To many students, college is synonymous with the first true taste of freedom. Students are faced with exciting questions like which class to choose or how to spend free their time. However, students are also faced with more daunting matters, like how to manage their finances. Here are some steps students should take to manage their money and build their credit.
Create a Budget
The best thing a college student can do is to build a budget. College is where students can develop good habits with their money and learning how to budget is definitely one of them. If students know how much they have available to spend each month, they can make better day-to-day decisions on how to spend their money. Here are four easy steps:
Budgeting Step #1: Calculate your monthly income
Ask yourself—How much do I make in a month? Include any monetary allowance, wages from a job, money from loans.
Budgeting Step #2: List your expenses
Typical Expenses for College students include:
- Gas for commute
- Phone Bills
Budgeting Step #3: Subtract your expenses from your income
Monthly Income – Expenses= Discretionary Income
Hopefully the resulting number is not negative. If it is, you will have to make some changes in their spending habits to get out of the red.
Budgeting Step #4: Set goals and allocate your discretionary income
The student can now choose how to allocate their discretionary income. Some popular options include students creating a fund for going out, saving up for a fancy new gadget or even setting aside money for Spring Break. A budget’s true function is to have students think before they spend. Do they have the money set aside for this purchase? Is this purchase really necessary? After budgeting, these questions become a lot more clear to many a student.
Building Your Credit Score
First, students need to understand that a credit score is basically a three-digit number that tells creditors how much they can trust a person. The higher their credit score is, the easier it will be for them to get loans, credit cards and rent an apartment. Several different factors influence credit score, but students need to understand that 35% of the score is based on credit history. So, the sooner they start building a good credit record, the more credit history they’ll have to influence their credit score favorably.
We’re not advocating getting every single card that is offered to the student, but to obtain one card. With that card, a student can build good credit by:
- Paying on time (most absolutely)
- Not using the card as a means to spend over your budget
- Only spending what you know you have
- Keeping your balance at max 30% of your credit limit
Students should simultaneously be paying off their loans on time if they have any. With these few steps students can learn healthy financial habits for the future. The key to good money management at any age is to plan, budget and be aware of how you spend your money.
Other Expert Opinions:
Carol Jones, author of “Toward College Success: Is Your Teenager Ready, Willing and Able?”, explains a few steps college students can take to best handle their finances.
- First, college students and their parents should make a list of who pays for what. Be specific and list everything you can think of. Who pays for the essentials: tuition, fees, books? Who pays for room and board, for coffees and food out, for transportation costs, for concerts and other entertainment, for spring break trips? Once the student knows exactly what he or she is responsible for, then proceed to:
- Create a budget. If you don’t know how, there are many free online sites that can help. The basic concept is to start with your monthly income, then list the solid expenses–those that don’t change and those that are not negotiable, such as rent.
- Make a list of flexible expenses such as entertainment and food out. If you do not know how much these things cost, start saving receipts so that you actually know. Then based on your monthly income, minus solid expenses, budget accordingly.
- If you need a job to meet expenses, first try for an on-campus job. Your college will always work around your school schedule, allowing you to keep your studies as your first priority. Remember that for every hour you spend in class, you need to spend two to three hours studying outside of class. Be sure that whatever job you take allows that time. Your time management is as important as your financial management.
- Avoid loaning money or borrowing money. Friends that ask you for a loan may have good intentions, but things happen and you may not be repaid. Likewise, if you borrow money you are obviously going beyond your budget. Stick to what you have and live within your means.
Steven Daar, financial expert and blog author of www.teachersretirementhelp.com, explains what students ought to focus on when considering their finances.
When it comes to finance, people truly only have two assets. Time and money. While students often don’t have a lot of money, they have decades worth of time.
Time only works in your favor if you are saving. If you are accumulating debt, time actually becomes your enemy. Small amounts of money saved now can become massive sums later in life. At the same time though, credit card debt that is allowed to accumulate and grow can become crippling.
For students, the key isn’t trying to have the best financial picture in the world or never make a mistake with their money. The goal should be starting on the right path and learning from mistakes rather than repeating them.
Charging less to credit cards, paying more off your credit balance (if you carry one), and saving just a little bit in a savings or retirement account will put you on the right path and ahead of the vast majority of your peers.
Establishing the right habits now is what is most important. After you graduate and start working, you will have the foundation set to be free of credit card debt, to pay off student loans (if you have
them), and to save healthy amounts for your goals — whether they be long term like retirement or short term like a two week vacation all over Europe.
Mary Fallon, financial expert of studentaid.com, adds what students can do prior to entering college to position themselves favorably financially.
Education is affordable but studies show fewer than half of college students report they had enough financial resources to finish college. The college experience is what you make it and you can have a great one without going deep into debt to earn your education. Finding and comparing affordable schools requires planning that starts no later than your junior year in high school to get ahead of your competition. Two tools can help you know which colleges are affordable for you while still being an academic fit:
Net Price Calculators – Mandated by the federal government in October 2011, all colleges and other post-secondary schools must post a net price calculator that at a minimum tells a student a personalized estimate of their free grant aid. A college’s sticker price (cost of attendance) minus free grant money equals net price. However about 1,500 of the nation’s nearly 7,000 schools went way beyond the minimum regulation and provided NPCs that offer highly accurate estimates of ALL types of aid – free grants, federal education loans, work-study, institutional scholarships and military aid. Some even detail monthly post-graduation federal education loan repayments to ensure you have the information to make a smart choice about affordable colleges to apply to.
Finally, millions of college students leave money on the table each year because they fail to apply for student aid. Every student regardless of income ought to prepare a federal student aid application (FAFSA) in January either on their own on the US Dept. of Education’s website or by getting professional help from a fee-based FAFSA service, just like one gets help preparing an income tax form. The average student gains nearly $11,000 in aid each year so by not applying; you’re providing money for other students.