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Colleges and universities are beginning their fall sessions, and freshmen around the nation are enjoying their newfound freedom from parental control. From the applications and essays to the securing of funds, it’s been a long road for many.
But how many students have had the benefit of parents who took the time to have a money talk with them?
After all, only 17 states mandate the study of personal finance as a prerequisite for high school graduation, according to the 2014 Survey of the States by the Council for Economic Education.
So, if these lessons weren’t taught to you at home, you’ll be forced to enroll in the school of hard knocks, possibly making mistakes that could be detrimental to your financial future.
Here are some tips to help first-time college students avoid mistakes and get in the habit of sound money management for years to come:
1. Make a plan for your money
Expecting money from the Office of Financial Aid to cover your living expenses? Once you have an estimate of how much it will be, immediately begin working on a spending plan that will enable your money to stretch for the duration of the semester, or until the next disbursement comes through.
During my first year of college, I witnessed the mismanagement of funds by a number of students. Despite the generous loads of cash they were receiving from the federal government, whether in the form of loans or grants, many found themselves relying on ramen noodles for sustenance and in dire financial straits midsemester because they had blown through the money.
Making a plan for your money before it’s deposited into your bank account will reduce that risk. Discipline is also required to make a budget work for you, but at least you’ll start with a clear idea of the dangers that lie ahead should you decide to go on a spending spree.
If Mom, Dad or some other generous family member is footing the bill, this may not be as much of an issue. But at some point, you must come to the realization that the well may run dry. So it’s not a bad idea to create a spending plan for the contributions you are receiving from loved ones.
Take a look at “6 Easy Tricks to Stretch Your Income” to help you get started.
And, most importantly, don’t resort to additional loans. Instead, reassess your spending plan and make it stretch for as long as you can, because loans eventually have to be paid back, with interest.
2. Start building a cushion
Life happens, and unless someone is willing to come to your rescue each time you hit a bump in the road, you’d better be prepared by having some money set aside.
Among the unanticipated situations you may face:
- Delayed financial aid payments. Mistakes happen, and they can hold up the process.
- Auto repairs. If your car breaks down and you rely on it for transportation to school, you’ll need the cash to get it back up and running.
- Medical expenses. Unless your coverage comes with a low deductible and co-pay for services rendered, expect to fork over a nice chunk of change if you need medical care.
Check out “9 Ways to Build an Emergency Fund When Money’s Tight” for ways to add to your cushion.
3. Join the local credit union
Joining a credit union has many benefits. As member-owned not-for-profit institutions, they are more customer-oriented than the big-boy banks. Unlike many banks, lots of credit unions offer free checking accounts with no minimum balance requirement to maintain each month.
Other benefits could come in handy now or later on:
- Higher return on savings account. With the returns on savings being as measly as they are, every little bit counts.
- Lower loan rates. Assuming you’re new to the wonderful world of credit, lenders may hammer you with a higher interest rate. Credit unions generally undercut the larger banks’ rates by a few percentage points.
- Less stringent qualification criteria. Being a credit newbie can also make it harder for you to qualify for loans. However, credit unions are a bit more lenient than a big bank, especially if you already have an account with them.
4. Pick up a side gig
College will more than likely be the only time in your life when you can afford to explore your career options without putting yourself into too much of a financial crunch. So pick up a part-time gig, work study job or do an internship to find out what fields interest you.
During my freshmen year of college, I was unsure about pursuing a career in accounting, so I took a low-level job in the accounting department. It paid peanuts but enabled me to shadow professors and get a feel for the industry as a whole, along with the academic side.
5. Establish credit
Many financial experts will tell you that it’s not smart to borrow money to acquire things that lose value over time, such as cars and other big-ticket items. However, sometimes it’s necessary to borrow money, and I can assure you that your credit scores and credit history are weighed heavily by lenders. You’ll need good credit to get the best interest rates.
So, what’s the best way to go about building credit?
- Apply for a student credit card. If you don’t have a steady stream of income, the Credit CARD Act of 2009 mandates the inclusion of an adult co-signer.
- Obtain a secured credit card. If a regular credit card is not an option, consider a secured credit card, which requires a deposit equal to the low credit limit available with these cards.
- Become an authorized user. Assuming you are responsible with your finances, ask to be added as an authorized user to one of your parents’ credit cards. Once you’re on board, the payment history will be added to your credit profile. But be aware that your parents may have reservations because you’re not required to make payment for any of the charges incurred, even if they are yours.
When you apply for a credit card, always read the fine print before signing up, keep the balances low and make timely payments. Don’t waste your money on interest, and instead pay off the entire balance each month.
No desire to go the credit card route? Take a look at “7 Ways to Build Your Credit Score Without a Credit Card.”
What money management practices did you employ to get you through your college years and help pave the way for a bright financial future? Let us know in the comments below or on our Facebook page.