There is a common saying in the world of personal finance: “Manage your money or your money will manage you.” If you take smart steps to take charge of your finances, you will have the money you need when you need it; if you don’t, it will leak from your fingers like sand with every impulse buy, late fee, overdraft charge, and interest payment you make and you’ll find yourself in a financial crunch that will be hard to recover from even after your college days are over. In order to avoid having your money manage you, here are some financial tips for managing your money while going to college.
1. Get a checking account and savings account in your own name
Whether you are paying for college yourself, using scholarships, financial aid or student loans, or getting help from mom and dad, now is the time to take charge of your money. You need to see how much money you have coming in and how much is going out. Don’t leave this to someone else.
When selecting a bank or credit union, pay attention to the rules and fees for the account.
- Do you need to keep a certain balance in your account to avoid a monthly fee?
- What are the overdraft charges?
- Can you set up overdraft protection?
- Is there a limit on transfers to or from your account?
- Many financial institutions offer accounts designed for students that have lower fees — check these out to see if they will work for you.
2. Keep track of what you spend
Many college students have no idea where their money is going. A pizza, some new clothes, gas for the car, books, a night at the movie with friends, a cell phone bill, and suddenly a month’s worth of money is gone! The solution to this is to keep track of all of the money you spend.Write down the details of every purchase you make for one week. Then divide your purchases into categories such as groceries, rent, entertainment, clothes, etc. At the end of the week, add up each category and see how much you are spending in each area. You may be surprised; for example, eating out adds up quicker than you might think. Look at the categories and see if there are some that you are spending a lot more in than you need to. If you find that you are spending more money than you are bringing in, look at where you can cut back. Then make a goal for the next week. Adjust your goals so your expenditures are less than the amount of money you have to spend.
3. Spend less than you earn
It should be obvious that you need to spend less than you earn in order to stay ahead financially, but it’s amazing how easy it is to spend more than you have without even realizing it.
First consider what your sources of income are. Where does your money come from? Mark all that apply in the first box on the left. How much does this amount to during a semester? Figure out how much money you have to work with, then divide it up into manageable chunks, like a week or a month.
Next, what kinds of expenses do you have? In the second box on the left, check off all the expenses that you need to pay.
If your sources of income are greater than or equal to your expenses, then you are in good shape. If not, then you need to do something about it, either by increasing your income, decreasing your expenses, or both. Spending less is often easier than earning more, so rather than getting a credit card or additional student loans, work on finding ways to reduce your expenses.
4. Recognize the difference between needs and wants
It is easy to let your desire for things convince you that you need them. Do you need that new pair of pants or do you just want them? If your chemistry lab requires long pants and all you have is shorts, then it is a need. If you “need” some black jeans to go with a shirt that you have, it’s a want. Make sure that you have money set aside for your needs before spending money on wants.
5. Shop wisely
When you shop for food, clothes, and other household items, take advantage of store brands, sales, reduced prices, coupons, and clearance items to lower your spending. With some things, you get what you pay for, but with others, you’re just paying extra for a brand name that is not any better than the store-brand item.
When shopping, avoid putting things into your cart that you weren’t planning to buy without thinking about it. Stores are set up to encourage impulse buying — it is your job to take control. Consider whether the item is a need you had forgotten or just something fun that you want. If your budget allows it, you can have a few impulse items now and then, but they add up fast. Try not to use shopping to relieve stress or compensate for disappointments in your life. Make a list before you go to the store and then do your best to stick to it.
6. Have some savings for emergencies
It is important to always have some money available for unforeseen emergencies. You never know when your car could break down, you could need medical attention, you could lose your job, etc. If you don’t have money where you can easily obtain it, you could end up in trouble. If you don’t have any, save at least a small amount each month until you have an emergency fund of two to three months’ income. Setting up an automatic transfer of funds from your checking to your savings is a good way to do this; you could also use only cash, and save all of the quarters in a jar. Then, don’t spend them unless you truly have an emergency.
7. Use credit and debit cards wisely
Having a debit or credit card is a convenience, but don’t forget that when you swipe it, you are still spending cold, hard cash. Make sure not to use your debit card unless you know that you have enough money in your account to cover it — overdraft charges are amazingly high.
Be especially careful with credit cards — credit card debt is easy to fall into and it can be financially crippling. Credit card companies make it easy for students to obtain credit cards, knowing that if you don’t discipline yourself, they’ll make lots of money off of you in interest. It is easy to lose track of how much you are putting on a credit card unless you pay it off every month. Do not allow yourself to purchase something on credit unless you already have the money to pay for it — that way it becomes a convenience, rather than something that can enslave you. Limit yourself to one or two credit cards (preferably without an annual fee) to limit your temptation to overspend and avoid damaging your credit score. If you do end up with a balance on a credit card, pay it off as quickly as possible. Don’t be fooled by the minimum payment — these are designed to draw out your payments for years so that you end up paying many times the original amount in interest. Make sure to pay your bills on time—a late payment can result in $25 to $40 fines and a huge increase in your interest rate.
Don’t avoid credit cards altogether, though. Having and responsibly using a credit card is the first step to building a good credit rating, which will be very important when you rent an apartment, purchase insurance, or apply for an auto loan or mortgage in the future.
8. Pay bills on time
Be aware of what bills you pay regularly, such as rent, utilities, cell phone bills, car payments, and so on. Add up how much you need for these things and subtract this money from how much you have to spend at the beginning of the month.
Once you know what all of these bills will be, make a plan to pay them on time. You could use an automatic withdrawal from your checking account or a reminder on your calendar. Late fees add up quickly. You could even end up dealing with collection agencies or having your cell phone or utilities cut off.
9. Plan ahead for large expenses
Tuition is usually the largest item on a student’s budget, but it only comes due at the beginning of each semester. You’ll need to plan ahead to have that money available, that you won’t be scrambling for it at the last minute, end up paying late fees, or have your classes dropped for nonpayment. If you anticipate other large items such as an airplane ticket home, plan to start saving ahead for them too.
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