We could all use some improvement in our financial management skills but perhaps it's most critical for new college students.
Millions of teenagers will head off to school in late August to live on their own for the first time. Among the challenges they'll face is managing money. It's important as an adult but may be even more critical to getting through college.
Here's why. These days most students go off to school with some type of student loan to help pay the cost of tuition, fees and books. As has been well-publicized in recent months, the total student loan indebtedness is now over $1 trillion and may pose the risk of a new financial catastrophe.
Keep loan money separate
That's why it is important for students to avoid, if possible, using student loans to pay for routine living expenses -- especially meals. It's the same as charging all your meals on a credit card and letting the balance accumulate. Keeping a barrier between pure education expenses and living expenses can keep student debt levels lower.
That's where financial management skills come in, and the first step is to create a monthly budget and stick to it. Not only will it help to manage finances throughout the college years, but it is an essential skill that will be needed throughout life and could be as important as anything you'll learn in the classroom. A budget, done properly, will have lasting benefits.
A monthly budget identifies the money that is accessible and where that money is going. By distinguishing between needs and wants students are able to identify exactly what they are spending their money on. The basics of budgeting, outlined for us by financial counselors at Money Management International, are the same for college students as they are for anyone else.
Income vs. expenses
First tally your sources of income including wage earnings, scholarships, grants, loans, family contributions, and available savings. Next, document your spending including fixed, variable, and periodic expenses and build a budget with help from an online expense worksheet.
Set Financial Goals. They need to be specific, measurable, achievable, rewarding and timely, and they can be both short-term or long-term. That allows you to determine how your spending decisions affect your progress toward your financial goals.
As a college student you may feel like you're living hand-to-mouth but try to save some money and put it in a savings account. You'll find you'll need it, not only for emergencies, but for the unexpected expenses you know will come up, such as the last-minute extra book your college professor will assign or repairs for your car. Being prepared with savings will keep a minor financial setback from becoming a financial emergency.
Track your spending. Often, it is the little everyday purchases that make the biggest impact on your budget. It's important to track your expenses and look for ways to keep costs down.
Get a job
As you prepare a college budget it may become clear that you might need another source of income to live comfortably. Instead of borrowing more money, consider getting a part-time job, the time-honored way millions have gotten their education in the past. Even a small paycheck each week can make it easier to stay on a budget.