Summertime offers students more options for budgeting, investing


As the summer months quickly approach, post-semester ideas are becoming more than just distant future plans. Many students probably intend to take classes, travel or work at recently acquired internships or jobs.

The summer is often a good time for students. Not only are workloads generally lighter, but many have the earning power of working a 40-hour work week that may not be feasible when school is in regular session.

While the summer can offer greater income, that is usually coupled with greater expenses. Too often, students, who are not used to getting paychecks in the thousands overstretch their budgets and money from the summer that was originally intended to get them through the semester suddenly vanishes. As a quote from Spider-Man goes, however, “With great power, comes great responsibility.”

To avoid that situation, here are five things you can do to ensure fiscal responsibility with your summer earnings.

1. Start a ROTH IRA or another type of retirement account
As I’ve mentioned throughout the semester, when it comes to saving for the future, time is your best friend. Easily the best thing you can do for yourself regarding long-term financial security is to start saving as early as possible.

Investing in a ROTH IRA or a 401(k) can help you get a fast start, while also helping you prevent the temptation to go blow all your money on a new TV. This is usually either post-tax or tax-deferred money, meaning that less of your money will be used immediately for taxes and will likely experience more growth.

While it is important to treat yourself, you will be much better off if those treats come from the remaining funds after savings.

If you have a way to maintain your income level throughout the year, you can also set up automatic transfers to these retirement funds so that you will have regular contributions after your initial deposit. Many funds offer minimum initial deposits as low as $250, a number that is manageable for most students that are making money during the summer.

Remember, pay yourself first.

2. Use the “envelope method” for future plans
Perhaps one of the most rudimentary methods of saving and budgeting, the “envelope method” involves taking physical cash and literally storing it in various envelopes that are designed to pay for an array of future expenses.

For example, if you are planning an end-of-summer vacation, take an envelope and label it “vacation money.” Every time you get a paycheck, withdraw the amount of money that you think you can afford to set aside for this particular expenses, after savings and taxes. This number should be based on the type of trip you want to take, how much that trip is estimated to cost, and how high of a priority that trip is in respect to your other expenses.

For some people, having a tangible system of budgeting not only helps them prioritize and maintain a level of self-discipline, but it also gives them a good visual on how much they are spending and what they are spending on.

Your summer months may have larger inflows of cash, but if you do not allocate your money wisely and plan for the future, you may very well not have the money left over at the end of the summer to go on that vacation that you’ve been so excited about.

3. Take your tax liability into account when planning future expenses
Personally speaking, this year was the year that I saw more people than ever actually owe money to the government when doing their tax returns.

Tax liabilities are generally calculated using your adjusted gross income, which is comprised of gross earnings such as wages and tips, and then adjusted for any exemptions, exclusions or tax credits that the taxpayer is eligible for. This amount is then usually taken out of your paycheck by your employer, in what is known as the “Pay-As-You-Go.” The purpose of this is to ensure that you don’t have an enormous tax liability at the end of the year, and helps you avoid cash flow issues.

Most students will generally not pay more than 15 percent in taxes, which is applied to a maximum AGI amount of $36,900 for single taxpayers in 2014.

The problem with the system, however, is that the amount that is withheld from your paycheck is usually based off your previous year’s earnings. This causes issues for people who are earning significant income for the first time, because the previous year’s earnings are much less than total income for the current year will be.

If you fall into this category, you need to either adjust your withholdings with your employer to reflect reality, or make sure that you are setting aside enough to avoid a major catastrophe come spring.

Remember, money management is all about planning and self-control. Don’t hesitate to treat yourself, but also make sure that you are spending an appropriate proportion of money investing in your own future.

Only you can determine how much that is. By creating a list of priorities, you can set yourself up to achieve your own financial goals. After all, it is your money. Just come up with a plan of how you are going to spend it.

Andy Rao is a senior in finance. Please send comments to