Starting college is an exciting time in your life. You're stepping into a new world of independence, responsibility, and endless opportunities. However, along with this newfound independence comes the need for financial responsibility.
As a college freshman it's a good idea to begin understanding and practicing good money management skills. If you start now can set yourself up for a financial future filled with confidence and security.
Understanding Income and Expenses: The First Step Toward Achieving Financial Goals
Understanding your income and expenses is essential when building money management skills. Many college students have a limited income from part-time jobs, internships, or parental support. It's important to know exactly how much money you have coming in each month.
Similarly, it's key to understand all your expected college expenses as well. From tuition to textbooks, housing, food, and entertainment, college life presents numerous expenses that can quickly get very expensive.
Budgeting: Your Money Management Tool
Awareness is an important step in managing personal finances. By creating a budget you can have a clear picture of your income and expenses. Some people fear a budget mistakenly assuming it’s restrictive; instead, think of it as a tool that gives you control over your money. It helps you understand where your money is going, how much you're saving, and where you can cut back if need be.
A good rule of thumb is to follow the 50:30:20 rule. With this rule, you would use fifty percent of your income for items you need. This would include rent, food and other necessities. Set aside thirty percent of your income for wants such as entertainment or eating out and twenty percent for savings.
By setting a budget you can ensure you are in full control of your money.
The Power of Savings: Beginning Your Path to Financial Security
No matter how small the amount you set aside, start saving money right away. If money is tight, begin this habit by saving your money slowly. We recommend that you set aside a small amount of money each week, even if that’s only $5. It will grow over time, so every little bit helps.
How you choose to use the money you save will depend on your circumstances. You can choose to use it for unexpected emergencies. You might use it for study abroad opportunities, or your post-graduation plans. Simply saving money will give you a sense of financial security and freedom as well options when opportunities arise.
As a student you have access to numerous student discounts that can help reduce your expenses. If you or your parents bought a meal plan, make sure to use it. Eating at the dining hall at school for many of your meals can save you a lot of money. Instead of buying food from nearby restaurants, take advantage of your meal plan. If you think you will be hungry later, take food to go from the dining hall so you won't be tempted to buy snacks when the munchies come.
Open a savings account. Some savings accounts will allow you to round up money spent on a debit card. Then the bank will automatically deposit that money into your account. This is an easy way to save money without any effort.
Another easy way to save is setting up an automatic transfer to your savings account on the same day you’re expecting an auto deposit from a job or your parents. Doing this will allow you to save money with little to no effort. Money moved directly to savings is out of sight and out of mind and therefore safe and sound until you need it.
Understanding Credit: Managing It Well
Credit is a powerful tool, but if not handled properly, it can lead to financial troubles. As a student, you might be offered various credit card deals. It's important to understand the terms and conditions, like interest rates and late payment fees, before accepting a credit card offer.
Do your best to avoid racking up credit card debt. Only spend what you know you can afford to pay off at the end of the month. This will not only keep you out of debt but will also help you build a strong credit score. People with good to excellent credit scores are generally offered better interest rates on loans which results in money saved on interest costs.
Stay on Top of Student Loans: An Important Responsibility
If you should happen to borrow student loans, it’s important to not forget about them while in school; which can be easy if you are taking advantage of an in-school deferment.
Private student loans and unsubsidized federal student loans will accrue interest from the moment they are disbursed; so if you can, attempt to pay the interest costs monthly while you are in school or more than the interest if you are able. When you graduate you will be glad you did.
Also keep in mind that a student loan payment(s) depending on how many loans you borrow, will be waiting for you upon graduation. This is yet another reason to stay away from credit card or other forms of debt that could put you in a difficult position when those student loan payments come due.
Investing in Your Future: Starting Early Pays Off
Retirement might seem a lifetime away, but your future self will thank you if you start planning now. An easy way to get started would be to set up an IRA (individual retirement account) at your bank and have money auto deposited each month (same as with your savings account).
Even if you only put in $20 a month, that money will grow and grow over time, and you will be so grateful you did it. By taking advantage of time and starting young, the longer you allow your money to grow the bigger the nest egg will be when you need it.
For more short term returns on investments, it's never too early to start investing in stocks, bonds, real estate or other investment vehicle. Learn about different investment options and how they work can contribute significantly to your long-term financial security.
As you embark on your college journey, remember that building good money management skills is as important as your academic achievements. These skills will not only help you navigate your college years but also set a foundation for a secure financial future.
Remember, financial security isn't about being rich; it's about being aware of your finances and making informed decisions. So, start managing your money today, make a budget, start saving, understand credit, and consider investing.