For many college freshmen, the first year of living on their own, sometimes far away from home, can be an exciting experience, but it can also be overwhelming.
If you or your child will be starting college soon, and don’t have a plan to manage your finances, you could be looking at debt and credit problems well before graduation day. Studies show that among college students who drop out of school, their problems are tied to debt and financial pressures.
Living independently means it’s time to be responsible about money and learn the basics of budgeting, among other things. Otherwise, it’s far too easy to blow through savings and rack up high credit card bills just to keep up with social life and basic living expenses for college students away from home.
Here are some important things every college freshman needs to know about finances:
#1: The Value of a Budget
Budgeting is going to help you keep track of your finances and allocate funds for the things you need most. Remember to factor in the costs of transportation, trips home, membership dues for extracurricular activities, and entertainment.
Even if you’re spending your parents’ money, make sure you’re prioritizing expenses so that everyone can see exactly where the money is going.
#2: The Truth about Credit Cards
Credit cards can help you pay for certain expenses during college, but they need to be used as a standby resource – not your primary form of payment. According to data from Sallie Mae, 91% of undergraduates have at least one credit card, and the average credit card debt for college students is $3,173.
If you rely too much on credit cards during that first year of college, you could end up accumulating high-interest debt that becomes virtually impossible to pay off before you graduate. Avoid the credit card habit altogether by sticking with a “cash-only” plan, only using credit when you really need to, and taking on a part-time job if you need extra money for socializing or personal expenses.
#3: Meal Planning Basics
Meal plans during college can be a cost-effective way to manage your budget because each meal usually ends up costing much less than eating out. If you are living off campus and commuting to school, create your own meal plans and food budget so that you’re not depending on fast food and restaurants for your meals.
Preparing your own food is usually the cheapest way to eat when you’re in college, so be creative with your meal options and stick with a plan that is nutritious and fits within your budget.
#4: Saving Money
Find creative ways to save money each week so that you can put your savings towards something else — like books, lab fees or other educational expenses. Carpool with fellow students if you live off campus, or use public transportation if you’re traveling long distances and don’t want to worry about the hassle of car maintenance and parking.
Participate in study groups instead of hiring a tutor when you’re struggling with a class. Use coupons when shopping for groceries and look for buy-one-get-one deals at local restaurants. The savings will add up over the course of the semester, and adopting a frugal mindset can help you better manage your budget.
#5: Loans and Your Credit Rating
If you decide to take out a car loan or a personal loan to cover expenses for a while, make sure you’re aware of how much interest you’ll be paying over the course of the loan term. Remember that defaulting on a loan when you’re just building up your credit history can hurt you for several years to come.
So work hard to maintain a clean credit report. Having good credit will help you down the road when you want to get a credit card, rent an apartment or later buy a home. And since many employers are now checking potential employees’ credit reports, a solid credit rating will also help you when you graduate from college and enter the job market.
