Many of you have wondered how – as a full-time student and part-time employee, have I managed to already save enough to pay off my student loans, and still have enough left over for material desires and traveling. I can certainly tell you that I don’t have wealthy parents, and I don’t get paid $40/hour either. But I do practice being my own personal funds manager, which has allowed me to enjoy the paid-for pleasures in life without having to worry about meeting next month’s bills. There are plenty of ways to live a financially sound and rich life on a low salary. The key is to live within your means, identify and prioritize what material goods make you happy, and use “tricks” like carefully selecting which credit cards to use, when; and putting surplus funds (yes, there will be surplus funds) into both short and long-term securities. Here are some of my personal tips that just might help you get started towards living richly.
- Start planning early. Start tucking away money before you go to college. I started saving as a kid, but I didn’t work part-time in high school like most kids did, so if you do, you’re already ahead of the game! Also try to get a job as soon as you start college. I know this seems stressful, but even just a few hours per week on minimum wage is a good place to start, until you get a hold of your workload and how much you can handle.
- Identify your bounds and live within your means. Calculate how much your net income per month is. Then identify what goods make you happiest, because what is money if it doesn’t help you enjoy goods and services? Once you’ve prioritized and categorized your spending behavior, you can begin to allocate how much money may be spent in each category per month.
Example: personally, I set my budget so that no more than 35% of my total net income goes towards rent. I also know that I’m perfectly happy renting in a shared house as long as I have my own washroom. Now that I have established these two bounds, I can determine the maximum amount I can put towards rent each month. Then, I set my budget so that no more than 10% of total net income goes towards food. I also know that I like to eat out when I’m at work, and I go to work 4 days a week. I’ll calculate all other categories that I’ll spend on, ensuring that I leave 15% of total net income to put towards investments each month (as explained below).
Note that these proportions don’t need to be fixed. You can shift around the allocation of your budget based on what you want to spend on in that month. Also note that, if what is important to you is an expensive lifestyle, then you will have to make a choice. Either work more, or forgo those absolute luxuries until you actually have a salary that pays for that lifestyle. Sometimes, you’ll never know what makes you happy until you try – when I rented a fancy condo, I pulled up work to an average of 60-70 hours per week, and for me, it wasn’t worth it. So don’t be afraid to explore.
- Short and long-term securities. This is probably the most important and most valuable of “tricks”. The simplest form of investment could really just be high-interest savings accounts or GIC’s, which might earn up to 2.5% interest rate. Other options include mutual funds, and tucking away commodity money (lock away some gold or other precious items in case of some financial crisis). It’s a good idea to diversify your portfolio, putting the most money into the investment that tends to earn you back the most. The more you put into safe, positive-return investments, the more income you get per month (well, this is not considering fluctuations in interest rates). That being said, usually, all the funds I earn off investment goes back towards further investment. But sometimes if I want to make an extravagant purchase like a computer or airplane tickets, this is where I’ll pull out the funds. In that sense, the return on investments fluctuates from month to month. Once you’ve saved enough, and depending on the country you live in, you can go a step further in diversifying your portfolio, and invest in something like flipping real estate (but this is probably too tricky for most of us at this point in life).
- Careful choice of credit cards. Choose credit cards that give you rewards for returns on whatever you spend most on. If it’s your first credit card, you might not have much choice as to which one you qualify for, but building credit is the first step. My first card was some crappy one from TD, but as soon as I built enough good credit, I applied for PC’s Mastercard (no endorsement here, I swear!). From the above example you will know that I like to eat out at least 4 days a week, which can get pricey. PC Mastercard gives you $20 in free groceries per every 20,000 points, and usually gives you $40 in free groceries when you sign up at a pavilion to give you a head start. I make most of my purchases on this card, including large business transactions that I later get reimbursed for in cash. After all of the transactions that go through my card, I usually end up with about $20-$40 of free groceries per month. This, in addition to some of the 10% allocated to food, is more than enough. Of course, if you eat more, these numbers will vary and you will have to adjust your budget accordingly. Other types of cards I use are BMO for airmiles (when I want to travel), an airmiles reward card, and an international visa for purchases in foreign currency without service fees.
- Start a low-risk business. Starting a business doesn’t necessarily mean you have to devote 40 hours a week, or invest in some expensive office downtown. It can be something as simple as washing pets or babysitting whenever you have free time. But I would advise taking advantage of your unique skills, because then you can also use this as experience on your resume. For me, I offered photography and web/graphic services whenever I was bored, and you’d be surprised how much extra pocket money you can earn here.
- Use coupons. There are so many things you can buy on Groupon at discount prices. If I want to do something otherwise “posh”, like get a massage, I’ll use Groupon to get a good deal.
So there we have it. By using these tricks, I bring in maybe about 15-20 hours worth of extra income per week, without actually having to work those hours. And, I’m not really giving up any of my worldly desires. As I said before, it’s all about living within your means, knowing how and where to allocate your money, and understanding what makes you happy as a consumer. And of course, some discipline and strong work ethic. Situations and preference vary for everyone, but I hope this will help you on your way to saving and paying off your student loans!