An official-looking envelope arrives in the mail. You open it with a mix of angst and intrigue.
But the news is better than you expected – it’s a check for thousands of dollars! Either your college or the IRS has issued you a refund.
What comes after is kind of a blur, but next thing you know you’re strolling down the Miami Beach boardwalk with a mojito in one hand and a group of your closest new friends in tow. You pull down your designer shades and look into the deep blue distance. You think to yourself, it’s good to be rich. We wanted to dream that dream for you. Or maybe with you? Whatever, the point is that it’s time to snap back to reality. You’re a college student in our topsy-turvy world, which means you’re placing a competitive bet on your future self. You absolutely need to have some fun, but when it comes to your money? That’s not for the wasting. We have serious business to accomplish. So in honor of refund season, we’re here to pour one out for frivolous spending (and please use cheap beer, because we’re not wasting any $8 microbrews on this). Here’s how we’d recommend approaching that unexpected influx of cash.
Half goes here: Have you ever had those difficult moments when you’re trying to decide between the dollar menu or $5 for your gas tank? You know the ones: where you’re seriously considering whether all this sacrifice is worth it? Where that vision of your future self becomes dim through the fog and stress of present-day financial insecurity? Let’s start with making a down payment on the basics.
Make a list of essential items from toiletries to personal care to non-perishable food – and buy them in bulk. That stockpile of things you were going to buy anyway will be an invisible source of financial support for months or years, allowing you to focus your time and money elsewhere.
Pay down debt: High-interest credit cards are an absolute scourge and they target those who are the most financially vulnerable while also contributing in the long-term conditions to keeping them in that tenuous state. Get yourself out from under that high-interest debt by paying down as much as possible while you have the chance. It’s one of the key things you can do to buy yourself long-term financial peace and freedom. Paying off long-term bills means providing yourself with more freedom now and into the future. Speaking of which...
Pay your future self: Maybe we should whisper this, because it’s definitely one of the tricks to putting your cash to work. Sign out of your Robinhood app (most of it is just Wall Street bots taking money from retail investors anyway), and apply some of that refund to an interest-bearing account such as a certificate of deposit (CD). These accounts allow you to earn 4% or more for a set amount of time, allowing you to build up a large account balance. This method is especially useful as a saving tool, as an alternative letting your stash hang out in low-interest checking or savings accounts. You won't crush the market, but you'll have secure, bankable savings.
Don’t forget present you: Ok, now that you've done the difficult and boring stuff: you’ve bought a bunch of essentials, chopped down your high-interest credit card debt and sneakily stocked some money away in a CD. NOW it’s time to take what’s left – let’s call it 10-20% – and spend it on yourself. Clothes, games, furniture, a small trip – this is the perfect time to do it. It will be much sweeter with the knowledge that you’re on solid financial footing. By the way, if you are going to buy things (sometimes it's better to invest in life experiences instead of things by the way...) do your best to buy items that will stay useful for a long time or perhaps even increase in value: higher-end watches, higher-end clothing, antique furniture, etc. In the long-run, their durability and resale value will save you more money or even earn you more.
It's important to make your money work for you and that's even more important for money you didn't expect to receive.