College is supposed to be the time of your life. And for most people, it is. However, in between socializing, studying and dating, now is really the time to start paying attention to your finances. Mistakes you make now could have a huge effect on your future. I’m going to give you two honest examples of my husband and I’s college experience regarding our finances.
I’ll start with myself. My dad taught me from a young age the importance of managing your money. I’m naturally a saver and have always been pretty aware of my spending habits. There were of course times where I spent more than I earned getting me into thousands of dollars of credit card debt, but I always paid my bills on time and did my best to avoid debt. In college, I had a student credit card to help build up my credit. My limit was just $300. Most months, I would put maybe one tank of gas on it and then pay it off with money I earned through my part-time job (my credit card debt actually amounted after graduating college…). I also saved up $2,500 and opened a Roth IRA my sophomore year of college. I didn’t contribute to it regularly, but I was proud of myself for even opening the account at such a young age. While nothing I did was “extreme,” I did enough to boost my credit score (through my student credit card and paying all of my bills on time) and set aside a little bit of money toward retirement.
Now onto my husband. Let me just preface this by saying my husband is now the money-manager in our house. He is incredible when it comes to finances – he saves, he doesn’t spend excessively (in fact, he rarely buys anything at all), he tracks our income/expenses, he contributes to retirement, he works hard, he budgets our money, and so on and so forth. It’s because of him that we are where we are today. However, in college, my husband did make a few costly mistakes that he’s still paying for as far as his credit score is concerned. He would miss a few payments on his credit cards and student loan payments, which significantly dropped his credit score. He also had a few random debts that went unpaid that also lowered his score. At the time, I’m sure he thought nothing of it. But fast-forward five years when you’re married and wanting to buy a house, and it came back to bite him.
My husband’s story does have a happy ending, though. Nearly 10 years later, his credit is back where it needs to be (a near-perfect score!). I hate that he had to work so hard to rebuild his credit and improve his score for SO many years, but that’s exactly what I mean – the financial choices you make in college might not seem like a big deal at the time, but they most likely are. College is the time to start being responsible with your money and work toward building your future. You might not be buying a house now or needing a business credit card, but you could need one shortly after graduating. Your credit has to be in good standing in order to qualify for any type of loan or credit card.
Based on our experiences, here are my three tips for college students on managing finances.
Start thinking about your credit score
Always, always, always pay all of your bills on time. In addition, you might consider opening a student credit card to help build your credit. The limit will be low, but it’s still important to not max out your card. Experts recommend keeping the balance below 30 percent of the total limit on the card. So, if your limit is $300, don’t let your rolling balance exceed $90. However, it’s always best to get in the habit of paying off your credit card in full every month.
Get in the habit of saving
In college, you most likely are working part-time if you’re even working at all. Even with your small paychecks, it’s a good idea to get into the habit of saving at least 10 percent of your income, preferably more. I lived at home for the first two years of college and was able to save thousands of dollars. I worked 35 hours per week plus had a full course load. Instead of spending every dollar at the bar or the mall, save as much money as you can and put yourself on a budget. You can still have fun in college without getting into debt and living above your means.
Don’t take out more student loans than you need
Student loan debt is on the rise – with the average student being close to $30,000 in debt when they graduate. My advice to students is to take out the absolute minimum that you need in order to continue your education. I worked for a university a few years after graduating and students would borrow thousands of dollars more per semester than the cost of tuition and books. Yes, the money would go to room and board or food or whatever other bills they needed to pay, but if you can – get a part-time job and pay for these expenses out of pocket. I do realize some majors require the students not to work. If that’s you, then put yourself on a tight, tight budget until graduation. Debt adds up fast and can quickly spiral out of control if you’re not careful.
What tips would you add? Were you financially responsible in college or did you get yourself into trouble??