The college years — the time in your life when a majority of your budget is spent on school books and junk food – or some combination of the two.
While you may be focused on is getting good grades or going to that rush ceremony, there are other things that should be on your mind as well — namely, your financial situation.
Graduation will happen before you know it, and if you don’t take the time to make sure you’re financially sound, then you’ll be back living in your parents’ basement in no time.
Here are five smart financial tips you can start using this summer. Just think of it as our way of giving you a leg up on all of those Econ majors.
1. Establish credit
It’s important to understand credit and establish it when you’re in college – in a smart way. And first, it’s important to understand what credit is and what it does.
Credit, or the amount that you have in loans, payments and credit cards, is compiled into a credit score. This score, which ranges from around 300 to 800, is a marker to the rest of the world that you’re a safe credit risk, and that you can live within your borrowing means and pay your bills on time.
Having the highest credit score you possibly can is an excellent idea – for many reasons.
Even if you’re using public transit now, or you live in a dorm, in the future you’re likely to want a car and a home of your own, and a credit score will not only determine if you get financing, but it will also indicate the rate of interest a bank will charge you for a loan. While school loans do help you to develop credit, it’s also important to establish credit in other ways.
One simple way of doing this is to qualify for a credit card. And no, that is not a neon sign saying, “Free money – spend what you want!”
In fact, it requires you to be more exact with your purchases, to factor in the cost of interest. Banks like Wells Fargo have credit cards specifically designed for college students.
These college credit cards come with a lower spending limit to establish your credit and ensure that your credit score is where it needs to be when you graduate. No matter what, you need to make sure you’re using this new credit card only for necessary expenses, and that you never go over your limit, while also making a concerted effort to pay on time, every time.
2. Wait a minute to make a purchase
If it takes you five minutes to analyze the value menu at McDonald’s, shouldn’t it take you a period of time to make major decisions on big purchase?
With a hectic schedule and limited funds, it also helps to take a period of time to comparison shop and think in depth about bigger purchases you’re making – and decide if you can really afford them.
While that lounge chair from Ikea would look great in your apartment — if it means that you can’t buy books next semester, then it’s just not worth it.
Resist the urge to buy on impulse, and if you need to, enlist the help of your family or friends to reign you in to weigh the pros and cons before you hand over your hard earned cash.
3. Make a budget
There are some people who are highly organized, who track all of their purchases and are never surprised when bills come in the mail.
Unfortunately, many of us don’t possess that organization gene, so it’s important not to rely on your magical mental calculation powers on what you’re spending.
Making a budget doesn’t have to be excruciating. Take a few minutes to write down your expenses, and then prioritize them.
If you’re making enough to pay for all of these expenses, then great. If not, then it’s time that you reevaluate and cut out unnecessary spending.
Make a spreadsheet that tabulates all of your expenses, and don’t deviate, unless it’s a dire emergency.
You’d be surprised how easy it is to follow a budget when the hard numbers are right there in front of you. So, if you want to plan a trip to Hawaii with your best friends over winter break, account for it in your budget and start saving now. Avoid having to cancel at the last minute or putting the bulk of the trip on your credit card.
4. Know your spending triggers
Can’t walk into a shoe store without buying a new pair of boots that you already have in five other colors? Have a problem walking past Gamestop without going in to purchase a new game?
Avoid those situations whenever possible. These scenarios, known as spending triggers, are ones that put you in the mind frame where you want or need to purchase something, even when it’s unnecessary.
While it’s fine to make a feel good purchase for yourself occasionally, it’s also important to recognize that sometimes it is purely on an impulse.
5. Set goals (or have a plan)
College is a time to begin to learn who you are, and what you want to be doing with your life. While you may not have everything figured out, it helps to have goals or a plan in place that will guide you, and your finances, in the right direction.
If you’re not the biggest fan of setting goals then start small, maybe taking $10 out of each paycheck and saving it for some unexpected expense.
Just like with a plan to launch your career after obtaining your degree, it is crucial that you set financial goals that complement your career plans and what you want to achieve – both in and out of school.
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