As the flurry of excitement winds down for those heading back to college, the realization starts to settle in: college is expensive.
The costs don’t stop with tuition fees. From book costs to beer money, college can be a financial minefield for the uninitiated. Worse yet, on every corner there seems to be a willing lender with a high-interest-rate credit card to “help out”. The result is more students dropping out of college due to financial issues than poor grades according to a report from CBS News.*
It is vital for students to develop good financial habits and avoid the common pitfalls as they advance out of high school and into the independent world of college.
This week recent Colorado State grad John Booren and I wanted to give some “Money Musts” for college students.
Here are some major areas to avoid, as well as some great habits to develop:
Avoid Collecting Credit Cards
On many campuses credit card companies are allowed to aggressively market to students. Many lure students with free swag or temporary discounts but fail to explain the risks of using credit cards and the associated high interest rates. Be sure to fully understand credit cards before applying for one. Not paying the monthly balance is a quick way to build credit card debt, damage a good credit score and pay steep rates and fees.
Dodge Non-Academic Debt
Rather than take out loans for non-academic items, save money until the cash is there to make a larger purchase. Using a student loan for tuition is far more reasonable than taking out a loan for Spring Break in Mexico.
Protect Your Credit Score
A credit score is a number that represents the likelihood of someone paying his or her bills on time and maintaining good financial standing. This score is crucial to receiving lower interest rates and even gaining employment later in life (some employers are now checking an applicants credit score when evaluating a candidate for a position). Missing payments, late payments, and high balances will lower a credit score. Similar to a GPA, it’s much easier to lower a credit score than to raise it.
Build a Better Budget
Create a budget for monthly income and expenses. It will provide a benchmark to help control spending. Include allowances for entertainment, groceries, dining out, coffee, books/supplies, gas and auto insurance, etc. Be sure to include reoccurring expenses like rent and utilities as well as any income streams. Free digital tools like Mint.com will help to create and track a new budget.
Pay Bills on Time
Organize bill due dates and balances on a calendar. This can include large items like rent, utilities, credit cards, car payments and various other bills. If possible, pay the outstanding balance rather than just a portion or the minimum payment to keep credit scores high and interest payments low.
Track Your Spending
Using a debit or credit card can be a great tool for tracking monthly spending. Using a card ties purchases into an online tool like Mint, allowing the user to track his or her spending amounts, locations, and categories. Mint will organize all the spending into categories to easily showcase spending habits. It is also a great way to keep track of monthly income and expenses.
Always Spend Less Than You Make
It sounds simple, but it could be the most important point on this list. When income exceeds spending, debt is far less likely to add up.
College is supposed to be the best time of our lives – don’t let financial troubles get in the way. Use these tips to avoid the financial pitfalls that plague college students. Utilize simple tools like Excel to map out a budget then track your transactions online through your bank and credit card websites or by using a comprehensive tool like Mint.
If you have any questions, comments or concerns, feel free to call us or schedule an appointment. Investing in an education is expensive, but it is one of the greatest investments you can make!
David uses Values Based Financial Planning to align your financial choices with your most important goals and your most deeply held values. He has a comprehensive process to consolidate, coordinate and simplify your financial life in a way that brings you more confidence and clarity about your future. Learn more about David here.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.
Securities offered through LPL Financial. Member FINRA/SIPC
Sources: CBS Boston, Poll: Money Problems Reason College Students Might Drop Out, https://boston.cbslocal.com/2011/04/20/poll-money-problems-reason-college-students-might-drop-out/, accessed 9/7/12./by David Morrison
https://prosperion.us/wp-content/uploads/2017/02/whitelogosized.png00David Morrisonhttps://prosperion.us/wp-content/uploads/2017/02/whitelogosized.pngDavid Morrison2012-09-07 21:05:402017-05-23 13:07:177 Money Musts for College Students
It has been a year for humility as many of the traditional methods of managing risk inside portfolios have been taxed. It has been a year of consciously focusing on gratitude for all that we have and all that has gone well. It also has been a year where the value of our disciplined commitment to planning has never been more highlighted.