‘I find myself spending most of my money before the next paycheck’: I have $1,500 leftover each month while attending community college. How can I manage and invest it wisely?

Hi Money Minder,

Just graduated high school and now hitting the books at a free Community College for the next two years. All my living and food expenses are covered, so my only costs are car and gas – around $250-$300 a month. I pull in about $1800-$2300 monthly from part-time and sometimes full-time work. Got my first credit card and have an extra $1500 each month, but somehow, I’m blowing through most of my money before the next paycheck. I know I can be smarter with my cash.

In two years, I’m planning to move to a university and live on my own without much cash help from my folks. Any tips on saving and making a solid financial plan would be awesome!

Thanks!

– Fresh Grad

Response from THE MONEY MINDER:

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Hello There,

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Hello and congratulations on graduating from high school and starting a new chapter in Community College! It’s great that you’re thinking ahead about your financial future, as establishing good financial habits now will serve you well in the years to come.

To begin with, it’s encouraging to see that you have a steady income from your part-time and occasional full-time work, which leaves you with a surplus of around $1500 each month after covering your basic expenses. This is a solid foundation to build on.

Start by creating a budget that tracks all your income and expenses. Categorize your spending to identify any areas where you might be able to cut back. This could include anything from discretionary spending like dining out or entertainment to smaller habits that add up over time. Aim to save a set amount each month right from the start – it’s often recommended to follow the 50/30/20 rule: 50% of your income for needs, 30% for wants, and 20% for savings or debt repayment.

As you have a surplus, consider opening a high-yield savings account. This will provide you with a better interest rate compared to a standard account and help your money grow more efficiently. Make it a habit to transfer your surplus into this account as soon as you receive your paycheck.

With your new credit card, use it wisely. Only charge what you can afford to pay off in full each month to avoid accruing interest. Timely payments will help build your credit score, which is crucial for future financial endeavors such as renting an apartment or applying for loans.

Looking at the long-term, start investing early. Even small, regular contributions to a Roth IRA or diversified index fund can accrue significant growth through compound interest. Familiarize yourself with investment basics or seek advice from a financial advisor to determine what options align best with your risk tolerance and financial goals.

Lastly, consider your future university expenses. Since you’ll be living independently, start a separate savings fund specifically for that transition. This fund will be critical in reducing the financial strain when your living expenses increase. Calculate your potential future expenses, including tuition, rent, utilities, and groceries, to get a clearer picture of how much you need to save.

Keep monitoring and adjusting your budget as needed, and prioritize saving and investing with a disciplined approach. By doing so, you’ll establish a solid financial foundation, making your transition to university life much smoother.

Best of luck on your journey!

Warm regards,
THE MONEY MINDER