short-term investments like annuities, cash, and bonds are great since they can double your investment fast if done right, but they come with high risks. The market is often volatile and largely affected by inflation. Of course, they’re still great when you want to meet some financial goals in the near future.
However, if you’re in it for the long game, look into long-term investments. Long-term investments like stocks and real estate can often keep pace with inflation. That means your cash value won’t drop, and you’ll still have higher returns in the long run. Generally, investing long-term is best because the market always rises.
Financial Rules of Thumb to Follow
If these were a little too much to take in in one go, here are some key takeaways:
- Spend less than you earn
- Keep debt under control
- Save at least 10% of your allowance
- Plan for emergencies
- Invest your savings
Financial Skills For Students
If you’re trying to learn these financial skills as a student, you’re on the right track! Honestly, we wish we knew these before officially adulting. These skills could have saved us from the frustrations that came with them, but it is what it is. The important thing is we’ve learned our lessons, and we hope we can spare you from future headaches by giving you this list.