When moving onto campus for your freshman year, you may think of the freedom you will have as a college student. However, transitioning from high school to college also grants you a lot more responsibility. At the beginning of your freshman year, you’ll have the opportunity to decide which major to study, which clubs or extracurriculars to join, and how to spend your free time.
You’ll also be in charge of your finances for what might be the first time in your life. As your college years are a great time to learn about money management and other financial tools, it’s important to start forming good habits now. Here are eight things every college freshman should know about money.
1. Having a budget is essential
A budget helps you keep track of your income and expenses each month. Without one, you may find it challenging to track where your money is going. As you learn how to create a budget in college, you’ll want to tailor it to your individual needs. Some of the typical budget categories for students are tuition, room and board, school supplies, entertainment, and savings.
Consider starting with the 50/30/20 budgeting rule: allocating 50% of your income to needs, 30% to wants, and 20% towards debt repayment or savings. While it sounds simple, sticking to your budget isn’t always easy. You may have to face difficult financial decisions, like opting for a smaller meal plan or skipping a night out with friends to afford the things that are important to you.
2. Student loans aren’t free money
Before you begin borrowing money for college, make sure you understand how student loans work. Unlike grants, scholarships, and other forms of “free money”, loans must be repaid, along with interest. It's important to research and compare different loan options, such as federal and private loans, to find the best terms for your situation.
Some loans don’t accrue interest fees or require payments until after graduation, while others begin to accumulate interest right away. Understanding the repayment options of your student loans is critical. That way you can pay back your student loan debt as soon as possible after college.
3. You’ll need to build credit for the future
When you're ready to rent an apartment, secure a car loan for your new vehicle, or refinance your student loans, having good credit can give you a major advantage. A positive credit history indicates to lenders that you are responsible with managing credit and making payments on time. A good credit score can help you gain approval for student loans or auto loans with favorable interest rates.
On the other hand, poor or nonexistent credit can result in high interest rates, the need for a cosigner, or a rejection of your credit application all together. During college, you can build your credit by making consistent and timely payments on your student loans or credit card.
4. A credit card is helpful, if used responsibly
College is a great time to get your first credit card. Whether you use it to buy gas, textbooks, or meals, a credit card can save the day when you don’t have enough cash on hand. Additionally, if your card is lost or stolen, you’re not liable for unauthorized purchases, which is often not the case with cash or debit cards.
Nonetheless, it’s important to know how to use your credit card responsibly in order to avoid overspending and credit card debt. It’s a good idea to only use your card for routine payments or emergencies. Aim to pay your monthly balance on time and in full.
5. Start saving and investing your money now
In college, it may be difficult to plan beyond what you’re doing this weekend. However, knowing how to save and invest for your future at a young age can have some serious benefits. Establish a savings account that is separate from your checking account. This way, you can then transfer money from your checking account – either automatically or manually – without being tempted to spend it.
While saving money and building an emergency fund are important, it’s also essential to balance these with some long-term investments. Take the time to educate yourself about the stock market, retirement accounts, and index funds available for investment. This will help you improve your financial literacy. Even though you’re still a student, engaging in retirement planning is advantageous. By starting early, you can take full advantage of compound interest.
6. If you must shop, make smart purchases
Before you make a purchase, you should always evaluate if it’s a want or a need. Needs are items that are essential for your daily life, like toothpaste or food. Wants consist of items that are non-essential, but nice to have, like the latest technology, more posters for your dorm room, or an extra pair of sunglasses. While buying wants on occasion is perfectly acceptable, there’s a difference between treating yourself and spending recklessly.
Learning how to make smart purchases can be as easy as asking if the store offers any student discounts or enrolling in a rewards program. You should also implement a waiting period before you buy a non-essential item to avoid any impulse purchases that you might regret later.
7. Don’t rely completely on your bank account to pay for college
Like many students, you may have the financial goal of graduating college without any debt. In order to be debt free at graduation, it’s important to explore the different ways to pay for college. You may have entered freshman year armed with your savings and a few scholarships, but you won’t want to stop there.
Continue to search for and apply to scholarships, like the 1FBUSA Financial Goals Scholarship, throughout your college career. You should also submit the Free Application for Federal Student Aid (FAFSA) each year to qualify for federal student aid. Lastly, consider finding a flexible job, such as on-campus employment, so you can focus on your studies and have extra spending money.
8. Understand your parents’ role in your finances
As a freshman, you’ll need to have the “money talk” with your parents or guardian before you leave for college. Since you will no longer be under your parents’ roof, you will need to ask how much involvement they will have with your money management. It's important to approach this conversation with a sense of openness and readiness to listen. Start by expressing gratitude for any support they can offer, and be clear about any financial goals or concerns you have.
Your parents may contribute to your college fund or they may decide to help with other costs like your health insurance, phone bill, or medical bills if necessary. Having an open conversation and understanding the intentions and opinions expressed by your parents about money is a key first step to your financial success in college.
Now that you’ve learned these top eight money tips for your first year of college, you’re ready to make your investment in college worthwhile. Going to your college classes, networking, and forming friendships are all important parts of college, but learning how to manage your money is equally as important. With your personal finances, as with any college endeavor, practice makes perfect! The efforts you put into being a good money manager as a freshman will pay off over time.
WHAT'S NEXT?🏡During your four years of higher education, try these 5 Money Moves to Make Before Graduating College. 💸Still unsure of how to make your budget? Read Budgeting 101: A Guide to Budgeting for College Students. |