For many young adults, heading off to college means a new level of freedom but it also brings with it a new set of responsibilities. While it may not seem that important, the choices you make when it comes to managing your money as a freshman can have a significant impact on your finances long after you graduate. If Personal Finance 101 isn’t on your class schedule this fall, these simple tips can help you start building good financial habits.
1. Learn the Budgeting Basics
A budget is one of the most important items a college freshman should have in their financial toolbox. Creating a budget is relatively easy but learning how to stick to it is the real challenge. To get your budget started, you’ll need to make a list of everything you plan to spend each month.
This could include basic living expenses like rent and utilities if you’re not living on-campus, food, transportation costs and the extras, like going out with friends or new clothes. If you’re not sure how much you’re spending each month, free financial apps like Mint and Slice make it easy to keep track of every dollar.
Once you have your list of expenses, you’ll need to add up how much money you have coming in. You’ll want to include income from your part-time job, any cash your parents plan to kick in and any other money you get on a regular basis. The basic idea of living on a budget is to keep your expenses below your income. If you’re spending more than you’ve got coming in, it’s time to look for ways to cut back.
2. Choose the Right Checking Account
Walking around with a pocketful of cash may seem convenient but it’s also a good way to end up broke if you’re not paying attention to what you spend. Opening a checking account and using a debit card for your purchases keeps your money safe and it helps you see where your money’s going. If you don’t already have a checking account, you should be able to open a student account as long as you’re in school.
Not all student bank accounts are created equally. When you’re shopping around for a checking account, pay attention to the fee schedule and the minimum balance requirements. Most banks offer free checking for students but there are some that charge a small monthly fee to maintain your account. Some banks may require you to open your account with a certain amount of money or keep your balance above a certain limit to avoid a fee.
3. Be Smart About Student Loans
Student loans are a double-edged sword that you need to handle carefully. On the one hand, they can make it possible for you to earn your degree if you don’t have scholarships, grants or a college fund to fall back on. On the other, they can lead to a black hole of debt if you’re borrowing heavily to finance your education. According to a 2012 report from the Project on Student Debt, two-thirds of the college seniors who graduated in 2011 had student loan debt, with an average of $26,600 per borrower.
The number one rule when it comes to student loans is to only borrow what you need. Ideally, you should only take out enough loans to cover the actual cost of going to school. This means your tuition, fees, books and room and board if you’re living on-campus.
If you end up getting a refund check from the financial aid office, resist the temptation to think of it as “free” money. The reality is that every dollar you borrow has to be paid back with interest at some point. When you spend a refund check instead of applying it to your student loans, you’re only digging yourself deeper in debt.
4. Avoid the Credit Card Trap
Credit cards can be a useful tool for building credit but they can quickly become a recipe for disaster if you’re not using them wisely. According to Sallie Mae’s “How America Pays for College 2013” survey, 30% of all undergrads had at least one credit card. The average balance for all the students surveyed was $747 but when broken down by graduating class, freshmen had the highest average balance at $1,007.
Like your student loans, anything you charge to a credit card has to be repaid with interest. If you’re not paying the card off every month you could end up forking over significantly more for the things you buy with plastic. Unless you can reserve your card for emergencies only, the best thing to do when you receive a credit card offer is just say no.
The college years are the one time in life when you’re expected to be broke but that doesn’t mean you have to be. Learning how to make smart decisions with your money now can give you a financial head start when it’s time to leave school behind and head out into the real world.
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