What students should know about personal finance

Kartik is 21 and about to start his postgraduate studies. It’s not just new academic knowledge and skills that he will be exposed to in this new phase, but some very important life lessons as well. He is looking forward to enjoying his independence and the ability to make his own decisions–both big and small—while in university. Living all by himself in a new city, without the comforts of his parents’ support, seem daunting. Then there’s the challenge of sticking to a monthly budget. What all should Kartik prepare for?

The most important lesson to learn about money is that it is a limited resource and, therefore, holds an opportunity cost at all times. Kartik should learn to allocate his limited monthly allowance sensibly. Youngsters tend to feel rich at the beginning of the month, when their bank balance is high, and end up overspending. This leads to skimping on essentials as the month draws to a close. It is also fairly common for boarders to take small loans from friends, and credit from helpful grocers and food joints, which is not a good habit.

Kartik should treat his allowance as a fixed and limited sum. A boarder’s expenses can be divided into mandatory expenses on items that simply have to be funded, and expenses that are discretionary and depend on cash balance. It would be a good idea for Kartik to pay off mandatory expenses such as the rent and utility bills for power, water, phone and Wi-Fi. He can then allocate weekly allowances for discretionary expenses, so that he does not run out of cash quickly.

Pushing large, discretionary spends to the end of the month might also be a good idea. End of the month spending would feel like a treat—a well-earned reward—for exercising discipline throughout the month. Kartik might also find that his college offers many entertainment options like indoor games and film screenings, that don’t cost money. This is a good time for Kartik to consider taking on freelance work to earn some extra money. It would build his confidence and also enable him to develop new skills through working with a team and interacting with people. It would also improve his attitude towards money and help him form good habits with regard to handling it, over time.

(The content on this page is courtesy Centre for Investment Education and Learning ( CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.)