I’ve taught more than 4,000 students how to manage their money. They almost always think that saving money = not having fun.
I’ve spoken to thousands of students through my company, Don’t Freak Out!, and almost all of them think that if they’re saving their money then they can’t be spending on going out or having fun. This is a big misconception.
I’m going to give you 5 steps that you can take now to save some serious dough this summer.
Step 1: Figure Out Your Disposable Income
This is the easy part. Figure out how much money you have coming in regularly that is disposable (meaning money you can use that isn’t going to necessary expenses).
For example, if you’re going to work 20 hours / week this summer and are making the new minimum wage of $14 / hour, you’re going to bring in about $280 / week. This works out to about $1,120 / month. We’ll call this your total monthly income.
Let’s say your only monthly expense is a phone bill for $50 / month. This would total to $50 in expenses that you have to pay each month.
Assuming you had no other necessary expenses (meaning things you absolutely have to pay each month), your disposable income would be $1,070 / month. We got this number by subtracting your total necessary expenses from your total monthly income.
Step 4: Watch Your Savings Grow (& Don’t Touch It!!)
Once you have this transfer set up, you are all set up to successfully save a ton of money over the summer.
Let’s take a look at how much money you could save this summer. If you started on July 1st, working 20 hours / week until September 1st, this is how much money you would save:
$756 saved by the end of two short months! That’s enough to pay for all of your textbooks for first year. Pretty awesome, right?
Now, I hate to be that guy, but here’s how much you would have if you saved 50% of your total monthly income instead of 30%:
$1,260! That’s enough to pay for all of your first year textbooks and half of your second year textbooks. I’ll leave the receipts on the table for you to collect…
Step 5: Enjoy your summer
I want to make this abundantly clear: with this 30% model, you still have more than enough spare funds to spend on fun excursions, clothes, and food (obviously).
How much, you ask? Let’s take a look at how much disposable income you still have over the entire summer:
There you have it. Over 9 weeks, you would have a total of $1,652 to spend on whatever the heck you want. Not only do you get a phat amount of money to spend on McDonald’s and fidget spinners, you are still saving almost $1,000 for your future. That, my friends, is called responsible adulting.
Step 2: The 30% Rule
In my opinion, as a student you should be saving at least 50% of your total monthly income (not your disposable income). I realize this is a bit aggressive, so let’s aim for 30%. This is considered a very good percent of your total monthly income to be saving. If you lived your entire life saving 30% of your income, you would be in a really great financial position.
Let’s go back to that example.
Your total monthly income is $1,120, and 30% of that number is $336. That means you should be saving $336 every single month.
I want you to think of this savings target as a necessary expense. This way, your disposable income will have already considered the amount you need to be saving. For example, in the previous step we established that your disposable income would be $1,070 / month after expenses. Factor in your savings goal, and your disposable income is actually $734 ($1,070 – $336 = $734).
Step 3: Set Up A Savings Account & An Auto-Transfer
To make sure that you are saving properly, I recommend setting up a separate chequing or savings account with your bank. Just go into the branch and tell them you want a separate account to put your savings in. Some banks even have free accounts with interest rates, so you make money on your money.
Once you set up a separate account, ask your bank how to set up an automated money transfer that occurs on each one of your pay-days. This will automatically transfer a certain amount of money from your chequing account into your savings account on your pay day, so you don’t even realize that the money is gone.
With CIBC, you can actually do this on your smartphone using their online banking app.
Going back to the original example, you should have $560 deposited into your bank account every 2 weeks (assuming you’re paid every 2 weeks). From that $560, you would want to set up an automated transfer for $168 (half of your savings goal of $336 / month) from your chequing account into your savings account. Subtract $25 (half of $50) for your monthly expenses.
You would have $367 left over in your account every 2 weeks.
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*Opinions expressed are those of the author, and not necessarily those of Student Life Network or their partners.