It’s finally happening; you’re heading off to college – yikes! While there are many positive “firsts” about the freshman experience, being financially illiterate while on your own for the first time should not be one of them. Having a good handle on your money, understanding your budget, and focusing on maintaining financial clarity will smooth the transition from living at home to living on your own.
Did you know that the Financial Industry Regulatory Authority found that “young individuals display much lower financial literacy than older individuals”? While that may seem obvious to some, it doesn’t have to be the norm. Learning about financial pitfalls and how to avoid them can start at an early age. Below are some common mistakes first-time college students make, and a few suggestions for avoiding them, so your first year of higher education doesn’t have to burden your pocketbook and your future earnings.
- Poor choices regarding credit cards
So, with the enactment of the Credit CARD Act in 2009, it is measurably more difficult for college students to acquire a credit card. Unless you can demonstrate the ability to make the payments or have a co-signer, it won’t be possible for you to land a card. If you’re a parent reading this, be careful in regards to the co-signer option because you can be on the hook for any purchases your college student makes. While credit cards are still considered the best way to begin a credit history, there are alternatives to making sure you don’t go down the debt path. Rather than credit cards, there are options like debit cards linked to a checking account, or prepaid, loadable cards that can help you stick to a budget (here’s a great example). Both are good ways to work with what you have. Make sure you pay off cards in full every month so you don’t incur those hefty finance charges.
- Not setting a budget
Becoming an adult and suddenly living on your own can take many students by surprise. The first step to “adulting” is creating a budget and sticking to it. Be realistic about what your expenses are and make sure you stick to what you’ve decided. By creating your budget and analyzing your income, it won’t take long to realize where you are spending money and where you can cut back. Here is one of my favorite budgeting tools: daveramsey.com/everydollar.
- Abusing student loans
There are several pitfalls to consider when applying for student loans. With a few simple clicks, you can take out a student loan and receive an infusion of cash into your account. It can feel freeing, suddenly you’re flush with cash! The reality of dealing with the debt, though, can be crushing. Try to avoid these common student loan mistakes:
- Not trying harder to avoid a student loan. A student loan will hang over your head and be waiting for you after graduation. Do everything in your power to avoid taking one out. Attending an affordable school, applying for scholarships, applying for grants, and working while in school, all while living on a strict budget can go a long way in helping you avoid student loans.
- Don’t take out more than you need. Unless your purchase is absolutely necessary, don’t use student loan money for it. If you need the loan to cover tuition, fees, or supplies – and there are no other avenues you can take – that is a necessary use. DO NOT use that loan money for a spring break getaway, eating out, or decorating your apartment! You’ll be paying it back, with interest, as soon as you graduate!
- Try to keep up on paying the loan interest while you are still in school. For most loans that are not federally subsidized, interest will begin accruing when you receive the loan. Making small payments while still in school can help alleviate the debt when you graduate.
- Peer pressure
Letting friends pressure you into spending money can derail your budget and get you into trouble. College is full of spending opportunities – parties, finals week dinner out, road trips with friends…all of that can add up. Not knowing how to say “no” may cause you to spend money you don’t have. If you can’t afford it, don’t do it, and be ok with turning down the invite.
- Don’t forget about the scholarship
Don’t miss out on free money to fund your education. You can find scholarships just about anywhere you look – at the school you are planning to attend, your high school guidance counselor, websites like scholarships.com, and local service organizations. Even the major you are considering pursuing probably has scholarship offerings, so don’t forget to look at all the options and apply!
You are finally on your way – stay engaged, and stay smart with your money. Find a happy balance that allows you a bit of financial freedom while keeping in mind that college is the first step to setting a financially sound foundation for your future.