The most important subject you study -- in the classroom or in the school of hard knocks -- could be personal finance. But if your course load is too heavy to fit that in -- or if, like most colleges, your school doesn't offer it -- allow us to get you started.
Your first lesson is to set up a budget and stick to it. This is the best way to take responsibility for your money and avoid falling into debt, which can be noose around your neck for years to come.
"Surprisingly, we find that many students have not thought much about these things," said Brendan Coughlin, head of education finance at Citizens Financial. "Managing your financials, being on your own for the first time is new to most students."
No matter what stage of life you're at, creating a budget and sticking to it can be tedious, but Coughlin and other consumer advisers agree that it's the key to your financial success.
Money In > Money Out
A budget is a road map (or maybe a road app) to make sure you don't spend more than you have. In short, it helps you to live within your means. "It starts with understanding your income and understanding your expenses," according to Coughlin, "[and] having a discipline about spending on discretionary items."
Budget sites like Mint.com and other tools will help you determine how much you can spend each month and semester on essentials -- such as food, housing, books and other school supplies -- and for fun -- usually listed in a budget as entertainment or recreation.
Then, just make sure you spend less than you're bringing in from all sources: (work, parents wherever). It comes down to getting into a routine. Compare it other tasks like going to the gym or losing weight. Yes, it's easier said than done, but once it becomes second nature, it can pay lifelong dividends. (And if beer and other recreational beverages represent a significant line item in your monthly budget, it may be time to rethink your financial priorities.)
Credit Cards Are Important, Too
Early on in your Personal Finance 101 course, you'll need to learn about credit cards. Some personal finance advisors focus on the negatives of plastic, but let's start with the positives. Using a credit card means you don't have to carry around a lot of cash, can give you a leg up on tracking your spending, and helps you establish a good credit history if you pay your bill on time each month. And, if you pay it off in full each time it arrives, the interest won't become too onerous. But it can be a bit of Catch-22 situation for college students: You'll need a credit card to establish your credit history, but if you don't have a credit history, you may not be able to get a credit card without a co-signer, usually a parent.
"We find that parents are very engaged in their kids' financial lives and helping them manage their money," said Coughlin. "Parents can help them build up a credit history quicker than they can do so on their own."
However, you can get into deep trouble if you start to use plastic to buy things you can't afford. If you miss the payment deadline altogether, whether it's by one day or one month, you'll be hit with a fee ranging usually from $24 to $35. And late payments often trigger higher interest rates. If you can't make a payment, at least call the company before the due date; the card company might be willing to waive the fee or reduce it.
Shopping the Un-Sale Rack
But if you get into the habit of just making the minimum payments each month, or carrying a significant balance, the high annual percentage rate charged by card companies can make everything you buy much more expensive. It's like going to the store and shopping the "un-sale rack" -- where everything you buy costs 25 percent more than the list price.
A recent report from Bankrate.com says an average cardholder with a $1,000 balance who makes only their minimum payments will need 73 months to pay off that balance, and that the $1,000 worth of merchandise she bought will end up costing $1,840.
Coughlin also warns students to watch out for credit card scams and avoid cards with unreasonably high fees and interest rates.
Other Advice for College Students
- Open a checking account and obtain a debit (not credit) card, but make sure there is at least one branch or affiliated ATM nearby so that you don't have pay fees to withdraw your own money. If the bank you and your family used back at home doesn't have a presence on or near campus, switch to a bank that does.
- Look for discount programs attached to your student ID. Many local businesses give 10 percent to 20 percent discounts to students.
- Get a part time job. You may find more job openings at the start of each semester.
- Start saving for emergencies and for big purchases you may want to make down the road.
- Buy used books online or from other students at your school. You can save as much as 50 percent.