Going to College This Fall?
Attend This Crash Course in Financial Fitness
Heading to college is an exciting, challenging, frightening, and even frustrating experience for both students and parents. There are so many unknowns that can only be answered once the move has been made, such as roommate compatibility, class scheduling, and how many pairs of jeans are actually needed. But don't wait until then to prepare for the financial issues that loom ahead. If you’re a college-bound student and don't know what a credit card APR is, or have never learned to budget, then it's time for a crash course in Financial Fitness.
The College Board estimates that the average published tuition and fees for in-state students at public four-year colleges and universities increased from $8,256 in 2011-12 to $8,655 in 2012-13. Average published tuition and fees for out-of-state students at public four-year colleges and universities increased by $883, from $20,823 in 2011-12 to $21,706 in 2012-13. These numbers do not include housing and variable costs, such as books, transportation, supplies and that all-encompassing "other" expense category, that often cause the most financial stress for a college student. Learning to budget and to use financial tools wisely will reinforce the concept of "living within your means" during the lean collegiate years and will also establish healthy money management habits that will last long after graduation.
FCB&T's Financial Fitness 101 is now in session.
The first step toward financial fitness is to find out what you have, or will have, to spend. Consider all sources of income - such as college savings plans, loans grants, scholarships, employment and parents. Once you determine how much income you expect to have, you can then plan your spending more effectively.
Next, estimate how much you will need by writing down all of your anticipated expenses. Living in an apartment this year? Don't forget about the extras you took for granted in the dormitory - like cleaning supplies, utilities and food. Try to be realistic with your estimates, giving yourself a little room for error. If you are used to buying those designer coffees three times a day, don't expect to quit cold turkey. Instead, cut back gradually or substitute with a less-expensive alternative, such as brewing it yourself at home.
Because nothing ever goes as planned, it's important to set aside some money for an emergency fund. This way, when your car breaks down or you find out you need three additional textbooks, you will have the funds available without dipping into your allocated spending money and blowing that budget you so carefully planned. Even a safety net of two hundred dollars can make a difference.
All the budgeting in the world won't do a bit of good if you don't track your spending. How else will you know if you've adhered to your limits? Whether you simply keep track by writing in a notebook, set up computerized spreadsheet or use a more sophisticated software program that can also download your bank transactions, just make sure you keep track of every dollar you spend. One benefit of software programs is the ability to categorize your spending quickly and to receive warnings when you are getting close to your limits. Seeing where you actually spend your money helps to identify those problem areas that perhaps need a little more attention.
Beware of the little expenses that are not included in your budget. They can make a budget collapse quickly! Two dollars here, another few there, and before you know it, the budget is blown. In the words of author J.C. Ryle, "A small leak will sink a great ship, a small spark will kindle a great fire."
Many people obtain their first credit card when heading off to college. When used responsibly, they get the job done efficiently, safely and can help build your credit score, which will be important down the road when you begin working and want to buy a house or car. But, if used carelessly, credit cards can ruin your credit score for years, which will have a direct effect on your ability to borrow money in the future. If you have a credit card in your name, keep the credit limit low and pay off the balance every month. When balances carry over, interest is charged and increases the amount you will owe. For example, if you have a $500 balance on a credit card that charges 18% interest, and make a minimum monthly payment of $20, it will take 32 months to pay it off if you don't add any further charges. And, you will pay over $131 of interest - that's more than 25% of the original balance amount.
If you cannot pay it off completely, pay as much as possible each month and keep the balance less than 30% of your limit. Firstcbt.com has some very useful calculators that will show how long it will take to pay off credit card balances and how much interest will be paid. (www.firstcbt.com/resource_center)
An important part of budgeting is saving. It may sound like an oxymoron, however, saving during college is possible. More important than the amount being saved is the habit being established. Think of your savings as a bill to pay and make sure to pay yourself regularly. Whether it's a dollar a week or $100 dollars a month, once you get in the habit of putting that money aside first, you probably won't even notice it.
College presents many challenges, with money right there at the top. Good money management skills will help you make wise choices that will allow you to control your spending, rather than the other way around. And with one less thing to worry about, it will be much easier to focus on other ones, like getting your roommate to pick up his clothes.
(By the way, the correct answer is four pairs of jeans.)