Financial Planning For College Students - An Important Message To Set You Up For Life
Last updated on : January 13 2021
College Students, Money, And Debt
The years you spend as a college student are likely to be the most experience enriching, action-packed years of your life. The instant burst of freedom and independence that comes with this transition is unprecedented and will influence your future.
These years will teach you a lot about yourself and help you create habits for managing your own life. The good news is, these habits can have lasting effects. The bad news is these habits can have lasting effects.
College is also a time of great forgiveness. The world expects college-aged kids to make a few mistakes along the road. So, if you get stuck after having made some questionable choices, it is more about how you recover than the actual error itself.
However, one area you don't want to mess up in is personal finance.
Jump to the section you want by using the links below.
- A. Use A Student Loan Repayment Calculator
- B. Fully Understand Yoyr Commitment Before Signing
- C. Federal Or Private Student Looans?
- D. Balance Your Financial Needs
As A College Student, Ensure You Adopt Smart Personal Finance Choices
Personal finance is one area that has a little less bend, though. There are long term consequences if you mess up, even as a college student.
Sure, if you overdraft your bank account, you might think the only consequence is the charge you have to pay, but what you need to know is that kind of activity contributes to your credit score.
So as a college student, or even before, it would be best to make smart money choices to set up a solid financial foundation for your future. In other words, learn to manage your finances today to avoid being overwhelmed with the consequences later.
You can get information and help from several places to guide you towards your most healthy financial self. However, the following are the essential lessons to learn before making any financial commitments.
2. Understand Student Loan Debt
Student loan debt is so prevalent that we often view it through a casual lens.
We worry less about it because there is a spread of several years between when you take out the loan and when you begin to repay it.
Many students apply for these loans, view totals, and think that there is nothing else to think about until graduation.
However, this practice is a massive mistake - these are the students who experience a great deal of shock when their first loan invoice comes in, unprepared to make the repayments.
Instead, use the time you are in college to pay attention to your loans and think about how your bank account will handle this debt once the responsibility of paying it back begins.
Here are some pointers:
A. Use A Student Loan Repayment Calculator
You can use a student loan repayment calculator to estimate your monthly repayments when taking out a private student loan, so you know what to expect when you graduate.
Tools like this are excellent because they allow you to draft a plan for yourself based on information specific to you instead of general terms that can depict a skewed picture.
B. Don't Sign Without Fully Understanding Your Commitment.
Remember that although you will be plugging your loan terms into this calculator, the number generated will fluctuate based on your agreement's exact words, for instance, whether you have a fixed interest rate or not. .
As a result, it is essential to understand the agreement in detail before you sign your name to it. Note that you are obligated to participate in the agreement you signed your name to, regardless of whether you understand the terms or not.
So make sure you are fully versed and understanding of the terms before signing. The most important are:
- the amount you are borrowing
- the rate of interest you are paying
- when your repayments start
- how much your payments are
- the fine print, like fees and late payment penalties.
If you feel overwhelmed or have any doubts about what you are doing, then seek the advice of someone responsible and more experienced or your college's financial services center.
C. Federal Or Private Loans - Understand The Difference
Federal and private loans are the top two ways to borrow money to fund your education. The main differences between them are the application process, interest rates, repayment terms, and tax benefits.
You can see why it is in your best interest to learn about this in advance.
Federal and private loans also differ in their spending permissions. Loans from the government tend to be more cut and dry regarding what you can and cannot pay for with the funds. Private lenders offer more flexibility.
D. Balance Your Financial Needs
Expanding your mind beyond simply tuition will help guide you towards the best choices when you start figuring out college's financial commitment beyond the classroom.
If you take out student loans that are too large, you still have to pay them back with interest. If you do not take out enough, you might find you face financial challenges that restrict your educational goals.
The secret to finding that sweet spot amount is efficient planning - so learn how to budget like a boss.
2. Budget Like A Boss
A budget is an enormously powerful tool. When you create one and track your spending, you have real-life facts and proof of where your money is going.
Before beginning college, you may or may not have needed one, but even if you did, your collegiate budget should undoubtedly look different than your high school budget.
Starting your journey into personal finance with a budget is just about the best choice you can make because you will build habits rooted in structure.
A budget will also help control your spending - and help avoid you blindly swiping your debit card, or worse, your credit card, and living with the consequences later.
A. Creating Your Budget
A budget is an essential account of income less expenditure that leaves enough room for saving.
To create your budget, you need to spend some time understanding your expenses and how you will provide for them, either through a part-time job or a student loan.
Then split this analysis down into daily periods, so you know where you stand at the end of every day.
However, budget conservatively regardless of income so that you can start to build the habit of living below your means and learning how to contribute to an emergency fund or nest egg.
B. Understand Wants v Needs
Ensuring you understand the difference between your wants and needs is crucial for a proper budget. It's unlikely you'll have enough to cater to all your desires (wants), and you should not look to finance these desires with a student loan.
For instance, you don't necessarily need a car or a fancy place to stay. These are not needs, but wants and you can do without them on a reasonable budget.
Putting a high priority on wants and not learning how to tell yourself either no, or not right now when spending money can lead to a slippery slope.
Using borrowed money from student loans or credit cards to pay for nonessentials can result in a shocking amount of debt since, specifically with credit cards, interest rates do not favor those with little to no credit history.
Be intentional about how much debt you take on, and when possible, return student loan money that you took out in excess to avoid paying interest on it.
Having that cash available might prove too tempting, and while these funds are easy to spend, they are significantly less easy to payback.
C. Living On A Budget
Living on a budget can be intimidating because you might feel it restricts your life.
This feeling is neither true nor false because budgets do allow room for fun. However, they ensure the fun you have does not prevent you from paying your bills.
The internet and your smartphone can be helpful tools when handling your budget. There are many apps available for all ranges of experience level, financial levels, and goals.
Traditionally a budget was a pencil and paper project, then a task for Excel. Those methods both still serve a purpose but using your smartphone can remove a lot of the guesswork.
If you wanted to advance the tech aspect a step further, some of these apps can even be linked to your bank accounts directly and have features like bill reminders and autopay options.
3. Draft a Payback Plan
While it is nearly impossible to assume the circumstances of your life post-graduation, one thing will be for sure. You will have to pay back your student debt.
Keeping this fact at the front of your mind during your student years and using a timeline to create a rough draft of what repayment will look like for you will be highly beneficial.
Most loans also give a grace period between when school ends and repayment begins. The time frame for this is typically six months, which is not a long time, and will put pressure on you to find a way to start making repayments.
Therefore explore your repayment options ahead of time as they pertain to your specific loans to give you a chance to hit the ground running once that grace period ends.
Knowing what you will be financially facing can also help you update your budget to accommodate these new demands. It will help you understand what type of income you will have to earn to avoid defaulting or scraping together funds for all the other areas of your life.
One of the best parts about being a college student is that the world expects you to be broke. There is truly little keeping up with the Jones's in college because, quite frankly, there are no Jones's' yet.
While this does not mean that you should take this time to be irresponsible, it does mean that you should enjoy the fact that if you must pay for your pizza with loose change as a college freshman, that is standard protocol.
Nevertheless, during this time of your life, you must develop a solid financial foundation.
A solid foundation means developing good financial habits, including budgeting, your need for student debt, and how to repay the amounts borrowed when the time comes.
And it also means critically understanding your wants versus your needs because you do not want to pay for nonessentials with debt.
Building this foundation and thinking ahead will help you manage your obligations better in the future and not leave you crippled with debt you cannot repay.
- 10 Crucial Tips On Thesis And Dissertation Defense
- Your Guide To Choosing A Dress For Graduation
- Yes You Can Eat Healthy Food On A College Budget
- 8 Ways to Have a Killer Wardrobe on a Student Budget
- This Basic Night Skin Care Routine Is Quicker Than 3 Minutes
The Kewl Shop
The Kewl Shop is a blog. We write about all things lifestyle with a strong focus on relationships, self-love, beauty, fitness, and health. Important stuff that every modern woman or man needs to know.
Editor: Charles Fitzgerald