With the SMART Goal method in mind, your next step in the goal setting process is identifying the relevant goals to work towards given your unique financial situation. One of the most common types of goals college students will set is to increase their savings in some capacity. Having robust savings is an important goal for a number of reasons:
- College students may not have sufficient income streams to cover unexpected costs, such as a repair or emergency bill
- Students are naturally in a state of transition with many major life events to prepare for such as relocation after graduation or working towards the down payment of a first home
As you reflect on the goals you want to achieve, there are several financial benchmarks to consider that may give you additional clarity into the sorts of goals you may want to set.
Saving for Emergencies
You may not want to think about the worst-case scenarios that life can bring us, but when it comes to managing your money, planning for the unknown and being able to weather an emergency or costly situation is one of the best ways you can stay on track financially. In fact, over half of Americans lack the means to cover an unexpected bill of $1,000.
Students should think about emergency preparedness from two distinct aspects:
- Emergency Fund- Money to supplement income in the face of loss of employment
- Rainy Day Fund- Moneyto cover anticipated bills in the face of a crisis or unexpected event
Emergency Fund
Emergency funds are designed to serve as a temporary income stream in the event an individual loses their job and subsequently their means of making a living. Your emergency fund will help you cover your most basic essentials while you look for employment or attempt to establish a new income stream.
Keep in mind your essentials will include things like rent, utilities, means of transportation, food, and other mandatory payments such as a credit card payment or a phone bill. This may not be as applicable for you while in school, especially if you are living on campus or utilizing student loans to cover your expenses. However, an emergency fund will be something to consider building up upon graduation and when you have entered the workforce.An ideal emergency fund will allow you to cover 3-6 months' worth of essentials. If you are in a profession that may lack stability or is known for being volatile, such as freelancing or the entertainment industry, you could decide to save beyond the 6-month benchmark.
Rainy Day Fund
Similar to an Emergency Fund, a Rainy Day Fund prepares you for the hardships of life. Unlike your Emergency Fund though, your Rainy Day Fund is designed to cover more of the "not if but when" moments you are more likely than not to encounter. For a car owner, this is probably money set aside for an inevitable oil change or car repair. As a pet owner, this could be the equivalent to an upcoming check-up or emergency bill. Students may want to plan their Rainy Day Fund around a laptop repair, last minute plane ticket to see family, or the living expenses needed before financial aid refunds are processed. Identify the 2-3 most applicable rainy day moments for yourself and work towards saving up the dollar amounts needed to cover them if they occurred in one consecutive month.
Saving for Short-Term Deadlines
Along with saving for emergencies and your rainy day scenarios, another goal type to reflect on is one that prepares you for impending obligations or changes to your financial situation. Students planning for short-term deadlines may set goals related to saving for a study abroad program, moving for a summer internship, a trip during Senior Year, and preparing for relocation after graduation. Setting a goal to meet short-term deadlines will involve having an idea of the total cost needed and comparing that to the amount of time before the deadline will fall.
For example, if you are looking to set a goal to meet the costs related to relocation, you would want to get an estimate of what that expense looks like. Between a moving truck, apartment application fees and security deposit, and first month's rent alone you could be looking at a goal of close to $3,000. If you had two years to prepare for relocation, your goal might be to set aside $125 in a savings account each month.
In addition to these types of goals, other objectives that may be applicable to you as a student could include:
- Increasing your weekly or monthly income
- Paying off a certain amount of your loans within 6 months of graduating
- Opening an individual retirement arrangement (IRA) while in school
- Learning more about Personal Finances by enrolling in a Duke class or house course
As you accomplish your goals, continue to reflect to see if creating new goals are in order or if it makes sense to repurpose your financial resources elsewhere. For example, if you have met your goals related to building up your savings to prepare for emergencies and short-term deadlines, it may make sense to begin saving for the long term by investing.
