While college is a time to stretch your newly independent wings, it’s also the time when students dig a financial hole for themselves that’s very hard to get out of when college is over. By incorporating some helpful financial planning tips into your routine, as you head into your first semester, you’ll step into your financial future on the right foot, establishing healthy money-management habits while avoiding racking up excessive debts.
6 Basic Financial Planning Tips Every College Student Should Know
1. Student Loans Come at a High Cost
It’s important to understand that student loans are expensive to pay back, and the unfortunate fact is, most graduates struggle to pay off their student loan debts. As you head into college, it may be tempting to borrow extra money to pad your wallet for the semester; however, those little expenditures will cost you so much more than they are often worth. With accumulating interest, the initial loan amount will exponentially grow, leaving you with a hefty repayment.
If you can’t avoid taking out student loans to pay for your schooling, there are three steps to take to ensure you don’t acquire unnecessary debt during college:
- Apply for scholarships every semester to offset how much you may need to borrow
- Only borrow enough to pay for what you need and avoid taking out excess money
- Only apply for loans with low interest rates and low-to-no fees (i.e. origination fees, early-payment fees, etc.)
2. Beware of Overspending on Your Textbooks
Textbooks are a college necessity for students, and new textbooks come at a steep price, especially at your college bookstore. To avoid paying too much for textbooks that you won’t likely keep, consider renting your books from your college bookstore or buying used textbooks from online retailers (e.g. Amazon, eBay, etc.). If you can’t get a hold of a used or borrowed copy, browse around for the best deal for a new textbook.
3. Build an Emergency Fund
Before heading too far into the semester, build a small emergency fund, as having a rainy-day fund to fall back on will avoid the temptation to turn to credit cards and accumulate excessive debt. It also establishes healthy money-management habits early on that are likely to affect how you handle your money in the future.
A standard emergency fund is usually anywhere from $1000 to three to six months of monthly expenses; however, as a college student, you’re likely not to have as many outgoing expenses. Aiming for at least a $500 emergency fund should give you enough to cover unexpected expenses that could arise (e.g. loss of part-time job, urgent medical procedure, family emergency, etc.). Remember, if you need to tap into the emergency fund for an emergency, that’s okay! That’s what it’s there for. When you bounce back, begin topping it back up to $500.
4. Create a Basic Budget
Budgets are the best tools to manage your money and prevent you from overspending. By creating a budget, you can have fun and enjoy new opportunities without having to worry about missing payments on necessary expenses or racking up overdraft fees from an insufficient funds in your bank account. Your budget will tell you how much money you have, how much you need to spend on expenses, and what money you have to play with for the month. A budget for a college student should account for four things:
Having a budget lets you stretch your money to cover everything you need and allows you the freedom to choose to spend extra money or save it for bigger purchases you want down the road.
5. Avoid Impulse Buying
For many, your college years can be some of the most carefree years of your life. However, carefree doesn’t mean reckless. As a college student, you are often living on limited income, and it’s important to live within your means to prevent overspending. As you begin your semester, be picky about where you spend your budgeted allowance.
To help avoid impulse buying and accumulating credit card debt, create savings goals for yourself. If you know your roommates want to orchestrate a spring break trip, start saving for that now. Every frivolous night out is extra money that could go to your spring break trip. By living within your means now, you set yourself up for future financial success, as well, while limiting the debt with which you’ll graduate and establishing healthy financial management habits.
There are also several discounts available for college students, especially nearby your college, that can help you save money. Check out your local movie theater for student-priced showings, or ask your server if the restaurant offers a student discount or uses your college dining-plan card. These extra savings can really add up towards your savings goals.
6. Be Strategic with Credit Cards
While credit cards are great tools to build credit, they are commonly misused, especially by college students, and can quickly cripple your financial health. It can be very tempting to turn to credit cards to pay for fun nights out, eating out, new outfits, etc. However, if you can’t afford these things within your budget, then you won’t be able to afford to pay it off at the end of the month, either, causing you to accumulate credit card debt in addition to your student loan debt.
Credit cards can be great opportunities for students to earn cash back or other rewards, but it is only beneficial if you commit to paying off the balance at the end of the month. If you opt to sign up for a credit card as you head into your first semester, it’s best to look for a credit card offering the following characteristics:
- Cash back rewards
- No annual fees or other fees
- 0% Introductory Interest Rates, with Low Interest Rates after Introduction
- Low credit limits
Start the School Year with Focus Financial
As you begin your academic journey, you may wish to seek some professional financial guidance to help navigate your new financial freedom and make the best investments for your future. At Focus Financial, we offer financial planning services and can offer you resources that will help you make smart decisions about your financial future. It’s never too early to think about financial management or to start planning for your future. To get started, contact us today, or visit our website to find a financial advisor near you!