Financial Planning for College Students

College is often an unforgettable experience for those that attend. New friends, new experiences, and the newly gained freedom of living on your own are just a few of the fond memories graduates recall. Many look back in the future and view it as an enjoyable period of life before the real responsibilities of life had sank in. However, as graduation nears, many students face the harsh reality that all those student loans that kept them afloat the past four years will actually have to be repaid.

Each year more and more students are graduating with ever increasing debt. According to the National Center for Education Statistics, roughly two-thirds of all college students graduate with an average student loan debt of $19,237. Most students were aware of the debt they were taking on, and decided that the benefits of a college degree were worth this amount of debt. However, the downturn in the economy has caused several graduating students to carry a relatively higher debt burden than their predecessors, as fewer jobs and increasing prices place a larger stress on their income. But what does this mean to you as a current student? Will your education cost more than the benefits you’ll receive post-graduation? The answer is most likely no, as long as you are responsible with your money. Responsible financial planning is crucial during your college years, so that when it comes time to pay off any necessary student loans there are no other financial burdens standing in your way.

Life on a Budget

Creating a budget is a necessary part of student life. It is important to know how much money you are making, how much you are spending, and how much you are saving. Many college students only compare how much they are making to how much they are spending, and forget the importance of savings. Setting aside a portion of your income for savings, whether it is through a part time job or family support, is crucial for long-term financial safety. Your savings can act as a type of “cushion” should any unpredicted, unavoidable events require more than your budget allows.

Control Spending

Find ways to decrease your spending. When determining your budget, identify areas of spending that can easily be decreased. Eating out with friends is an enjoyable experience, but can be very costly to those with a limited budget. Instead of going to the movie theatre and paying the high ticket costs, check out RedBox or Blockbuster, places that offer one-dollar nightly rentals. Simple things like this will allow more money to be put into savings.

Find a part time job

Remember those posters in your guidance counselor’s office claiming that college graduates earn twice as much over their lifetime than those without a college degree? If you were to actually examine one of the most popular studies referenced in those posters

you would find that the students used in the comparison were “college graduates who worked at least part time during college”. Working even a few nights a week or weekends can help provide you with that extra income you may need for books, food, gas money, or a few drinks at the bar. There are several places that will work around your school schedule. Even a small amount of cash earned while in college is better than solely four years of racking up debt. Working part-time while in school will also allow you to contribute more to savings. “With out any large income in college, save whatever you can for retirement,” says Emily McCollum, a financial advisor at Merrill Lynch. “If you’re working and your employer offers a retirement plan, sign up for it.” It sounds crazy to plan for something so far in the future but it is never too early to start saving for retirement, and saving now will benefit you even greater in the future.

Avoid Further Debt

Credit card debt is a trap that ensnares a lot of college students. The availability of this “easy money” lures cash-strapped students that often end up with large bills with high interest rates. A single credit card should be reserved for emergency situations. “Use credit wisely,” says Emily McCollum, “It is hard enough graduating with debt from student loans, let alone substantial credit card debt. You don’t want to start off in the hole.” In addition to racking up large debt, overusing a credit card can destroy your credit score. Missing a payment will remain on your credit score for seven years and can later affect your likelihood of rec

eiving a loan for a car or a house. If you’re the person asking “Can I pay off my Discover credit card with my Mastercard?” you may want to consider shredding both.

Financial planning is not something to delay. Starting responsible financial practices now will benefit you for the rest of your life. In tough economic times like today, it is more important than ever before to be fully aware of your financial situation. After all, who really wants to move back in with the parents after four years of freedom?

An edited version of this article for Ka Leo may be found here.

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