What College Doesn't Teach You About Finances

updated on 16 December 2021
What I Learned in College About Finances
What I Learned in College About Finances

5 minute read

by Tom Martchek  I  September 14, 2021

Did you know that 53% of Gen Z missed paying a bill in the last 12 months?  Even if that isn’t you, it seems like something is broken.

You’re in college. Your current stressors: A calculus test that is scheduled for tomorrow, an English paper that sadly won’t write itself, and a friend’s birthday party that you’re helping to plan this weekend. At the very bottom of your to-do list is creating a personal finance plan. You have a little money in the bank and generally are on top of upcoming bills, so why bother wasting time digging deeper?  

In a 2019 study by ACI Worldwide, 53% of Gen Z missed a bill payment in the last 12 months including 35% that just forgot. Further, in a NFCC study, only 42% of all American adults say they keep close track of a budget. We think these statistics are connected. ACI WorldwideNational Foundation for Credit Counseling

As a student, to create a budget, you likely need to factor in a roommate. As 75% of 4-year university students are likely returning to shared living accommodations, that means your roommates are likely paying some recurring bills directly and you have some kind of manual bill splitting process. Proof: Sallie Mae 2017 study.

Therefore, in your first years becoming financially independent, you need to manage income, expenses, bill splitting, card payments, and bills that are all due on different schedules with other people. Cool.  

A Cash Flow Diagram for Roommates
A Cash Flow Diagram for Roommates

A Google search can produce some good articles on building a financial plan, but we also have listed some shortcuts here until we publish a tool to help those that live with roommates in a few weeks.

Know thyself

We recommend you be honest with yourself on financial goals. If you are a perfectionist, planning every dollar might be for you. Personally, building a plan I will actually use in 3 months means I need it to be simple. Knowing what I can spend per month outside of living expenses is enough. In either case, a good place to start is knowing what you can spend in total by looking up your income or current balance.

Living expenses

Like Maslow’s hierarchy of needs, you can only build a financial plan if you know what you need for essential living expenses or high-priority services (i.e., rent, utilities, Spotify). Living with roommates means plotting out your share of expenses, even if your roommate pays directly. This is likely half of what you spend, so if you get this right, the rest is much easier.  

Savings

If savings are in the cards and you have a goal, we recommend allocating this piece next. If you want to save but don’t know where to start, it is helpful to work backwards and see how much you can reasonably allocate from your last 6 months of spending. Just remember that ‘one-time’ events, like that Spring Break trip or holiday gifts, are typical. Averages of your historical spend work great because they are brutally honest.

Remaining spend

We highly recommend at least knowing what is ‘safe to spend’ (the remaining amount you can spend after paying for living expenses and savings). If you know what you can safely spend weekly or monthly, it helps you manage to those ‘one-time’ events.  

In addition to the total, you can track or plan for underlying categories. Planning to spend every dollar requires a lot of effort to maintain and remember. If you can do it, we're jealous. We just look at spend in a few categories or merchants. In either case, it helps to look over the last 3-6 months of existing spend to see where your money goes.  

Plan ahead

A good financial plan concludes with goals and an action plan. These should be something that you can reasonably achieve and actually follow.  Your goals can include spend in specific categories or by merchant, so long as you set a target and keep track of how you do each month.  Personally, I just set money aside in another account on paydays for living expenses and savings so that my ‘safe to spend’ is my remaining balance.

After living with roommates for years, we at WellPaid are soon to launch tools to simplify the process of splitting bills and setting up a financial plan.  Instead of monthly requests, awkward reminders, and manual transfers to pay each other back for bills, WellPaid will help you get paid back automatically and see your share of expenses. If you pay the electric bill, you can request a roommate to automatically pay you back for their share any time you pay the merchant for free. No more monthly requests or manual payments.

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