7 Traps to avoid when students manage personal finance
If you're in college and you're thinking it's too early to work out a financial plan, well then you should rethink your decision. Your college years are when you start learning how to manage your finances and have better control over your money. As a student, you need to understand the difference between needs and wants before you start planning how to use or save your money. This will help you make wise financial decisions and you’ll become more responsible in handling money. But you need to watch out for the 7 traps to avoid when managing your money.
- Making unnecessary expenses - Make a list of your income from all sources like wages, interest and dividend earned, rental income, child support or alimony, etc.
- Not planning a budget - When you don’t plan a budget, you have no clue as to where your money goes. So, prepare a budget with the help of an online budgeting application/tool. It'll help you track your spending and find out where exactly you’ve overspent and how much more you can save.
- Not making use of discounts - Certain companies offer clip coupons to students who’re working with them. You should take advantage of these coupons as these can help curtail your expenses. Similarly, there can be discounts on books, plane tickets and items you shop for.
- Getting a car of your own - If your friends drive a car, there's no need to crave for one. It is quite likely that you can do without your car. So, even if your parents are happy to give you the cash for a car purchase, when you're staying away from home in a college dorm, it is better you don't take it. This way you can keep away from paying on auto insurance, car maintenance and gas prices.
- Using cash from your student loans - There are many who take out student loans even though they have scholarships, and then they use up the entire cash to finance their lifestyle. Finally when they graduate, they end up being in student debt and then they may have to take out a debt consolidation loan with the US Department of Education or any private lender. So, the debt which could be paid in few years time will now carry on for a long time, say 15-30 years. This means one has to pay a lot of money in total interest over the term of the loan.
- Getting credit cards even when not required -Applying for credit cards and getting into debt is quite common with college-goers. However, the new Credit Card Act makes it clear that any student under 21 years can’t open a credit card account unless he has someone above 21 years to cosign on the account or he can prove that he earns enough to be able to manage the bills. So, if you don’t earn enough and there’s nobody to cosign, you can’t qualify for a credit card.
However, even if you have a cosigner and get a card, you shouldn't indulge in impulsive spending with the card as otherwise you'll rack up a lot of debt. But if the cards are managed wisely, it can help build up a good credit score at an early age. This will surely help you get loans and credit in near future. Now, in case you’ve piled up credit card debt, don't hesitate to negotiate low interest rates with creditors if you or your cosigner cannot pay the bills on time. If required, your cosigner may seek professional help from a reliable debt consolidation company which can negotiate with creditors such that they lower your interest rates as well as late fees or over-limit charges.
- Not saving up cash -Saving a part of your money is the key to getting all the things that you want out of your life. It is advisable that you look for a part-time job and earn dollars, a part of which can be saved as well. Create a savings account in a bank and keep aside some amount of cash every month. Of course you need to choose the bank carefully. Check if it is accessible anywhere for the simple reason that you may go away from home to study in your college. You need to check if the bank offers ATM services and whether it charges high monthly fees.
You can also help your parents by contributing towards the deposit they put into the 529 Plan account set up for your educational expenses such as tuition, fees, books, etc. A 529 Plan also offers a savings plan under which parents deposit money into an account and use the cash for aggressive investments.
Being a college student, you may have to make tough financial decisions such as working out how much to pay for tuition, how to budget your expenses and how to save so that you have enough cash in hand when in emergency situations. All you need to do is, think wisely, stick to your budget and be disciplined when managing your finances.