5 Financial Lessons You Need to Learn before Graduating from College
Summary: The real world can be a cold, harsh place. This can be especially true when it comes to financial lessons. Learn these crucial tips about money matters before you leave the protective cocoon of your college days.
For some college students, the days spent on the college campus may seem full of lesson after never ending lesson. Students learn about new subjects, methods, and are trained to think differently about the things they already knew. The college campus is a safe place to explore new ideas in the safety of pre-adulthood, where young adults are expected to make mistakes and use them as life lessons. When it comes to financial subjects, the earlier you can grasp and implement them, the better. These five financial tips for college students are necessary additions to any college lesson plan.
Open Your First Credit Card Account
When you’re just starting out with paying bills and opening credit accounts, a credit card can be a positive start to a long credit history. Once you open your first account, the creditor will begin to report your account activity to the credit reporting agencies. This valuable information will serve as the beginning of your credit history.
Make sure to make your payments to the account on time (or earlier), so the information reported on the account remains positive. Also, never go over your credit limit or use over 35% of your limit. A good rule of thumb is to only charge every month the amount you can afford to pay off completely. Also, make sure to view your credit score once you begin to use a credit card account. You want to be aware of identity theft and monitor your credit report for unauthorized activity.
Set a Budget and Stick to it
Learning to have disciplined spending habits will help you steer clear of overspending and other negative financial behavior. The first thing to do is create a budget that clearly indicates the amount of money you will spend each month. Other than expenses and income, you should also designate a certain amount of your earnings as savings each month. Treat this amount as seriously as you do your other financial necessities.
After you’ve learned to stick to your budget, you’re less likely to spend money and not know where it went. Keeping track of your expenditures will help you track your money in other financial matters, such as investing and retirement account management.
A college education will be one of the best investments you ever make, but it will probably also be one of the most expensive. Most college students rely on student loans as a part of their financial package for paying school expenses. These loans can serve a dual positive purpose. First, they allow you to pay for school with fewer worries than if you had to pay for everything out of pocket. Second, they can serve as the foundation account in your credit history. Get your credit reports and scores and monitor your student loan balances and payments.
As soon as you take out a student loan, the creditor may begin to report information to the credit reporting agencies about your account, even if you are still in school. These accounts can show future creditors how you handle one of the first credit accounts many students have. Only borrow what you need to pay your college expenses and concentrate on getting out of college as soon as possible. The longer you stay in school, the higher the price tag and the higher your student loan debt can increase.
Understand Good Credit and its Impact
One of the best things a college student can do for their financial future is to understand their credit scores and know what is a good credit score for a college student. In general, the most widely used credit scoring system is FICO. These scores are expressed in three digit numbers, from 400-900, with a higher score indicating good credit. Information included in your credit report will go into determining your credit score. The length of your credit history, whether or not you pay your creditors on time, the percentage of your credit limits you have tied up, and whether or not you open new credit accounts on a regular basis will all go into determining your credit score.
Most college students have limited credit histories because they are just starting out, so a 690 credit score for a college student may be considered to be pretty good.
Know it is Never too Soon to Save for Retirement
One of the worst things a college student can do is assume he or she is too young to care about saving for retirement. The best way to ensure you have enough money to care for yourself after you stop working in your older age is to start saving for retirement as soon as possible. While you’re fresh out of college, you can take higher investment risks with your retirement portfolio for the largest gains. Of course, as you get closer to retirement age, you will want to decrease the risk you take with your investments.
College students who follow these five tips will find the financial lessons easier to learn as they begin to build their credit and make financial transactions. Give yourself a head start and get this education under your belt before you enter the world of adulthood.