Are you in college or headed there soon? You likely consider yourself a well-read, highly educated person. But how is your financial literacy?
If you do not know the first thing about managing your money, do not wait until after graduation to figure it out. Investing in your financial education and building strong money management skills now can help set you up for long-term success. Money 101 is a prerequisite for reaching your financial goals, so start learning now.
Manage Your Student Loans & Avoid Too Much Debt
As a current or future college student, you may already have student loans or expect to take them on. However, there are still steps you can take to help set yourself up for success.
One approach is to avoid accepting more financial aid than you need. The less debt you carry after college, the easier it may be to manage your finances. Lower debt can also make it easier to live on your own after graduation.
It may also help to look into subsidized student loans. These loans do not accrue interest while you are enrolled in school.1 Unsubsidized loans begin to accrue interest as soon as you borrow them and can cost more over time.
Nurture Your Credit Score
If you have student loans, you also have a credit history and a credit score. This score plays a role when you apply for financing, such as a car loan or mortgage. Lenders use it to evaluate how likely you are to repay what you borrow.
A lower score may signal higher risk to lenders. You may still qualify for a loan, but often with a higher interest rate. That rate is the cost of borrowing and can add up over time.
A higher score can help you qualify for more favorable interest rates. Even a small difference in rates can lead to significant savings, especially for large purchases like a home.
Tips to Help Improve Your Credit Score
You could nurture your credit score by practicing the following tips:
- Pay on time and in full: Make student loan and credit card payments by the due date.
- Keep credit utilization low: Avoid using most of your available credit, even if you plan to pay it off quickly.
- Limit frequent account changes: Opening or closing multiple accounts in a short time may lower your score.
Set Financial Goals
Managing your money gets easier when you know what you're working toward. Financial goals can give you direction and help you stay focused over time.
Start by thinking about what matters most to you:
- What do you want your life to look like in the future?
- What major purchases are you planning for?
- Are there life changes ahead, such as marriage or starting a business?
Focus on goals that reflect your priorities, not what others expect. Clear goals can help guide your decisions and keep you motivated.
To make your goals easier to reach, turn them into SMART goals:
| SMART Criteria | What It Means |
|---|---|
| Specific | Clear and detailed |
| Measurable | Track your progress |
| Actionable | Steps you can take |
| Realistic | Achievable based on your situation |
| Time-bound | Has a deadline |
Example
Let's say your goal is to save more money. You may find it easier to achieve if you make your goal "SMART." For example, you could instead say you want to save $100 every month for 12 months to build up an emergency fund of $1,200 by the end of the year. That goal is specific, measurable, actionable, realistic and time-bound.
Get the Basics of Budgeting
A budget is one tool that can help you reach the goals you set. It does not have to feel overwhelming. It can be simple and help you keep a budget with your spending and saving.
The following questions can help you build the foundation for your budget:
- How much money is deposited into your checking account each month?
- How much of that money do you spend?
- What are your necessary expenses? These are costs you must pay, such as food and housing.
- What are your discretionary expenses? These are costs you choose, such as movies or dining out with friends.
Try not to spend more than you earn each month. If you overspend, look for ways to cut back on discretionary expenses. If you use every dollar that comes into your account, you will not have anything left to save.
Write down your necessary expenses and review your discretionary spending. This can help you find ways to adjust your spending and set aside money for both short-term and long-term goals.
The Bottom Line
These basics can help you get started, but it also helps to keep building your financial knowledge over time. The more you learn, the better choices you can make and the more confident you may feel when managing your money.
Sources
- Direct Subsidized and Direct Unsubsidized Loans. https://studentaid.gov/understand-aid/types/loans/subsidized-unsubsidized.
