Countless Americans are just one paycheck away from facing a major financial crisis. When you’re struggling to make ends meet, it doesn’t take much—a sudden car repair, a health emergency, or any unexpected expense can push someone like Judy and her family into a full-blown crisis.
Before we delve into the concept of compound interest, we must first focus on building a basic level of financial security for Judy and her children. This means ensuring they have a stable income that can help them weather life’s unpredictable challenges, providing them with the financial resilience they need for their day-to-day survival.
Robbing Peter to Pay Paul
Judy can start by creating a detailed budget to track her income and expenses. This will help her understand where her money is going and identify areas of need that she is unable to meet and the financial cost to meet them.
Example
Judy tracks her monthly income of $2,500 and expenses, including rent, utilities, groceries, and childcare, totaling $2,700. She identifies $200 per month that she has been robbing Peter to pay Paul.
Many forums would incorrectly state that Judy is living beyond her means, when in fact Judy is simply trying to survive with the basics. It’s essential to recognize that this isn’t a result of lavish spending but rather an attempt to cover basic necessities such as rent, utilities, groceries, and childcare. So, advising Judy to cut back on her spending is completely ridiculous.
Actionable sTeps to Generate Wealth
Let’s take a look at some actionable steps Judy can take instead…,
Don’t Fall into the Credit Card Trap
Many in Judy’s situation often use credit cards as a crutch, oftentimes not having the financial education on how they work, or how they impact credit scores. While credit cards may initially seem like a lifeline, they often end up being a double-edged sword. Oftentimes people dig themselves into a deeper financial preventing financial independence.
Here’s why:
Credit cards typically come with high interest rates, especially for those with limited credit histories. This means that the debt Judy accumulates through credit card usage can quickly spiral out of control, making it even more challenging to get back on her feet financially.
Credit card companies require minimum monthly payments, which can be tempting when Judy is struggling to cover her immediate expenses. However, making only the minimum payments will result in prolonged debt repayment and significantly higher overall costs.
Accumulating credit card debt and missing payments can severely damage Judy’s credit score. A poor credit score can affect her ability to secure housing, employment, and access to financial products with favorable terms in the future.
Credit cards can create a cycle of debt where Judy uses one card to pay off another, further exacerbating her financial situation. This cycle can be challenging to break free from and can lead to a never-ending struggle with debt.
In essence, while credit cards may offer short-term relief, they often lead to long-term financial instability and even deeper financial woes. Instead of relying on credit cards, Judy should focus on finding more sustainable solutions to address her income shortfall, such seeking additional sources of income.
Take College Courses
Whether you enroll in a community college to take a class, a certificate program, or transfer to a four-year institution, many struggling Americans who were not raised in a college-going culture are unaware of the financial support that would come with enrollment.
The cost of living or living expenses is a crucial aspect of financial programs for students at 2-year colleges, as it can significantly impact a student’s ability to focus on their studies without financial stress. Here’s how the mentioned financial programs can help with living expenses:
The Board of Governors Fee Waiver (BOGFW) in California is a financial assistance program for eligible students attending community colleges in the state. This program, also known as the BOG Fee Waiver, is designed to help lower-income and financially disadvantaged students cover their enrollment fees (tuition) at California community colleges.
The BOGFW waives the enrollment fees for eligible students, making community college education more affordable. It covers the enrollment fee for each unit of coursework taken during an academic term.To qualify for the BOGFW, students must meet specific eligibility criteria. Generally, students must be California residents, demonstrate financial need, and meet income requirements. The income thresholds may change over time, so it’s important to check the most current criteria.
The Board of Governors Fee Waiver is a valuable resource for Californians who wish to pursue higher education at community colleges but face financial challenges. It plays a crucial role in ensuring that higher education is accessible to a wide range of students, helping them pursue their academic and career goals without the burden of high tuition costs. Students interested in the BOGFW should contact their local community college’s financial aid office for detailed information on eligibility requirements and the application process.
Pell Grants are primarily intended to cover educational expenses, including tuition, fees, and course-related materials. However, any funds left over after covering these direct educational costs are provided to the student. These remaining funds can be used to help with living expenses, such as rent, food, transportation, and utilities. Students typically receive these funds in the form of a refund check or direct deposit, which they can use as needed.
FSEOG, like Pell Grants, is designed to address the financial needs of low-income students. While its primary focus is on covering educational expenses, any surplus funds can also be used to help with living expenses. The availability and amount of FSEOG funds can vary by school, so students should inquire with their college’s financial aid office regarding their specific situation.
Federal Work-Study programs provide students with part-time employment opportunities, either on or off-campus. Students can earn a paycheck from their work-study job, which they can use to cover living expenses. These jobs often offer flexibility to accommodate a student’s class schedule and can provide income for necessities like housing, food, and transportation.
State grant programs for community college students may have provisions for addressing living expenses, although the primary focus is often on tuition and fees. Some state grant programs provide a fixed amount, and students can use any surplus funds for living expenses as needed. State-specific eligibility criteria and award amounts vary, so students should check with their state’s higher education agency for details.
Scholarships awarded to students pursuing degrees at 2-year colleges can vary widely in terms of their purpose and usage restrictions. Some scholarships explicitly cover living expenses in addition to tuition and fees, while others may be limited to educational costs. It’s essential for students to carefully review the terms and conditions of each scholarship to understand how they can use the funds.
Scholarships provided by the college itself or by external donors may also have varying guidelines regarding the use of funds. Some scholarships may be unrestricted, allowing students to use the funds for living expenses, while others may have specific requirements or limitations. Students should consult with the college’s financial aid office or the scholarship provider for details on how these funds can be utilized.
While the primary focus of many financial programs for students at 2-year colleges is on covering educational expenses, surplus funds from grants and income from work-study programs can often be used to help with living expenses, thereby reducing the financial burden on students. It’s important for students to plan their finances carefully and utilize these resources wisely to ensure a successful college experience.
Judy made a thoughtful decision to enroll in her nearby community college to pursue a certificate in photography. What’s even more exciting is that Judy’s income situation allows her to access some fantastic support programs. She’s eligible for the Board of Governors Fee Waiver, which takes care of her enrollment fees. On top of that, she’s qualified for the Pell Grant and a couple of State Grants, each of which helps her cover her day-to-day living expenses.
The Community college Clean Slate
Even if high school wasn’t your strongest suit, and your grades weren’t top-notch, community college gives you a fresh start. What this means is that, regardless of your past academic performance, when you enroll in community college, you get a clean slate. So, if you have aspirations of transferring to a four-year university, your performance at community college, along with your GPA there, can pave the way for you to potentially transfer to a prestigious Ivy League school. But be careful, your college record is permanent.
So, as Judy dives into learning this exciting new skill, she’s not just filling her knowledge bucket; she’s also more than bridging the $200 gap in her income. It’s a win-win situation for her educational and financial goals!
Enforce a Strict Budget
It’s tempting for Judy to take her financial aid packet and use the extra funds to upgrade her living situation and/or indulge her kids, but after taking a few classes, Judy has a plan and decides instead to keep her eye on the prize.
