Entering college is about more than stepping up your academic game. As you revel in your new freedom and expanded social network, it’s easy to forget about getting your finances in order.
College will probably be your first time living away from home. You’re going to be living on a budget, and in most cases, your budget is going to be pretty tight. This is an especially important point now, given the state of student debt in the US:
- The average outstanding federal student loan debt in 2022 was $37,574. Compared to those with a bachelor’s degree, first-generation college students are three times more likely to struggle with student loan repayments.
- In 2020, 26% of US people under 40 that attended a private college had trouble repaying their student loans.
- Only 52% of US citizens received personal finance education during their school years.
- 86% of Americans believe that financial education should be mandatory in schools.
Given these stats, it’s clear why experts stress the importance of financial literacy for high school graduates. So, why not master budgeting and expense management before your first real shot at managing your own money?
On that note, we’ve compiled a comprehensive guide to help you secure your financial future in college.
Step #1. Create a Realistic Budget
Before you pack your bags for college, get your budget sorted. Understand your needs and track your spending habits. It might be tough at first, but you’ll get the hang of it once you start spending. Try to estimate your expenses as accurately as you can. After your first week at college, you should be able to better assess your spending.
Divide your budget into these categories:
- Monthly Income: This includes scholarships, loans, grants, part-time job earnings, savings, and contributions from your parents.
- Essential & Fixed Expenses: These include tuition, living expenses, and other regular costs like room fees, books, cell phone bills, rent, medication, and laundry.
- Discretionary or Luxury Spending: These are optional expenses like going to concerts or movies, dining out, buying gifts, gaming, and traveling.
Instead of splurging, prioritize your needs and only select a few luxuries. Consider opening a student bank account or a high-yield account to save your remaining funds. Using a budgeting app can also help you live within your means.
Step #2. Set up a Bank Account
It’s time to take your next step by securing a checking account (if you don’t already have one).
If this is your first bank account, disable the overdraft feature. This will help you stick to your budget and avoid unnecessary fees. Set up low-balance alerts and learn how to manage your checkbook. Download the bank’s app to keep an eye on your spending.
When setting up mobile banking, use a secure PIN and enable multi-factor authentication. Use different passwords for different accounts for better security.
Step #3. Organize Direct Deposit Accounts
Consider having multiple separate bank accounts; one for bills and another for personal spending. This way, you always know that you have your bills covered, and you’re not spending money that’s already been accounted for.
Also, if you have any extra funds that are just sitting around, consider opening a high-yield savings account. For example, a Roth IRA or Money Market account can help you stash your savings and earn significant money in the process. Never too early to start planning for the future, after all.
Step #4. Start Building Credit
It’s a good idea to start building good credit early. But, you also want to approach this very carefully.
Responsible use of a credit card can help you build a healthy credit history, which will be crucial when you want to apply for loans in the future. Some employers may even check your credit when you apply for a job.
However, it’s very easy to end up abusing your line of credit or falling behind on payments. This can shoulder you with more debt than you anticipated, which is not a good start to your financial life.
Step #5. Avoid Credit Debt
Going off that last point: credit cards can be a good tool for building credit. But, they often come with high-interest rates. This is especially true of credit cards targeted at young people with limited or no credit history.
While swiping your card during pizza nights is tempting, irresponsible spending can land you in trouble. Always make sure you can pay your credit card bill in full each month. If you don’t have enough money on hand to cover a credit card charge, then don’t make the purchase.
Step #6. Be Proactive About Repayments
If you take out student loans, remember that they don’t disappear, even if you declare bankruptcy. And, the longer you take to pay them off, the more interest charges will be tacked onto the total. You should try to start repaying these loans as soon as possible to avoid accruing interest.
Make sure you’re diligent about making these payments. Trust us: you don’t want to be paying off student loans for the next 30 years.
Step #7. Apply for Scholarships Early
Of course, you may be able to avoid taking out loans entirely if you can line up enough funds in the form of grants or scholarships.
Not a senior yet? Not a problem. As we explain in this blog post, the earlier you apply, the better your chances. Plus, there’s no limit to how many scholarships or grants you can receive.
Step #8. Earn While You Learn
Many students work part-time during college. For some, work isn’t really an option; they need a job to pay their living expenses. But, even if you can get by without working, it might be a smart move to maintain at least a part-time job while attending college.
Balancing work and studies can be tough, but the extra income can help you pay off your student loan faster, and help you start saving for your future.
Step #9. Take Advantage of Student Discounts
Did you know that as a college student, you can get discounts at many retail stores, online shops, movie theaters, and restaurants? Even services like card insurance sometimes offer discounts for students.
Make sure you take advantage of these opportunities to get more bang for your buck.
Step #10. Get Started Now!
Heading off to college is your chance to become financially savvy. But, as you prepare for your academic journey, don’t forget to brush up on your money management skills.
You don’t need to wait for college to get started, either. Adopting good financial habits early on will help you lay a solid foundation for your future. So, it’s best to start getting prepared today.
Remember, creating a realistic budget is only the beginning. How you save and invest in the coming years will shape your financial journey.