There’s a lot a college bound student needs to learn and top of this list is how to navigate finances. Developing money management skills before going to college will set the stage for lifelong fiscal responsibility. More importantly, it can help prevent common financial disasters such as bankruptcy. Here are 7 important financial tips all college-bound students need to know:
1: How to Create A Budget
Creating a budget plays a pivotal role in controlling your spending and keeping your finances on track. With a budget in place, it’s easy to see when you’ve reached your spending limit so you know when to stop.
To create a budget you need to determine your monthly income and fixed expenses— such as your rent. This will give you a better idea of how much you have to spend on variable expenses such as groceries, utility bills, and entertainment. Having these figures in front of you will make it easier for you to make smart decisions about your money. While it may be one of the most basic financial tips, it’s also one of the most important.
2: Basics of Banking
If this is your first bank account, make sure to learn the basics of banking before heading off to college. Learn how to balance a checkbook, write out a check, and set up low-balance alerts. Familiarize yourself with the features of your bank’s app and learn how to use it for various transactions. Expecting funds from your parents? Do a test run and see how long it takes for you to receive the money.
3: The Importance of Saving
Now’s the time for you to master saving money. Even if you have enough money coming in regularly to cover your expenses, it’s still important to save. You never know what the future holds and when you may need some extra money to cover some emergency. Having savings can give you a sense of financial security.
Let those savings build up – don’t be tempted to dip into them unnecessarily. You’ll be glad you left them untouched when you need emergency funds long after you graduate. If you’re able, it’s also a good time to start saving for retirement. Even little savings can add up over time.
4: Avoiding Credit Card Pitfalls
Having a credit card in college has several advantages. You don’t have to carry cash around and you can buy anything on the fly. Using it smartly can also help you build a strong credit score.
Unfortunately, these same advantages have their downsides. With a credit card on you, it’s easier to ignore your budget. If you’re not careful, you may spend more than your budget allows on a regular basis leaving you in debt.
The biggest credit card pitfall? Not paying off the balance on time every month. Credit card companies levy high charges on any balance left unpaid by the due date. You don’t want to learn this expensive lesson the hard way. Keep track of your credit card expenses and payment due dates, and pay off the balance on time every month. This will help you sidestep the dangers of late payment fees, accruing unnecessary debt, and a dinged credit score.
5: Importance of Building Good Credit
Let’s talk about credit scores. Why do you need to build good credit? How do you build good credit? What happens if you ignore these financial tips? To understand the importance of building good credit you have to first know how credit scores work.
At a very basic level, making all payments on time helps you build good credit. On the other hand, late payments trigger late fees, which lower your credit score. Why does this matter?
Lenders use your credit score to determine how financially responsible you are. When you apply for a house or car loan, lenders will first do a credit check before approving your application.
A good credit score = a financially responsible applicant = easier loan approval with lower interest rate.
A bad credit score = a financial irresponsible applicant. If your credit score is really bad your loan application may get rejected right away. Even if it’s approved, you will be charged a higher interest rate.
Having no credit history can be just as disadvantageous. With zero credit history, you may find it just as difficult to get a loan as with a low credit score.
6: The Importance of Filing the FAFSA
If you’re applying to college, you must fill out a Free Application for Federal Student Aid form or FAFSA. This is regardless of your family income and whether or not you think you qualify for financial aid. The FAFSA is your gateway to qualifying for several different types of financial aid. It is mandatory to file the FAFSA in order to apply for low cost federal student loans. You will also need it to qualify for grants and institutional scholarships.
It takes time to fill in all the information asked for but it’s something you have to do. Read up about the FAFSA. Speak to your parents to help you with their financial information. Keep all the information required ready and fill out the FAFSA.
7: How Student Loans Work
Many students have to take out student loans to cover your college tuition. Just because student loans are easily available, doesn’t mean you should borrow unnecessarily. Making smart borrowing decisions starts with learning how student loans work. Take time to understand the difference between federal student loans and private student loans. Learn about the pros and cons of fixed and variable interest rates. Know when interest starts accruing on money that you borrow. Understand your repayment options and when you need to start repaying your loans. Think about your long term financial goals.
How much money you borrow for college will have a bigger impact on your future than you may realize right now.
These basic financial tips will give you a solid foundation that you can build on.