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If you are reading this, you are probably a new college student whose parents sent you this article.
But before you roll your eyes and scroll Instagram again, consider this: what if you could do a few things right now to make your financial life easier for years to come?
Your college years are one of the most important moments of your financial journey. Most of the time, you’ll have a clean slate – few financial commitments, little to no debt, and an opportunity to start on the right foot.
I didn’t make the best of it. But now you have your chance.
Why should you worry about money while studying?
Before you write me off as just another personal finance keyboard warrior, let me let you in on a secret: I was in your position a few years ago and have made (almost) every financial faux pas imaginable.
I’ve maxed out my credit cards, overdrawn bank accounts, totally wrecked my credit score, signed leases for apartments I could barely afford, and once worked three jobs with no emergency savings. I think the one mistake I haven’t made is retiring from my 401(k) early.
Here are a few things I wish I knew about money when I was a student. (I promise none of these tips involve cutting lattes out of your routine.)
Be smart about your student loan reimbursement
Student loans become necessary to finance your higher education; More than 43 million borrowers collectively hold $1.73 trillion in student loan debt. If you join this crowd, you can bet you’ll get a refund check for the remaining amount after your school pays your tuition and fees.
before you say “A free check for $3,000? Sign me up!” two things: it’s not free money, and you need to think long and hard about what you’re doing with it.
I spent my first student loan repayment check on clothes and a plane ticket to Africa. don’t be like me
Traditional personal finance advice will tell you to return the refund to your loan servicer so you don’t borrow more than you need. If your parents are supporting you financially while you’re in school, it would be right to add that amount to your total balance now to pay off your loans faster and save you money on interest.
But if you’re supporting yourself while you’re in college, you might want to stash that money in a savings account where it’s easily accessible. A bit of padding can come in handy during the school year, especially when things aren’t going to plan with your side job or part-time job.
Directly subsidized and unsubsidized federal student loans (typically what undergraduate students take out) currently carry an interest rate of 3.73%. That’s a lot less than what you’d pay if you lived off borrowing every month, considering interest rates on some credit cards can be as high as 25%.
That student loan money isn’t technically yours — but in an emergency, it costs you less to use than it does to swipe a credit card.
If you depend on your loan repayments to fully cover your living expenses, you need to create a realistic budget for how much of it you will spend each month. Trust me, you can’t just “track” everything in your head.
A simple spreadsheet listing your expenses – from rent and utilities to “fun” money for social events – will do. If you’re against spreadsheets, check out our picks for the best budgeting apps.
Get a credit card – but use it wisely
Now that you’re transitioning into adulthood, you need a credit card. Not because you need something to eat with friends (leave it at home!), but because you need to start building your credit history and score.
If you’re unfamiliar with credit scores, here’s a quick synopsis: Your score is a number between 300 and 850 that lenders look at to determine how risky or responsible you are to a borrower when using a credit card or a apply for credit. Several factors go into a credit score, including payment history, amounts owed, length of credit history, new credit, and credit mix.
Read more: What makes up your credit score?
A credit history — and a healthy score — can improve your suitability for credit cards, car loans, a mortgage, and even a job.
“Several graduate students have told me about the position being offered, only to have the offer withdrawn after the employer checked their creditworthiness,” says Sonya Lutter, board-certified financial planner and director of institutional research and education at Herbers & Company. “In any case, it wasn’t that the student had bad credit; rather, they had no credit history.”
Opening a credit card is the first step in building your credit. But if you use it responsibly, you’ll avoid racking up debt and ruining your credit score in the first place.
Lutter recommends loading normal expenses like gas or textbooks onto the card and paying the balance in full immediately. That way, you can start building a credit history with an expense you already had, rather than piling up a balance on groceries or entertainment expenses throughout the month and then struggling to pay them off.
There are many card options for college students. The goal is to open one with no annual fees but one that offers a bonus feature such as: B. Cashback on purchases. Check out our top picks for student credit cards here.
Stay away from memestocks
Fintech apps have made day trading stocks easier than ever. But just because it’s easy, and you might know people your own age who are participating, doesn’t mean you should start hunting memestocks in apps like Robinhood (remember the GameStop saga?).
You don’t want to put your financial assistance payback check – or rent money or savings – into memostocks or even into long-term investments. Before you even think about dipping your toe in the stock market, you should be prepared to pay a living, have an emergency fund, and a debt-paying plan, says Lutter.
With those basics covered, it might make sense to start investing — but typically not in short-term allocations.
“College students have long time horizons, and I believe it’s critical for them to use that to their advantage,” said Nick Rostykus, board-certified financial planner and private wealth advisor at WealthSource. “It’s hard to stay invested when everyone else is trading on today’s headlines, but that’s when you will be most rewarded.”
Investing for the long term means that you have a solid investment plan in place and different asset allocations. Don’t know what all this means? Read this guide and then consult a financial advisor before you start investing in an index fund.
All investments involve risk — if you’re not comfortable with losing your entire investment, that’s a good sign that you’re not ready to get into the stock market just yet.
Beware of school-sponsored bank accounts
If your university has a bank on campus, you might consider joining. But maybe you should think twice before doing this. University-sponsored bank accounts have attracted attention in recent years due to their high fees.
In 2016, the Consumer Financial Protection Bureau (CFPB) found that many of these institutions had features that “cause students to rake in hundreds of dollars in fees a year.” One of the biggest was overdraft fees, which are an additional payment fee that occurs when more money is spent than is available in your account.
The analysis also revealed that these accounts offered few financial benefits to students, but generated large profits for banks. There have been some improvements since then, but some banks still prey on college students.
Instead, look for a toll-free banking institution. The best student checking accounts (which are not affiliated with a school but are offered to students through a bank or credit union) often have low or no minimum deposit requirements. Some even offer cashback or the opportunity to earn interest on your balance.
Read more: Best Checking Accounts for Students in September 2021
This is the beginning of your financial journey – it’s not a race
With the tips above, you’ll look good on paper. But I think the biggest kept secret about personal finance that many people don’t know is this: Building a solid financial life is a marathon, not a race.
That means you won’t be on budget every month. You won’t become a millionaire overnight (sorry). And you will experience setbacks. Lots of setbacks.
The best thing you can do is continue to arm yourself with knowledge to adapt to whatever financial situation you come across. The strong foundation you build now will give you the stability you need to manage your finances for the rest of your life.
Find the best student credit cards of 2022