As a college student, this is probably the first time you’re away from home. This means you have to make decisions every day that can impact your financial situation.
Whether you’re working, receiving family support or have qualified for financial aid, you need to know when your money is coming in. You also need to set aside money for food, school-related expenses and entertainment. Being on your own in college is as good a time as any to build a sound financial foundation.
This article discusses several important personal finance topics for college students to consider. So, keep reading and commit to developing money management skills, so you’ll set yourself up for financial success both in school and after you graduate.
The Importance of Personal Finance During College
Your college years are not only a time for mapping out your career path — they are also your introduction to life in the real world. So, even if financial planning is the least exciting thing in the world, know that you are doing your future self a big favor by learning about it now because the decisions you make about your finances while in school can impact your life well beyond college.
Personal Finance Tips to Consider as a College Student
The basic tenet of financial planning is to spend less than you make and save money for the future. Sounds simple enough, right? However, research shows it’s not that easy to put into practice. Experian’s 2020 Consumer Credit Review revealed that Americans carry an average personal debt of $92,727.
The breakdown of the numbers shows the average credit card debt is over $5,000 and student loan debt hovers around nearly $39,000 per person. This further demonstrates that how you handle your finances now will impact how soon you can get out of debt and pursue other financial goals in the future. And although you might not be able to avoid borrowing entirely, there are ways to reduce the amount of debt you take on.
Read on for personal finance tips and measurable goals you can set for yourself.
Create a Budget
You might have heard about budgets before and decided they’re not for you. You probably think you don’t have much money to allocate, and you already know what you’re spending on.
However, Mint’s survey in April 2020 revealed that 65% of Americans don’t know how much they spent the month before. While that in itself isn’t bad, overspending is the problem.
So, what’s a budget? A budget is a financial planning tool. When you create a budget, you allocate your allowance or income toward expenses, savings and debt repayments, if any. Here are a few ways to help you budget effectively:
- Determine your income. Figure out how much money is coming in per month or semester. Add up monthly payments from your job, any allowances from your parents, and disbursements from financial aid and student loans. Get the exact figures as much as possible. If you have to make an estimate, do it conservatively. A surefire way to blow your budget is to start with an amount that’s higher than what you have.
- Estimate your expenses. The next thing you’ll need to do is categorize your expenses. You can check your bank statement to see how much you’re spending on each category or enter a rough estimate. Your costs will probably fall in the following categories:
- Food (groceries, takeout, etc.)
- Bills (health insurance, utilities, internet, mobile phone, etc.)
- Transportation (gas, car insurance, bus pass, train tickets, etc.)
- School-related expenses (books, equipment, activity fees, etc.)
- Entertainment and personal expenses (gym, clothing, cosmetics and toiletries, movie tickets, etc.)
- Calculate a weekly budget. Now that you’ve determined your income and expenses for the time frame, it’s time to set a weekly budget. Of course, you can also choose to do it monthly. But a weekly budget is preferable, as it’s easier to keep track. To calculate your weekly budget, simply take the amount of your total income for the month or semester. Next, deduct all essential expenses, such as rent, bills, transportation, school expenses and food. Lastly, divide the remaining amount by the number of weeks in the time period.
- Set goals. If you did the math and arrived at a reasonable weekly budget, that’s awesome! However, if you discovered that you don’t have much after accounting for necessary expenses, it’s time to look at your expenses closely. Are there expenses where you can cut back? Or can you maybe get a part-time job? Can you live on campus and give up your car to save on gas and insurance? You might also consider learning to cook and reducing your takeout spending. After looking at your expenses and deciding how you can stay on budget, set some goals to reduce your spending or find ways to increase your income.
Establish an Emergency Fund
If you can, consider saving for an emergency fund. Not only will you have a financial safety net if something unexpected happens, but you’ll also be forming a habit of saving every week or every month. It’s a great start to practice financial responsibility.
Here are steps you can follow to build an emergency fund:
- Set an initial amount. How much do you want to have set aside for emergencies? Think of emergency situations that may apply to you. If you have a car, figure out how much you’ll need for repairs and start with that amount.
- Decide where to keep the money. Consider opening a savings account, as it won’t be practical to keep your savings in the same checking account you use for everyday expenses. Most student bank accounts and savings accounts are free, so take advantage. If you think it’s necessary, you can also open it with a different bank to make moving funds between accounts a little difficult.
- Set a realistic amount to save each month or semester. After you’ve figured out how much you want to have in savings, set an amount to save each month or semester. To help you be consistent, decide where the money will be coming from in advance. For instance, if you’ve chosen to save $50 each month, will you commit to picking up extra shifts from your part-time job to make it happen, or will you forgo your movie nights with friends?
Use Credit Cards Wisely
As a college student, you’ve probably been warned about credit cards and how they’re not good to have. But it’s highly recommended that you apply for a credit card to start building your credit history and credit score. Start with a low credit limit and learn how to use your card responsibly.
Use your credit card account to make purchases, but make sure you have the money to pay for the balance in full every month. This way, you won’t be carrying a balance on your card and have to pay interest.
Plan for Student Loan Debt
Student loan debt in the United States totals $1.71 trillion, with 43.2 million student borrowers owing an average of over $39,000 each. So, it’s not a surprise that college costs can leave you in debt. But if you plan ahead and actively work toward paying down your loans, even while you’re in school, you’ll be set up financially better when you graduate.
Here are a few tips to get you started with a plan to manage your student loans:
- Figure out the total amount you owe.
- Know the terms of your loans. If you have more than one loan, they could have different interest rates, repayment rules and grace periods. You’ll need to understand all of this information so that you can create a repayment plan that avoids extra interest, late fees and penalties.
- Calculate how much you’ll pay in total and how long it will take you to pay back your student loans.
- Make a plan on how you’ll repay your debt. Your repayment plan will depend on the terms of your loans and if you have a grace period or if you’ll be paying interest immediately.
- Explore the resources available on CollegeFinance.com for helpful information on financial aid and repaying your student loans. The StudentAid.gov website is also a helpful resource if you have federal student loans.
Invest in Financial Education
Commit to learning more about managing your money, investing or budgeting outside of what’s taught in school. Maybe even consider working with a financial planner if it’s within your budget.
Read personal finance books or any reading materials on how you can be smart with your money and make sound financial decisions. You can get a head-start on your reading with CollegeFinance.com.
Start by Learning More About Student Finances on CollegeFinance.com
There’s not much to lose and a lot to be gained by learning more about managing your finances as a student. If you’re eager to jump on the financial literacy train, CollegeFinance.com is the best place to start.
Our online resources cover everything from creating a budget to finding the best scholarships and paying off your student loans as quickly as possible. Take control of your personal finance to reach financial independence sooner.