Dear Professor,

I’m a freshman a little worried about going broke. I had a steady job all summer at my local swimming pool and managed to put away $1,000 in savings. I now work four hours a week putting away books in Dunn for my only source of money. I live on campus and have a meal plan, and my parents and student loans are taking care of my tuition woes for the time being. Currently, the problem is that I’m worried all those Wal-Mart runs and the lure of Jordan Creek will eventually do me in (I tend to spend especially during stressful times in my life!) What type of reasonable limits can I put myself under? I want to be able to spend some money, but I also don’t want to eat away at all of my savings. Please help!!!

Sincerely,

Betty Budget

Dear Ms Budget,

First of all, I applaud you for being able to start school with $1,000 in savings. Many personal finance experts agree that individuals should try to save between 5 percent and 15 percent of their income. It is also recommended that you have enough in savings to cover your expenses for three to six months. Given your scenario, I assume that having $500-$600 in savings will be sufficient to cover your expenses for a few months.

My advice to you and students in similar situations is to not worry too much about your savings and do not run up too much debt while in college. Try not to take more in student loans than you need and, if possible, avoid credit card debt.

You mentioned that stress tends to cause you to spend. This is a common reaction for many people. Try to find other methods of finding relief such as exercise, listening to music or playing a game. Shopping (like many habits) can become a problem. It is estimated that as many as 5 percent of U.S. adults suffer from compulsive shopping disorder. I’m not suggesting that your shopping is a problem, but you need to be aware of how you handle stress.

There is enough stress in college without worrying about your savings. Assume you will retire 40 years after graduation. If you put your $1,000 in a savings account that pays the current rate of interest, approximately .75 percent, in 40 years you will have accumulated a little less than $350 in interest. There are many mutual funds linked to stocks that may earn on the average 10 percent per year. The key to saving is to have a regular and consistent plan. After you graduate, hopefully your employer will offer a 401(k) savings plan. This will allow you save while reducing your taxable income. Many plans allow you to put a portion of income into the savings plan, and employers will also match a portion of what you save. For instance, if your annual income is $30,000 and you put 5 percent ($125 per month) of your income into the 401(k), many employers will add an additional 2.5 percent. This means that $187.50 is going into the plan each month, assuming your income did not change, which is highly unlikely. If you earn 10 percent on your investment and continue this for 40 years, you will have more than $1,000,000 when you retire.

I hope this helps.

Tom Schmidt