Adapted from 1st Financial Bank USA's Blog
Managing your money in college poses unique challenges. Here are 8 things to keep in mind about money as you start to take charge of your own finances.
As a college student, you may be in charge of your finances for the first time in your life. As your college years are a great time to learn about money management and other financial tools, you’ll want to make sure you’re prepared to form good habits. Here are eight things every college student should know about money.
1. Having a budget is essential
A budget helps you keep track of your income and expenses each month. Without one, you may lose track of where your money is going. When learning how to create your college budget, you’ll want it to fit your individual needs. Some of the typical budget categories for students are tuition, room and board, school supplies, entertainment, and savings. Sticking to your budget may require you to make difficult choices, like opting for a smaller meal plan or skipping a night out with friends in order to afford other items that are important to you.
Before you begin borrowing money for college, make sure you understand how student loans work. Unlike grants, scholarships, and other forms of “free money,” loans require you to pay back the amount you borrow plus interest. While some loans don’t accrue interest fees or require payments until after you graduate, others begin accumulating interest right away. It's important to understand the repayment terms of your student loans and to make sure you can afford to make the monthly payments that are, or will be, required.
When you're ready to rent an apartment, buy a new car, or refinance your student loans, having good credit can give you a major advantage. A positive credit history indicates to lenders that you are responsible with managing credit and making payments on time. A good credit score can help you gain approval for student loans or auto loans with favorable interest rates. A poor credit score or an absence of a credit history can result in high interest rates, the requirement of a cosigner, or a denial of your credit application all together. During college, you can build your credit by making consistent and timely payments on your student loans (if they require you to make payments while you're still in college) or credit card.
College is a great time to get your first credit card. Whether you use it to buy gas, textbooks, or food, a credit card can save the day when you don’t have enough cash on hand. Additionally, if your card is lost or stolen, you’re not liable for any purchases you didn’t make, which typically isn’t the case with cash. Nonetheless, it’s important to know how to use your credit card responsibly in order to avoid excessive spending and credit card debt. Only using your card for routine payments or emergencies and paying your monthly balance on time and in full is a good way to stay on track.
Review these tips for avoiding the most costly credit card mistakes.
In college, it may be difficult to plan beyond what you’re doing this weekend, but knowing how to save and invest for your future at a young age can have some serious benefits. One of the first steps is to open a savings account that is separate from your checking account. You can then transfer money from your checking account — automatically or manually — into your savings account without being tempted to spend it. Saving is important, but you also want to balance it with some long-term investments. Taking time to learn about retirement accounts or index funds that you can invest in can help you improve your financial literacy. Even though you’re still a student, it’s important to begin thinking about saving for retirement — and to start saving as early as possible — in order to get the greatest benefits of compound interest.
Before you make a purchase, you should always evaluate if it’s a want or a need. Needs are items that are essential for your daily life, like toothpaste or food. Wants consist of items that are non-essential, but nice to have, like the latest technology or an extra pair of sunglasses. While buying wants on occasion is perfectly acceptable, there’s a difference between treating yourself and spending recklessly. Learning how to make smart purchases can be as easy as asking if a merchant offers any student discounts or enrolling in a rewards program. You should also implement a waiting period before you buy a non-essential item to avoid any impulse purchases that you might regret later.
While you may have entered freshman year armed with your (or your parent's) savings and a few scholarships, don't stop there. Continue to search and apply for scholarships, like the 1FBUSA Financial Goals Scholarship, throughout your college career. You should also complete the Free Application for Federal Student Aid (FAFSA) annually to qualify for federal student aid. Lastly, consider finding a flexible job, such as on-campus employment, that can provide you with extra spending money and allow you to focus on your studies. These are just some of the resources that can help you pay for college, reduce your debt, or even achieve the goal of graduating debt-free.
As a freshman, you’ll need to have the “money talk” with your parents or guardian before you leave for college. Since you will no longer be under your parents’ roof, you will need to ask how much involvement they will have with your money management. Your parents may contribute to your college fund or they may decide to help with other costs like your health insurance, phone bill, or medical bills. Having an open conversation and understanding your parents’ intentions and opinions about money is key to your financial success in college.
Now that you’ve learned the top eight money tips for college students, you’re ready to make your investment in college worthwhile. Going to class, networking, and forming friendships are all important parts of college, but learning how to manage your money as a student is equally as important. With your personal finances, as with any activity you’ll try in college, practice makes perfect! The efforts you put into being a good money manager as a freshman — and throughout college — will pay off over time.