It is of paramount importance that we learn money management or financial planning during our student life so that we are well versed with its principles and their application in our lives.
Student Financial Planning: By the time any student starts thinking of financial planning, in most cases, he or she has reached 25 years of age. The financial planning subject is not covered in our academics. After finishing studies every individual has to deal with money for the rest of their life, however big or small the scale maybe.
Whether we like it or not but money management or financial planning is an integral part of our lives. It is as important as earning money or any other aspect of life. Most of us spend our lives earning money. It is an activity that most of us throughout our life span. But, ironically financial planning is not taught to us in our colleges or schools. It is something, which each one of us has to be engaged in our lives without having any formal education in this regard.
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Hence it is of paramount importance that we learn money management or financial planning during our student life so that we are well versed with its principles and their application in our lives. Proper investment starting from student life will be of great help for each one of us in various situations in our life.
Importance of Financial Planning for Students
At this time we all have to admit that even as students we have some income as well as we have expenses. The sources of this income may be different, it can be from parents as pocket money or the amount for monthly expenses, it can be from scholarships, or it can be from some part-time work(s) that some students normally do.
Here we also make ourselves understand that we have different goals in our lives, they are higher studies, job, starting a new business, marriage, and so on and so forth. All these goals have monetary expenses related to them (Though earning is also there from the job and earning but that comes at a later stage). Initially, money has to be spent to achieve these goals. The amount needed for each goal is different. Also, these goals come at different stages of our lives.
According to the principles of financial planning, in order to achieve all these goals, we must plan for every goal individually. This would require taking into account the amount needed for every goal and inflation and also return generated from the invested amount.
Let us assume that a college-going student, named Ram, who is 18 years old has a net monthly income of Rs. 1,000/- which can be invested. This amount may vary and the sources of this income can also be different. He wants to go for post-graduation for two years after graduation (3-4 years from now) which will cost him around Rs. 100,000/- every year.
If this amount is invested as a monthly SIP in a hybrid mutual fund which gives average yearly returns of 10%, then after a period of 4 years he will have a corpus of Rs. 58000/- approximately. From this, he withdraws Rs. 30,000/- every year for fees payment his post-graduation and also continues with his SIP he will have around Rs. 20,000/- left with him even when his post-graduation is done. More importantly, he has reduced the burden of studies fees by Rs. 60,000/-(or 30%).
As Seen in The Above Example Having a Clear Financial Goal Can Help Us in a Great Way to Fulfill Our Dreams.
Now let us continue with the example of Ram who is now 22 years old. After his Post-graduation, he gets a job with a monthly salary of Rs. 25,000/- and with Rs. 20,000/- in his hands as savings. He still continues with monthly SIP of Rs. 1,000/- with the mutual fund. Now as he is employed, he has also decided to invest Rs. 2,500/-(10% of income) through monthly SIP. Thus his total monthly savings is Rs. 3,500/-.
After a period of four years, Ram plans to get married. The total expenses for the marriage will be Rs. 400,000/-. To meet the expenses of marriage he goes to his mutual fund savings. To his surprise, his savings have now grown to Rs. 235,000/- which will cover more than half of marriage expenses.
Even after marriage Ram, continues with the monthly SIP and also increases them with an increase in income. Such prudent savings habits and investment decisions help Ram to achieve financial freedom in his life.
With the above two examples, we have seen how careful and diligent financial planning helps an individual during the course of his life. Therefore every student should learn about financial planning during their school or college life for having financial freedom in life.