As thousands of Canadian students prepare to head back to school, many are looking at their bank accounts and wondering how they are going to get through another eight months without starving to death. Students have always struggled financially; it’s part of the rite of passage. But today, more than ever, young people have to manage their finances very carefully.
Fortunately, there are a few simple tricks that can help students control their expenses and even start saving for the future.
1. Make a budget—and stick to it
This sounds like a very simple concept, but it requires an insane level of discipline. Rent, utilities, transportation, and basic food costs can be determined at the start of the school year, and the money for those expenses should be kept in a separate account. This helps students set a baseline budget to work from and ensures the essentials are covered.
Discretionary spending can then be allocated out of part-time wages or any extra funds that are available. Using apps like Mint or Check can make the budgeting process less painful.
2. Shop smart
Buy the basic staples when they go on sale and stock up when that happens. Things like cheese, cereal, bread, peanut butter, and coffee are often available at steep discounts to the regular prices. Most stores will match a competitor’s offer, so students don’t have to waste time running all around the city to find the best deals.
Using a debit card when buying groceries helps keep track of the transactions. An app like Flipp can be very useful when looking for weekly specials.
3. Party prudently
Letting off steam is a part of student life, but it can also be the activity that does the most damage to the bank account. It’s important to set a strict monthly budget for socializing. This way students know where the entertainment cash is coming from and can decide whether they want to tap the fund a little at a time, or simply blow it all on one big night out. In this case, using cash is the best option because it forces students to stick to the budget. Always leave the ATM card at home when heading to the bar.
4. Don’t friend the bank
Banks play very important roles in our lives, but they definitely aren’t our friends. During the first weeks of school, students are regularly bombarded with credit card offers from financial institutions. Many young people don’t understand how the system works and quickly get themselves and their credit ratings into serious trouble, so it’s best to avoid the credit cards altogether.
Remember, there is no such thing as free money unless it comes from the Bank of Mom and Dad.
5. Walk or ride a bike
Public transportation is reasonably affordable, but walking or riding a bike is free. It is also good exercise and a great way to reduce stress.
6. Plan for rainy days
Crap happens. It’s just a part of student life. Try to set aside some of the summer savings or weekly paycheck to cover unexpected expenses.
7. Start investing
If the rainy day fund doesn’t get tapped by the end of the year, consider putting the money into a tax-free savings account and begin investing. Buying reliable dividend-paying stocks and reinvesting the distributions is a great way to save for the future. By starting early, students can harness the power of compounding and build a sizeable portfolio without investing a lot of upfront money.
This is where the financial institutions can pay students back. Canadian banks are great builders of wealth for their investors, and owning shares in a company like Toronto-Dominion Bank (TSX:TD)(NYSE:TD) or Royal Bank of Canada (TSX:RY)(NYSE:RY) tends to be very profitable over the long term.
Fool contributor Andrew Walker has no position in any stocks mentioned.