No matter how financially self-sufficient a teenager is, going to college marks a major step toward becoming an adult. For the first time, you’re on your own. The choices you make about your money can set a precedent for how you manage your finances in the future. You might be looking at how to apply for credit cards with no credit history, set up your first savings account or just spending whatever money you have. Either way, whatever you choose to do now will impact your credit history for a least the next 7 years.
Here are five ways college freshmen can create good money management habits:
1. Make a budget
Figure out how much money you have available to spend each semester, either from your family, your own savings, or a job you’ll be doing while in school. Determine what you’ll need to pay for: books and course materials (unless your parents or your scholarships cover them), fraternity or sorority expenses, fees for any student group you want to join. What’s left over is the money you can spend on new clothes, late-night pizza, or anything you want to do just for fun. If your projections show you won’t have money left over, or you can’t afford the expenses you expect to incur, you’ll need a term-time job to fill the gap. With so many college students graduating with substantial student debt burdens, the last think you need is expensive credit card debt, too. It might also be worth to note how many times a day can a debt collector call, as well as what they have to include over the phone to keep it a legit and legal debt collection call, otherwise, you could be eligible to receive compensation.
2. Shop around for a bank account
If this is your first time opening a bank account, or if you need a new one with a bank that’s convenient to your school, do your research before signing up. Make sure you’ve chosen a bank with no minimum balance (or one you can easily meet), low fees, and overdraft protection.
3. Practice smart banking
Always know how much is in your account at all times. Your parents probably balanced a checkbook; today you can use money management apps on your smartphone to keep tabs on how much you’re spending and how much is left in your account. Know what the bank will charge you if you use another bank’s ATM to withdraw cash, and plan ahead so you’ll have time to get over to your own bank instead. If you have a debit card, be extra-careful that you don’t dip below your account’s balance; the fees to overdraw your account could be more than you spent in the first place. The same goes for writing checks or using an online or mobile payment app to send money to friends.
4. Invest any excess cash in online banks to earn extra interest
Above whatever cash you need to keep in your bricks-and-mortar bank near campus, consider placing the rest of your school-year cash in an online savings account. These bank accounts tend to pay more in interest, sometimes as much as 1%, which means $1 per year for every $100 you keep in your account. That money adds up, even if it’s only enough to buy yourself a cappuccino at first.
5. Get a credit card
It’s important to build your credit rating in a positive way. This will help you to rent an apartment or get a mortgage later on. If you can, sign up for a credit card. But be sure only to use it to buy things you can afford (see: budgeting) and for which you already have the money in your account. Pay off the entire balance each month. Even one late payment can negatively impact your credit rating for years to come, and paying just the minimum payment due will result in expensive charges that compound daily until the entire balance is paid off. If you do miss a payment, call your credit card company, pay the outstanding balance in full immediately, and beg for them to remove any fees or service charges or black marks from your account (most will do so if you ask nicely — just don’t make it a habit.)
If you don’t understand the terms on your bank account or your credit card, or if you have any other questions about your finances, don’t be embarrassed to ask your parents or your on-campus advisers. Now is the time to create good money management habits. You want to avoid making mistakes in college that will cost you money or, worse, hurt your credit rating. No one will think less of you if you ask a question. And if you’re looking for a primer on personal finance, one book that we like is Get a Financial Life by Beth Kobliner.