Financial freedom is everybody’s dream, yet many college students shudder at the thought of having to pay back all the student loans they’ve taken out. However, many young people are taking control of their life and their finances by taking part in the “Financial Independence, Retire Early” movement, also known as F.I.R.E.
Young people who have bought into the movement’s philosophy of doing more with less have lots of useful advice for college students looking to get, or stay, out of debt. Here are five of their best tips to stay ahead of the financial curve.
Give yourself the freedom to chase your dreams and plan for your future.
1. Make a realistic budget and stick to it.
Who hasn’t attempted to make a budget at some point? If you ended up blowing your savings on some instantly gratifying purchase just a few weeks into your plan, don’t be ashamed; you’re far from alone. Those in the F.I.R.E. movement believe a realistic and well thought out budget is essential to achieving financial freedom, and the most suggested type of budget is called “the envelope method.”
As you may have guessed, this method entails creating different envelopes where you divide your money to be spent in different areas. You create one category for groceries, another for gas and car maintenance, another for housing and healthcare, etc. Each paycheck you receive gets split up and allotted to the categories you’ve created. However, if envelopes and cash are too old school for you, there are plenty of budgeting apps that can help you manage money electronically.
UF student Victoria Graham recently started using the budgeting app Clarity after starting a new job. “I’ve tried budgets before, but I’m absolutely, one hundred percent, terrible at them. I’m a millennial, so of course, I just download an app for that,” Graham said. “I think what’s made Clarity work for me is that I tell it how much money I want to spend on stuff like groceries, gas and entertainment, and the app literally checks my bank account and adds up my spending. If it sees I spent $20 at Publix, it automatically takes $20 from my groceries budget for the week.” Clarity is owned and operated by the investment firm Goldman Sachs, and the app uses artificial intelligence to make budgeting a seamless process.
As the big banks seek to compete with big tech, they’re increasingly designing new finance apps and tools, so be sure to check with your bank about any useful apps they may operate. That being said, if you’re freaked out by Wall Street robots combing through your bank statements, the old fashioned envelope may be for you.
2. Don’t spend your extra money on “luxury goods” if you have debts to pay.
Those who want to be financially independent at a young age often view debt in very black-and-white terms. If you have debt, you’re either getting ahead by paying it back or falling behind. Therefore, if you have a host of student and credit card loans to pay back, it’s probably not a good idea to be spending lots of money on fancy clothes, lots of online purchases or other goods that you don’t need to get by.
Spending less while in debt may seem like obvious advice, it’s easier said than done. “When I got my first credit card, I’m not going to lie… I spent way too much on stuff I didn’t really need,” said Lourdes Bernardez, a senior at UF’s College of Engineering. “I already had student loans too. There’s so much pressure on young people to spend, but you really don’t have to go into debt to be happy.”
3. Do you think you’re outsmarting the credit card companies? Think again.
Do you have a couple of credit cards that you absolutely love because of their great rewards points? Dave Ramsay, the financial advisor and host of the “Borrowed Future” podcast, says you should reanalyze the situation to find out if this is actually the case.
The U.S. Federal Reserve estimates that 55% of Americans don’t pay their credit card bills off in full each month. That means they’re racking up debt and paying interest, which is money not being saved or invested in their future. If you pay off your bill in full every month, it is possible to earn real rewards by buying with credit. But if you don’t pay off your bill in full each month, those rewards are wiped out by interest and fees.
Research shows that when people use credit cards to make purchases instead of cash, they spend more over time. Why? Because swiping a credit card doesn’t convey the sense of loss that accompanies parting with your cash. Reviewing when and where you use your credit cards can save you money by forcing you to evaluate to pros and cons of purchases upfront.
4. If you’re in school but not working, consider getting a part-time job.
School can be stressful and taxing on even the most motivated students. Despite the stresses of school, studies show 70%-80% of students are active in the labor market, and 40% of undergraduates work at least 30 hours per week. If you’re a student with some outstanding debts and you’re part of the 20%-30% of students who don’t have a job, consider getting one and using some of that income to pay down your debts while you’re still in school.
Perhaps you have a very, very busy schedule with your classes, student organizations and other extracurriculars, but luckily there are ways to work part-time and on your schedule. Christina Gregory, a freshman at UF, says she was worried a job would be too much manage with her school work. “But then I found a job that’s actually on campus, and the hours are flexible, and my boss works with me to make school the priority. The extra income has made a huge difference in my life,” Gregory said. If you aren’t working but you lay awake at night fretting over your student loan debt, consider taking some direct action by working part-time on campus, near your home or in the gig economy.
5. Join some online groups for those seeking financial freedom!
There’s a social media forum for just about anything these days, and the topic of financial independence is no different. Reddit, often dubbed “The Front Page of the Internet,” hosts several F.I.R.E. and financial forums geared towards young people.
The subreddit r/personalfinance has over 14 million members and describes itself as a place where people can “learn about budgeting, saving, getting out of debt, credit, investing and retirement planning.” While this may not sound like the most cutting-edge social media experience out there, joining a group like this connects you with people who share your desire to get out of debt and attain financial independence. Their success stories will motivate you on your own journey. You’ll also have a place to get your questions answered.
Austin Wenta, a graduate student looking to pursue a doctoral degree at UF, says social media has been a positive tool to motivate him financially. “There’s plenty of people who just follow pages that post photos of Ferraris and big houses constantly,” Wenta said. “I may be a contrarian, but I feel like all that does is tell me, ‘You aren’t spending enough to be happy.’ I use social media – and you have to use it carefully – to explore more minimalistic ways to live, ways to be happy with less.”
Other Reddit communities geared towards financial freedom include:
Building solid financial habits now is an investment in your future.
Finances can be complicated, and many young people could benefit from seeing a financial advisor to have their particular student-loan situation evaluated. But for those who simply want to get on a better financial footing while they’re still in school, these tips can serve to help get you started. College students who use a budget, buy little on credit and increase their income through work are building a solid foundation for their financial independence. Habits are everything, and making the decision to become financially responsible while still in college is a great way to set yourself up for success post-graduation.