The One-Page Financial Plan for College Students

Posted by Joe Crosby

1/7/16 7:30 AM

 

opf.pngIf you like simplifying things that once seemed difficult or studying how values impact financial decisions then I recommend The One Page Financial Plan by Carl Richards. 

The book is written to help people and families make financial decisions focused on priorities. 

You would think that college students would highly prioritize their education. After all, they are paying good money (borrowed or not) to be there. 

Yet students frequently skip class so they can pick-up a few more hours at work. They routinely don't buy a book because it's too expensive and they continue to fight an on-going tug-of-war between money and academics. The outcome of that battle is seen in lower than expected 6-year graduation rates.

If Richards can help people plan for major things like retirement, raising children, and re-focusing our relationships with money, can he help us simplify a financial plan for college students?  

As you strive to help students through 2, 4, or 6 years of school, here are a five points from the book that could help students make a plan to stretch their dollar all the way to graduation and beyond.  

1. Know Why You're Planning

Academic advisors toss around a few numbers when it comes to indecisive students: 

  • 50% of undergraduate students come to school as "undecided"
  • 75% change their major at least once 
  • 33% transfer schools before graduating

As Richards points out, "Before you can plan, you have to know why you're planning." If students are creating a college financing plan based on a major X, then change to major Y, then transfer before they've earned a credential, their plan is in limbo. They've likely wasted time and money. 

On the top of a college student's one-page financial plan should be the questions - 

Why am I going to college? What is my end goal? 

Honestly and specifically addressing those questions in the planning process could help reduce waste. 

2. Guess Your Way to a Goal 

Richards points out that "life doesn't follow the linear path we expect it to" and so, we need to plan for uncertainty. Richards advises that people "guess their way to a goal." 

College students likely shy away from any financial planning because true analysis might take too long at a time when they are eager to do other things.

But, more importantly, they may avoid planning because the answer to several questions is "I don't know" and that's scary. 

  • How will I pay back my loans?
  • Where will I work after college?
  • What will my expenses be in 2 years? 4 years? 6 years? 

For the majority of students just starting school, the answer to these question is IDK. Rather than avoiding planning because of fear or lack of knowledge, students should make a one-page plan based on educated "guesses" and knowledge of student loan products. They can estimate, use cost of attendance information, but most importantly, they should promise to revisit the plan frequently as answers become clear. As Richards points out in his graphic, a brief plan is exponentially better than no plan. 

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3. have Awkward COversations

Richards works with his clients to review their assets and liabilities. Simple, right? Should just be a list of numbers, but many people look at their assets and liabilities and see them as "mistakes and missteps {they've} spent months or years trying to forget."

Students and families too often don't discuss how they'll support that student through college. It's a conversation that, as Richards points out in his graphic, can be awkward, but is crucial in a college finance plan. 

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After the conversation, the number on the one-page plan under family support might be "$3000/year" or "$1000 this year and we'll talk more next year" or "$0." The important part is that the conversation takes place and a realistic number is on paper.

Any gap can be covered by scholarship, grants, and loans and students can use The Ladder of Smart Borrowing to make good borrowing choices.  

4. Account for IMportant Things

In the creation of a college financial plan a student needs to know how much money is necessary to cover tuition, books, and living expenses while in school. The challenge is not worrying so much about income that they can't focus on their studies.

Students should come up with the expenses that help them reach the goals and priorities addressed earlier. These are expenses that must be covered. Obviously tuition, books, and other academic costs should couple with BASIC living expenses to become the priority.  

5. Be Aware 

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Budgeting is a tool for awareness and Richards compares it to flossing - people know it's good for them, but they still don't do it. And here's why: 

1. We don't think it's fun.
2. We think we know where our money is going (we don't).
3. We're not sure we want to know. 

Richards invites his readers to make budgeting a game, but ultimately, it just has to become a habit. He offers 4-steps so budgeters can see their spending behaviors and patterns:

1. Track everything you spend. 
2. Use whatever tool will help you stick to the process
3. Look at budgeting as empowering - or maybe even a little fun.
4. Watch out for one-time events

 


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Topics: Financial literacy