A college degree often leads to a better-paying job. But in the process of earning that degree, it’s all too easy to incur debt and financial problems. For many students, college is the first time they have been responsible for all of their spending. They’ve often surprised at how much things cost. The good news is that college is an ideal time to start learning and implementing smart spending habits.
It’s hard to be organized and focused financially if you don’t know where you’re going. And it’s hard to convince yourself of the importance of saving if you can’t envision how you’ll use those savings. Write down your goals, which might range from next year’s textbooks or a new outfit, to a post-graduation vacation in Europe or having time to train for a 10K. Once you have goals front of mind, you can spend your money (and time) smartly.
Budgeting may not sound exciting, but it is the No. 1 to managing spending. The idea is to build the budget around the goals. You’ll have a much better idea of what’s possible (maybe the planned graduation trip becomes one to Colorado instead of Switzerland, for instance) and a good idea of how to prioritize. Remember that budgeting need not be complex. While computer programs are available (many free), an Excel spreadsheet or pencil and paper can work just as well. Once you are used to living on your budget, chances are good you’ll actually feel more comfortable sticking to it.
Make it a habit to deposit any cash or checks as they are received. Open all mail – including every bill – as soon as it arrives, and then pay each bill immediately upon opening – or use a bill-paying filing system. That “system” may be a folder that resides on a certain spot of your desk, a basket on a counter or an online calendar. Choose what works best for you and then use it religiously.
If responsible for monthly bills such as phone, utility or rent, check into, and set up, automatic-pay options including online bill payment, often offered free today at banks or credit unions (including those on campus), and automated deduction plans. Many utility and other companies now permit arrangements where they withdraw funds directly from your bank account; this way, you can’t pay late. Some utility companies will provide a reduced interest rate or other rebate for use of their automated payment services.
Make savings a lifelong goal. Always have in the back of your mind that you will want to retire someday, and that there is no better time to start your retirement fund than now. How to do it? In the budget, include a category for savings. Whatever the allocated amount is – 10 percent, more if possible, less if necessary – stick to a percent that works for you. With each check received (whenever that is, and for however much its is), set aside a predetermined percentage, based on your budget, for savings. Earnings could be from a part-time job or allowance from parents. And if you receive “extra” money (such as from unexpected overtime or a gift), make it a practice to save it.
Track spending. Once a budget is in place, start keeping receipts and a spending journal or log. Most college students are surprised to find just how much they spend each day and week on small items. Writing it down – just as writing down everything you eat when you are watching your weight – opens your eyes to your real spending patterns, helps you start to see where you can save, and helps you avoid getting into debt.
To manage personal business, most adults only need to own one credit card. College students can fall into this group if they can learn to use the card appropriately – meaning to never charge more than you can pay off in full and on time each month.
With the passage of the CARD Act, credit card lenders can no longer solicit students in person and on campus to open credit cards. Credit card companies also are no longer permitted to issue cards to applicants under age 21 without an adult co-signer or proof of adequate income. The decision to get a credit card is an individual one, but many experts suggest college students wait until age 21 and that parents do not co-sign. It is more than possible to manage finances well, and start to build credit, with a checking account and no credit card.
If you have a credit or debit card, put it away when you go out – or for almost any retail expenditure. Use cash instead. Research shows that people who do not use debit or credit cards typically spend 15-20 percent less than when using a credit or debit card.
Find your soft spot and make a decision to give it up. Maybe it’s expensive coffee drinks, or milkshakes, or beer, or something else. You’ve heard it before, but do the math and you might take action. For instance, if you hit Starbucks twice a week, break the habit for 8 weeks and save at least $64 a month. Long-term savings if you bank the money saved (and thank compound interest) will add up to tens of thousands of dollars over the years.
College students tend to overlook warehouse clubs. But many things don't come in large quantities and don’t perish easily, and there are many individual items beyond food, ranging from gift items to books to automobile tires. Best bet: Team up with friends to split purchases. You pay for and acquire far less packaging, and save in the process.
Think of clubs for items beyond food, including: gas (some of the best prices around), bakery items (think birthdays or other special occasions), and long-distance phone cards. Everyone has cell phones, but if you have access to a land line, making long-distance calls this way can be a big money-saver.
While you are hitting the books and earning that degree, you also can be making an investment in your financial future by developing good financial management skills. Set the basis for your future by being smart in and out of the classroom, learning to avoid debt and spend wisely.
More expert advice about Financing Education
Photo Credits: Money - Savings by Flickr: 401(K) 2012; Check Man, Cross Man and Jump Man © ioannis kounadeas - Fotolia.com