With the right financial start in life, a student can avoid excessive debt, start building savings, and build toward financial independence. Often, this right financial start requires a road map. Financial goals can help students create that road map and keep them on track.
Let’s take a look at financial goals, how to set them, and ways to increase the chances of success down the road.
- Setting financial goals early can help establish effective money habits, which are key to securing your financial well-being in adulthood.
- Financial goals can be broken into three primary types based on time frame: short-term, medium-term, and longer-term.
- Solid financial goals for students include creating a budget, opening a savings account, beginning to invest for retirement, establishing an emergency fund, applying for financial aid, beginning to build credit, and using debt as little as possible.
What Is a Financial Goal?
A financial goal is a money objective that you hope to achieve. This might be to build a million-dollar nest egg or save enough for a weeklong trip next year. Your financial goals can help guide you as you build up savings, decide to invest, or become debt free. Your financial goals are milestones on the road map to living the kind of life you want.
Why Is It Important to Set Financial Goals Early?
Setting financial goals early can help establish effective money habits that can provide you with a greater chance of achieving financial well-being later in life. Plus, the earlier you start setting goals like saving and investing, the more money you’re likely to have when it’s time to retire.
Types of Financial Goals
As you set financial goals, consider the three main types of goals, which can be broken down by time frame:
- Short-term: These are goals that you expect to accomplish within a year. Items might include taking a small vacation, moving to a new apartment, or making a major purchase, such as a new computer or furniture.
- Medium-term: In this case, you know that you probably won’t accomplish this goal for one to five years. Perhaps you plan to take a bigger trip or study abroad, or maybe you’re saving up for graduate school, a wedding, or a home down payment.
- Long-term: Goals that you know will take more than five years, such as saving for retirement or getting a bigger down payment for a home, are considered long-term.
Be realistic about what you hope to accomplish and a potential time line.
7 Financial Goals for Students
When setting financial goals, Alissa Krasner Maizes, the founder of Amplify My Wealth, and a licensed attorney and registered investment advisor, suggests that you start with your values.
“Your list of what you value most can guide you in making the best decisions for you, making you more successful at reaching your goals,” Maizes says. “Next, decide what financial goals you want to achieve that align with your values, starting with smaller achievable and measurable goals that you can track, knowing you can always revisit and tweak them.”
Here are some potential goals for students.
Create a Budget
Your budget helps you visualize your income and expenses. You can use your budget to see how much money is coming in and list your most common costs.
“Creating a budget is an essential step toward financial stability,” says Markia Brown, a Certified Financial Education Instructor and Registered Financial Associate at The Money Plug LLC. “It helps you track your income and expenses, prioritize your spending, and identify areas where you can cut back. It’s a short-term goal that you can achieve within a few hours or days.”
Brown suggests listing all sources of income and then reviewing your spending. Then, she recommends determining whether your expenses are needs or wants. This can help you determine what to cut back on when things get tight. It can also help you figure out how much money to direct toward other goals, such as paying off debt or saving for retirement.
“Review and adjust your budget regularly to reflect changes in your income and expenses,” Brown says.
Open a Savings Account
Build a habit of saving now, and you’ll feel more comfortable with it later. Brown points out that many financial institutions will let you start an account with as little as $5 or $10. Set up recurring transfers so that money automatically goes into your savings account. Even $5 a week can help you start a good savings habit.
“Although opening a savings account is usually as easy as going online and entering your information, first consider whether you prefer a brick-and-mortar location near school,” Maizes suggests. “Consider the interest rate they will pay you for money in your account, or whether they have student accounts offering bonuses, fewer fees, no ATM fees, and lower minimums.”
Compare two to four choices and choose an account that works with your lifestyle.
Start Investing for Retirement
No matter how much money you make, investing for retirement can be a major goal for you, according to Jeff DeMaso, Chartered Financial Analyst, a former portfolio manager, and editor and founder of The Independent Vanguard Adviser.
“Compounding may be the eighth wonder of the world, but it takes time to see the results,” DeMaso says. “So, you want to start investing as early as possible, even if you are starting out small.”
If you have an employer that offers a plan, have a portion of your paycheck deducted each period and set aside for the future. You can also open a Roth individual retirement account (Roth IRA), Maizes points out. With this approach, you can take advantage of your current low tax rate to start building a nest egg for the future.
DeMaso recommends looking for low-cost index funds and making sure you automatically invest, whether you’re using an employer-sponsored plan or opening your own account. Over time, as your income increases, boost the amount of money you set aside in your retirement account.
Establish an Emergency Fund
Maizes points out that an emergency fund can help you prepare to live independently, once you finish school. You might have help from your parents or some other source, such as scholarships and grants, to cover most costs. Once you graduate, though, dealing with unexpected costs can be more difficult.
Starting an emergency fund today can help you build over time. Similar to a savings account, an emergency fund can be started with just a few dollars. Consider setting a goal to eventually save at least six months’ worth of expenses. Start small, with perhaps $10 a week, and then increase as your income and financial situation improves.
“Your emergency fund is your safety net in the event you ever run out of money,” Maizes says. “An emergency fund is an excellent lifetime goal whether you are a student or not.”
Apply for Financial Aid to Reduce Student Loan Debt
Student loan debt can feel like a millstone when you graduate. Maizes suggests investigating scholarships and grants to reduce what you borrow.
“Consider applying for scholarships and grants that do not mandate you to pay back any money,” Maizes says. “These opportunities are open to students to apply for within and outside your school throughout your educational journey.”
Check with your financial aid office and your academic department head to find out what’s available. Fill out your Free Application for Federal Student Aid (FAFSA) each year to determine what aid you might qualify for.
You can also look for opportunities through federal work-study programs to earn money for expenses, rather than using student loan debt.
Start Building Credit
Now is the time to start building credit, DeMaso points out.
“You’ll need a loan to buy a new car or house,” he says. “Your credit score will impact the interest rate you have to pay for those loans. So start building a good credit history now.”
One of the easiest ways to build credit is by getting and using a credit card. Choose one or two items to pay for with your credit card, and pay off the balance each month. Use your credit card as part of your regular spending plan, and make sure you only buy what you can afford.
DeMaso warns that the high interest rate charged by a credit card can hold you back. Use your card strategically so that you aren’t losing ground to debt.
Use Debt as Little as Possible
Finally, even if you need some debt to accomplish your education goals, try to use as little as possible.
“Finding another way to make money towards your expenses can also go a long way, from tutoring, internships, dog walking, babysitting, and retail,” Maizes says.
Once you finish school, Maizes recommends putting together a debt repayment plan that can help you tackle any debt you have as quickly as possible. The most efficient approach is to order your debts from highest interest rate to lowest and put extra money toward the first debt while maintaining minimum payments on others. As you pay off each debt, you can add that extra payment to the next item on your list.
This might be a medium- to long-term goal, depending on how much debt you have and your ability to put extra money toward reducing your debt when you get your first job after graduation. However, you can still put some money toward other goals, even as you attempt to reduce your debt.
What is a common financial goal?
Financial goals can be broken up into three time frames: short-term, medium-term, and long-term. One common financial goal is building an emergency fund, which can help reduce the financial impact of unexpected costs.
What are 5 long-term goals for students?
Five good long-term goals for students to have can include:
- Build an emergency fund: You can establish an emergency fund by saving a small portion of your paycheck specifically for use when facing financial hardship. How much you should be saving will vary based on your personal circumstances, but it’s typically advised to save enough to cover at least three to six months’ worth of expenses.
- Pay off student loans: The sooner you can pay off your student debt, the less you’ll have to pay in interest. The exact time it takes to repay student loans will vary based on a borrower’s loan amount, salary, etc., but the typical loan repayment period is 10 to 30 years.
- Save toward car down payment: The more money you can put toward purchasing your first car, the less your auto loan will cost in the long term. If you already have car payments, focus on paying off your auto loan and driving your old car until you have a sizable down payment for the next one.
- Save toward mortgage down payment: As with an auto loan, you’ll pay less in interest if you can put down more money on the purchase price of a mortgage. If you save enough, you’ll also be less likely to pay private mortgage insurance, which can further lower your monthly mortgage payments.
- Invest for retirement: Saving for retirement is one of the few financial goals that you may continuously work toward until the day you retire. An easy way to get started is to determine whether your employer offers a 401(k) or other retirement plan that can reduce your current taxable income and grow your savings.
What is the best financial goal?
Perhaps the biggest long-term financial goal for most people is saving enough for retirement. How much you’ll need to save for retirement will differ based on your current lifestyle, desired lifestyle in retirement, financial profile, and obligations.
The Bottom Line
It’s never too early to have a plan for your money. In fact, establishing good financial habits now and learning how to set financial goals can help set you up for a better financial future.
As you set financial goals and work toward success, Maizes suggests celebrating your milestones and recognizing how far you’ve come.
“Whether you have extra money each month or not, celebrate being mindful of your money,” Maizes says. “This is a huge accomplishment. These steps will always serve you well and help you make better decisions with your money.”