When you’re moving onto campus your freshman year, you might be thinking 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, you’ll want to make sure you’re prepared to form good habits. 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 lose track of where your money is going. When learning how to create your college budget, you’ll want it to fit your individual needs. Some of the typical budget categories for students are tuition, room and board, school supplies, entertainment, and savings. Sticking to your budget may require you to make difficult choices, like opting for a smaller meal plan or skipping a night out with friends in order to afford other items 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 require you to pay back the amount you borrow plus interest. While some loans don’t accrue interest fees or require payments until after you graduate, others begin accumulating interest right away. Understanding the repayment options of your student loans is necessary to ensure 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, buy a new car, 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. A poor credit score or an absence of a credit history can result in high interest rates, the requirement of a cosigner, or a denial 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 utilize it to buy gas, textbooks, or food, 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 any purchases you didn’t make, which typically isn’t the case with cash or a debit card. Nonetheless, it’s important to know how to use your credit card responsibly in order to avoid excessive spending and credit card debt. Only using your card for routine payments or emergencies and paying your monthly balance on time and in full is a good way to stay on track.
5. Start saving and investing your money now
In college, it may be difficult to plan beyond what you’re doing this weekend, but knowing how to save and invest for your future at a young age can have some serious benefits. The first step you should take is to have a savings account that is separate from your checking account. You can then transfer money from your checking account– automatically or manually– without being tempted to spend it. Saving is important, but you also want to balance it with some long-term investments. Taking time to learn about retirement accounts or index funds that you can invest in can help you improve your financial literacy. Even though you’re still a student, thinking about saving for retirement in order to utilize the benefits of compound interest is necessary.
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 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 debt-free. In order to achieve this goal, it’s important to understand 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 apply for the 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. 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 the need arises. 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 the top eight money tips for college freshmen, you’re ready to make your investment in college worthwhile. Going to class, networking, and forming friendships are all important parts of college, but learning how to manage your money as a student is equally as important. With your personal finances, as with any activity you’ll try in college, practice makes perfect! The efforts you put into being a good money manager as a freshman will pay off over time.
🏡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 for College Students: A Guide.