About this time of year, panic tends to set in for new high school graduates looking at their upcoming college costs. If you're planning to work this summer to offset some of your college expenses, consider these tips.
1. Know How Earnings Affect Your Financial Aid
Although your financial aid has already been determined for the upcoming year, your annual income can affect future aid.
The Free Application for Federal Student Aid, or FAFSA, provides an income protection allowance — the amount you can earn during a calendar year before your financial aid package is affected. For the 2015–2016 year, this amount was $6,400.
You shouldn't necessarily try to limit your annual income to less than the income protection allowance, however. The income tax you pay on your earnings is also taken into account, and the type of aid you receive makes a difference. Offsetting student loans with income is beneficial, while earning enough to reduce need-based grants isn't so great.
If you have questions about how your earnings will affect your future aid, talk with a financial aid officer.
2. Make a Plan for Your Earnings
The amount you need to save from each summer paycheck is determined by your goals. Are you planning to offset specific expenses, such as clothing, books or entertainment, for the school year? Are you planning to earn enough to make interest payments on student loans?
Use your goals to determine a percentage of each paycheck to put into savings. Don't forget that you may need to use part of each paycheck to cover current expenses, such as work clothes, gas and car insurance, and that you will have taxes and other deductions removed from each check. You may also want to plan on spending a little each month on summer entertainment as well.
3. Simplify Your Saving
It's often tempting to use cash in hand, and sometimes students find they've spent the money they intended to save without really thinking about it. Avoid the cash crunch by:
- Depositing your pay right away. If you have the option to have your check direct-deposited into a checking account, take advantage of it. If not, or if you are paid in cash, deposit it directly after you receive it to avoid unnecessary spending.
- Automating your savings. Set up an automatic transfer from your checking account to your savings account that corresponds with your pay date. For example, if you are paid by direct deposit every other Friday morning, have an amount equal to the percent of your check you want to save automatically transferred to your savings account on those Friday afternoons. Time the transfer as close to the deposit as you can without risking overdrawing your checking account.
4. Stick to Your Goals
Once school starts in the fall, remember what you worked so hard for over the summer. If you intended to use your summer earnings for books, don't let the desire for new clothes or evenings out distract you from your goal. If you haven't already considered it, think about a part-time job during the school year to pay for other items you want or need.