When you head to college, it is probably one of the first times you have been completely free from your parents’ rules. While this newfound freedom can bring with it great thrills of excitement, it can also bring unexpected troubles, including the woes that come from being fiscally irresponsible.
In its most recent research, the Financial Literacy Solutions found that less than half of students were financially literate. In questions to the parents, they learned that 60% of parents would rather discuss sex with their college students than financial responsibility. While the reasons for the preference are unclear, the fact remains that you must know how to handle your money wisely, or else your decisions could haunt you for years to come.
You’ve probably heard that it’s normal to borrow vast amounts of money to go to college. And millions of students have done just that over the years. It’s easy to take out thousands of dollars with just a simple application and co-signer. But before you take out those loans, do some serious thinking.
Loan companies will gladly loan you more than you need. And it’s easy to feel like you’re in a candy store that’s handing out free goodies. Before you take the money though, seriously evaluate whether you need it. Ask yourself whether you have other options. Check for scholarships and grants. Claim as much reward money as possible, and then look to see what money you can cut from your expenses.
In particular, you need to evaluate your major and the amount you plan to take out. Some students have unfortunately borrowed more than $100,000 to finance careers such as social work or daycare. While these professions are noble and needed, you must evaluate how much money you will make in the job compared to how much you will owe. Talk to other members of that field to get an idea of what you can expect, and use loan calculators to figure out what your loan payment is likely to be in advance.
The bottom line though is to borrow no more than you need.
One of the most common excuses students give for not having a budget is that they’re not making money. But, regardless of how little you earn, you need to start keeping a budget now.
The reasons for keeping a budget could and have filled several books. But the most basic reason is that you risk losing track of your money and spending too much on one item, leaving you unprepared for necessities and emergencies.
Your budget can be as simple or as elaborate as you like. As a baseline, you should include the following categories:
After you set your budget, you need to then live within your means. Be strict with yourself. Don’t go out and spend that money on movies and games if you can’t afford it. While it may feel uncomfortable, you will thank yourself later.
Next to budgeting, balancing your checkbook is another essential skill. Many colleges and financial aid offices now offer free courses to train students how to balance their checkbooks effectively. You can, of course, also Google the subject or read our article on how to balance your checkbook for an immediate response.
Regardless of how you learn, however, what is important is that you do it. Balance your checkbook after every transaction if you can, or at the end of every day you make a purchase. By keeping up with this task, you will make it far less intimidating.
The reasons for balancing your checkbook regularly are many. Most important are that it gives you a greater awareness of your finances, helps you catch mistakes, and allows you to catch fraud or account theft.
Even when you have next to nothing, you should still be saving; and even if your check is for less than $20, set aside at least 10% of that for savings. The little bits will add up over time.
The money you save should be placed in a separate savings account so that you are not tempted to spend it. Deposit it as soon as you receive it to avoid temptation.
Your first savings target should be to save up enough for an emergency fund. Your emergency fund should be approximately what you need to live on for the next six months.
After you have saved up enough for your emergency fund, move on to other funds. Create hem for your car, house, or whatever else you need. Start adding money to that fund until you reach the goal. While you may only be able to add $1 or $2 at a time, it does make a difference.
Aside from helping you to reach your financial goals, incorporating savings into your financial habits also encourages you to take a healthy perspective on money. It fights the “burning” urge that many feel when they want to spend, and it reminds you of your longer term goals and happiness.