Money Management: 5 Things Students Should Know
18-year-olds generally arrive on a college campus with little to no knowledge of how much things cost, what’s important to spend money on, and how to avoid being in debt. The majority of students will likely not have taken a finance and money management class in high school – although they probably should be required to – and are left to their own devices or, in some cases, a budget their parents set for them. Many students find out far too late how to manage their money properly and graduate with massive debt (READ: “5 Things to do Before You Go Away to College”).
1. Create a budget
For the most part, students don’t have a self-imposed budget at all, but those who do have a ‘general fund’ budget, meaning they spend only a certain amount per week total. For example, if a student has $100 per week, they will consider that to be their money for everything rather than breaking down the budget. A more organized way to budget is for students to look at percentages. For instance, if a student determines they need 50% of their weekly money for food and personal items, and they need 40% for a savings account, they then have 10% (or $10 in this case) to spend on pocket money. Most college students will not be happy with $10 of entertainment money per week and will either have to accept life on a strict budget or supplement with a part-time job.
2. Understand finances prior to leaving for college
Students transitioning from high school to college will have way too much on their mind to also focus on managing finances. It’s important for students to understand how to manage their money prior to leaving for college, in an environment that can be monitored by mom and dad. For instance, students may earn $300 a week at their part-time job after school and decide they want to spend all of it on entertainment; leaving them nothing left to save for college. If their parents sit down with them and talk about having a percentage budget, one where only 10% of their income is for entertainment, they will learn how to manage money and how to earn money more efficiently (READ: “Guest Post: Summertime – Tools to Keep Your Mind in Shape”).
3. Understand what’s essential and what’s not
Many students report that they don’t have enough money for important things such as health insurance or college textbooks. For some students, the truth is they simply don’t make essentials a priority. Too many college students are living without important things, such as healthcare, but purchase things they don’t need, such as new clothes and convenience foods. It’s important for students to learn what‘s essential and what’s not before they can properly manage a budget.
4. Learn to balance work and study
Being a full-time student and working part time is no easy feat. However, it’s mandatory for the majority of today’s college students. It’s important for students to learn about a work-study balance very early on so they can manage their education while still earning money. For instance, some students thrive in an on-campus work-study program where they attend classes in the morning, transition to work, and transition back to more classes in the evening. However, other students may need to separate their work and study lives. It may be a good idea for students to attend classes Mon/Wed/Fri and work Tues/Thurs or attend classes in the morning and work after lunch. If possible, this is a skill best learned in high school when consequences are less severe.
5. The credit card trap
Many students attempt to solve their problems by putting things on a credit card. However, this can be financially dangerous and lead to thousands of dollars of debt in under four years. It’s especially difficult for students to have credit card debt to pay down in addition to student loans. Credit cards are meant to be for an emergency, for example if a student experiences a medical emergency or needs to have their car fixed to get to campus. Unfortunately, most students use credit cards as if they are liquid cash and often forget to or don’t have money to pay back the card at the end of the month. Students who struggle to pay off credit cards on time are encouraged to get a credit card with a small limit, perhaps $500, allowing them to pay for something in an emergency but preventing them from building up a couple thousand dollars of unneeded expenses in a month’s time. Students who have a history of miss using a credit card are encouraged to get a prepaid credit card where they can put a certain amount of money on it each month with no fear of running over their limit or building bad credit.
Although high school students are often not taught how to properly budget once they become adults, they will be responsible for their own finances. Although learning how to create a budget while adjusting to a new phase of life is extremely difficult, it’s an important skill to learn in order to avoid stress and excessive debt a few years down the road.
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