Colleges and universities are beginning their fall sessions, and freshmen across the nation are enjoying newfound freedom from parental control.
But before they left for school, how many students had the benefit of a money talk with their parents?
If those lessons weren’t taught to you at home or school, 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 such errors and instead 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 that aid will be, immediately begin working on a spending plan that will stretch your money for the duration of the semester, or until the next disbursement arrives.
During my first year of college, I witnessed the mismanagement of funds by many students. Despite the generous loads of cash they received from the federal government — whether in the form of loans or grants — many blew through the money by midsemester and found themselves relying on ramen noodles for sustenance.
Making a plan for your money before it’s deposited into your bank account reduces that risk. Discipline also is required to make a budget or spending plan 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.
Take a look at “6 Easy Tricks to Stretch Your Income” to help you get started.
2. Start building a cushion
Life happens, so you’d better prepare by setting aside some cash in advance.
Among the unanticipated situations you may face:
- Delayed financial aid payments. Mistakes occur, 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 insurance coverage comes with a low deductible and small co-pays, 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 ideas about how to add to your cushion.
3. Consider joining a local credit union
Joining a credit union has many benefits. As member-owned, not-for-profit institutions, they may be more customer-oriented than the big banks. Unlike many banks, credit unions frequently offer free checking accounts with no minimum balance requirement to maintain each month.
Other benefits that could come in handy now or later on include:
- Higher return on a 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 loan qualification criteria. Being a credit newbie also can make it harder for you to qualify for loans. However, credit unions are a bit more lenient than big banks, especially if you already have an account with them.
4. Pick up a side gig
College will likely be the only time in your life when you can afford to explore career options without putting yourself into too much of a financial crunch. So pick up a part-time gig, work-study job or internship to find out which fields interest you.
During my freshman 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.https://www.youtube.com/watch?v=Fj3RykXfHfI
5. Establish credit
Many financial experts say 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 get a loan.
If and when you do, lenders will weigh your credit scores and credit history heavily. Good credit can get you the best interest rates.
So, what’s the best way to go about building credit?
- Apply for a student credit card. Note that if you don’t have a steady stream of income, the Credit CARD Act of 2009 mandates that you have an adult co-signer.
- Obtain a secured credit card. If a regular credit card is not an option, consider a secured credit card.
- 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.
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 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? Share your story in our Forums. It’s a place where you can swap questions and answers on money-related matters, life hacks and ingenious ways to save.