For many young adults, college is an opportunity to develop their independence. It’s also a time when they take on responsibility for their own finances. It’s important to develop healthy money habits during this time that can set your financial future on a solid foundation. Here are three ways to avoid some of the most common personal finance issues for college students.
Create a realistic budget
A budget is a plan for how to spend your money. Without a plan, it can be easy to overspend and leave yourself without enough to cover the essentials, such as food and rent. To start budgeting, tally your income and fixed expenses separately — the latter are the expenses you have to pay each month. Any leftover money is what you can spend on discretionary things, like concerts, events or late-night snacks. Don’t forget to include costs that don’t occur each month, like your bus ticket home for the holidays or what you expect to pay out of pocket for tuition every semester.
Be thoughtful with credit cards
Credit cards aren’t necessarily harmful if used responsibly — they can actually be a positive tool to build your credit score. But if you don’t pay off your balance each month, you can quickly accumulate debt at a very high interest rate. If you do plan to use a credit card, get one with a low credit limit so you aren’t tempted to overspend, and then make sure to pay off your balance in full every month. If you find yourself in a situation where you can’t pay the balance in full, strive to pay more than the minimum — if you don’t, interest rates can cause your balance to increase quickly.
Use loans and scholarship funds intentionally
It can be tempting to use your student loan and scholarship money for nonessential expenses, especially if you have money left in your monthly budget. Instead, consider using the extra to start repaying your loans — even if you aren’t required to make payments yet. It will save you money in the long run by reducing the interest payments on your loan, and will help you get started with good debt repayment habits. If you want extra spending cash, consider part-time work instead.
Making financial mistakes as a young adult can have a big impact on your financial future. Learning to budget and live within your means now can help establish a lifetime of healthy financial habits.