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July 23, 2010

Summer Jobs and Budgeting

Working a summer job and budgeting with your earnings can offset your school and loan costs further down the road. Out-of-pocket money you put toward tuition or books means less money taken out in loans—and less money spent on interest.

Interest accrues, or adds up, over time. Whether you are in school or finished with school, your federal student loans may be accruing interest, depending on your situation and the type of loan. In the following example, the loan is a federal subsidized loan that is not in repayment, meaning it is not currently accruing interest.

The federal minimum wage is $7.25/hour. If you work 40 hours per week for 12 weeks, you will gross $3,480. Let’s say you put $2,500 of that summer money toward a loan you already have:

  • If you have a $10,000 federal subsidized loan with an interest rate of 6%, you would repay $13,332 over 10 years of standard repayment.
  • But, if you put that $2,500 toward your loan (knocking it down to $7,500), you would instead repay $9,993 over that 10 years.
  • So, that $2,500 would actually be worth $3,339 in the long run.

Make a Plan to Save

If you don’t have a savings plan already mapped out, make one with our easy budget worksheet (pdf, 0.34 MB) and budget calculator. Also be sure to keep the following in mind:

  • Review your finances. Determine how much money you need to earn this summer based on your financial situation. Are you looking for just enough to pay summer living expenses, or do you need to pay down existing bills, earn spending money for the fall, lessen upcoming tuition or college expenses, etc.?
  • Set a savings goal. Once you know what your summer wages will be and what you want to accomplish, set a savings goal and stick to it. Make your goal specific and achievable (for example, put away $50 or $100 a week for 10 weeks). You can use this money during the fall to help you pay for tuition, books, lab fees, and entertainment.
  • Choose direct deposit. If your employer offers it, have your paycheck deposited into your checking or savings account. Then, make just 1 cash withdrawal to use during that pay period. This will help you avoid overspending.
  • Pay with cash. Credit and debit cards give you easy access to more capital, meaning that it’s easy to spend more than you intended. Only carrying the cash you are prepared to pay for a given product may prevent you from paying for features you don't need. And cash is easier to track—if you had $100 in your wallet and you’re down to $50, it’s obvious how much you’ve spent.