A Guide to College Student Finances

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a guide to college finances
  •  Introduction
  • Why Budget? Top 5 Reasons
  •  Budgeting: Breaking Down the Process
  •  Advice from the Expert
  •  Understanding Credit Cards
  •  Resources

Imagine the first few weeks of college. Students spend hundreds of dollars on setting up their dorm room, stocking the refrigerator, buying school supplies, and purchasing costly text books. Friday night rolls around and some friends from down the hall are going out to eat followed by a flick – there goes another $50. A few more nights like that (and generally there are more than a few more), and by the end of September the checking account is nearly zeroed out with around eight more months to go! Unfortunately, this scenario is far too common for many college students. The purpose of this guide is to help young men and women become financially savvy by learning how to budget, save, and graduate fiscally prepared to meet the real world.

Consider the following: Introduction

The average Class of 2016 graduate has $37,172 in student loan debt, up six percent from last year.

43.3 million Americans have student loan debt, with an average payment of $351 per month.

“Waiting until after college to take control of your finances could cost you,”

-Says Nick Certo, senior vice president in University Banking at PNC Bank.

 Dont’t become a statistic – let us help you take control of your finances

Why Budget? Top 5 Reasons

1. Parents are Out of the Picture

  • For most incoming freshman, college is the entrance into the real world. Students no longer live at home where mom and dad take care of most, if not all, of the finances. All of a sudden, students have to start thinking about paying for lodging, food, gas, insurance, and other expenses. Not only can this great responsibility be overwhelming, most often it is passed on miles away from the comfort and security of home and away from the watchful eye of a parent. The student caught unaware without a plan may find themselves in a financial hole, dug by themselves without knowing.

2. Funds are Limited

  • Even students who have worked hard and saved up for college will find their funds limited. Studying as a full-time student doesn’t allow time for students to hold a full-time job, and even students who work part-time will find cash not coming in as quickly as it goes out. It is all too common to find the freshman who has zeroed out their checking account before the end of the first semester. Students without a clear budget will soon find themselves pitifully and painfully short of cash.

3. Financial Demands Increase

  • Not only is cash coming in at a slow or non-existent rate, the financial demands of living independently increase. Even students who have their financial aid in order will find themselves spending money. Late nights out at restaurants and movies quickly add up, as well as the gas money spent to get there. Grocery runs and the need for toiletries take a toll, not mention the added expense of school supplies needed to study full-time. Add in a few shopping trips for the latest fashion and a fun weekend getaway, and $500 is gone faster than Usain Bolt runs the 100 meters.

4. Distractions can Destroy

  • With all the demands of college, budgeting may be last on the list of importance, and as the old adage goes, those to fail to plan, plan to fail. Studying, dating, and entertainment options abound in college life and it can be difficult to prioritize. Beware of just going with the flow! The fact is many choices seem much more important than budgeting because the immediate satisfaction is greater. All the activities college offers can serve as distractions to making wise financial decisions. If students go with delayed gratification and set up a budget first, college life may just take on a sweeter flavor than before.

5. Setting up for the Future

  • When preparing for a race, athletes don’t train by pulling a Homer Simpson – couch, beer, TV , and inactivity. This is the surefire way to lose. Budgeting is as important for health as getting sleep and eating well because it brings peace of mind. Falling into the debt trap at the beginning of life can have serious consequences. Debt doesn’t just disappear with the wave of a magic wand, and it is easy to put expenses on a credit card to “worry about later.” Just remember – there always is a “later,” and it comes sooner than expected. Graduating from college often comes with hefty student loans. Don’t set up for the future by adding credit card debt on top.

Budgeting: Breaking Down the Process

1. Income

  • The starting point for any budget is to know how much money is coming in. Students who work part time will have a monthly income source. Monthly income can come from sources other than employment. Parents may choose to send a monthly allowance, or students may receive a monthly stipend from their financial aid package. Students who work during the summer or are using a built up savings account to pay for monthly expenses should take the total amount they have and divide it over the number of months they will need it. For example, a student who has $7,000 saved to cover costs for the year should divide $7,000 by nine (the number of months in school), for a total of $778 per month. Thinking of a savings account in this way guarantees there is still some money left come June.

2. Expenses

  • Write down monthly expenses, both fixed and variable, starting with bills first. Fixed expenses include rent, car insurance, health insurance, utilities, and phone. Variable expenses include household items, clothing, entertainment, and gas. Be sure that the expense category isn’t larger than the income category! If this is the case, students need to find a way to cut back on expenses, or seek other employment.

3. Savings

  • It doesn’t hurt to save a little money each month for a rainy day – or for when the car breaks down. Life happens, and things don’t always go as planned. If every budget contained a savings category, students would find themselves prepared when an emergency happens.

4. Tracking

  • The easy part of being financially responsible is setting up a budget – the difficult part is maintaining a budget. Tracking monthly expenses and routinely checking financial status is the hard part, especially with the distractions of college life. Keeping track of spending is the most important part of budgeting. There are many online tools and budgets to help, such as mint.com or everydollar.com . These tools access bank and credit card accounts and track spending without the hassle of writing down expenditures. Students may also find the old-fashioned way of keeping track, with a pen and paper beneficial, as writing down expenses can make them seem more real.

Staying on Target: Budget Template

Monthly Budget

Download Excel File

As an incoming freshman, David worked throughout the summer and saved $9,000 for his first year of college. He was able to buy two of his textbooks from a former student, saving $200, but he still spends $1,000 on his books for the year, leaving him with $8,000 to live on for the rest of the year, or $888 per month. He has decided that dorm life works for him, and therefore doesn’t have to immediately worry about rent payments and utility bills. Most of his meals will be covered under his meal plan, but decides to budget $100 per month to buy a few groceries for his dorm room and to eat out with. His monthly cell phone bill is $100 monthly, and he decides to use $200 per month for gas and entertainment. He budgets another $100 for clothing and toiletry needs. This leaves him with $500 per month of expenses, and he puts the other $380 into his savings account for emergencies. If he sticks to his budget, he will have $3,420 left at the end of the year.

Beth is entering her junior year and has decided to rent an apartment with two close friends. She has $4,000 saved from a summer job, and will be working part time during the year, earning around $800 per month, bringing her monthly income to $1244. ($4,000/9=$444, $444 + $800) Her share of the rent and utilities is $500; she will only be eating on campus part of the time, so her monthly food budget is $200. She is on a payment plan with the bookstore for her textbooks, which is $150 per month, and her cell phone bill totals $80 per month. This leaves her with $314 for gas, clothing, toiletries, and entertainment; she will not be adding any money into her savings account. Beth will need to be very diligent with her budgeting and spending this year, or she will not make it financially. Another option would be to add a fourth roommate to help lower the cost of rent and utilities.

Dan is a college senior and has been on his own for four years now. He pays for his own car insurance and health insurance, instead of relying on his parents. He has decided to rent a house with four other guys for his senior year and has opted not to buy the campus meal plan. He works a lot during the summer, and has $14,000 saved and already has his textbooks paid for as he bought them the previous year from a friend. He will also be working part time waiting tables at the local restaurant, and estimates to bring in $1,000/monthly. Between his summer savings and his night job, he will make $2,555 per month. His living expenses (rent + utilities) will be $600/month, and his other monthly expenses include the following: $110 cell phone, $70 health insurance, $90 health insurance, and $350 food and household items. These bills total $1,220. He budgets to spend $500 monthly on leisure, gas, clothing, and extra items, bringing his monthly expenses to $1,720. If he sticks to this budget, he should be able to save $835 per month. At this rate, he could have $7,515 saved by the end of his senior year.

Simple Steps for Saving

According to recent article by Forbes , 63 percent of Americans don’t have enough money in their savings account to cover a $500 emergency. Although saving for retirement seems ages away, especially at the age of 20, starting and maintaining a savings account is important for anyone of any age because cars will break down, computers will crash, and accidents will happen. A savings account takes an emergency and turns into an inconvenience. Here are some simple tips to starting and maintaining a savings account:

  1. Set small goals
  • Start small by opening a savings account with $100, and slowly try to build up to $500. Make each little goal attainable. Beginning with a savings account of $200,000 for retirement is daunting and out of the question for most Americans, but saving $500 isn’t. Make this the first goal, and then work up to $1000. For most college students, a $1000 cushion is more than enough for unforeseen emergencies.

2. Add small amounts

  • Many people make the mistake of not adding to a savings account until they have a substantial amount to contribute. Money will not be saved like this. Instead, set up a direct monthly transfer of $25 that will immediately be put into savings. Increase this amount if the budget allows for it. Setting aside $100 a month for 10 months means $1000 in savings before the year ends. Every little bit counts, just keep plugging away, bit by bit.

3. Cut extra expenses…and add them to savings

  • Many people make the mistake of not adding to a savings account until they have a substantial amount to contribute. Money will not be saved like this. Instead, set up a direct monthly transfer of $25 that will immediately be put into savings. Increase this amount if the budget allows for it. Setting aside $100 a month for 10 months means $1000 in savings before the year ends. Every little bit counts, just keep plugging away, bit by bit.

4. Find other ways to be frugal

  • Instead of eating out and buying food at the store, use a meal plan and eat in the cafeteria. When grocery shopping, only buy what is necessary, perhaps on a list, and don’t spend extra money on impulse items. Buy used textbooks from the bookstore or Amazon, or find an older student who is willing to sell their books for a discounted price. Walk or ride a bike instead of driving places, or plan to carpool with friends. There are many ways to be frugal as a college student, and the mindful student will quickly build their savings account.

5. Don’t stop

  • Once the initial savings goal has been met, don’t stop! There will never be regret over a growing savings account. Continue to set goals, once the $1,000 mark has been reached, try for $1,500 or even $5,000. When college graduation comes, students with money in a savings account will be set up to relocate for a job, put money down on a first house, or buy a needed vehicle. Starting off financially ahead is one of the best decisions a student can make.

Advice from the Expert

The author of this article is biased and believes in and follows Dave Ramsey’s Financial Peace plan.

 Disclaimer! Quotes from Dave Ramsey

“If you will live like no one else, later you can live like no one else.”

“A budget is telling your money where to go instead of wondering where it went.”

“You must gain control over your money or the lack of it will forever control you.”

“Change is painful. Few people have the courage to seek out change. Most people won’t change until the pain of where they are exceeds the pain of change.”

“Without a mission statement, you may get to the top of the ladder and then realize it was leaning against the wrong building!”

“Winning at money is 80 percent behavior and 20 percent head knowledge. What to do isn’t the problem; doing it is. Most of us know what to do, but we just don’t do it. If I can control the guy in the mirror, I can be skinny and rich.”

“It is human nature to want it and want it now; it is also a sign of immaturity. Being willing to delay pleasure for a greater result is a sign of maturity.”

Although several of these baby steps don’t apply to every college student, the overall philosophy and method of saving is relevant to anyone who is looking to be financially responsible.

— David Ramsey

Dave Ramsey’s 7 Baby Steps:

  • 1. $1,000 to Start an Emergency Fund
  • 2. Pay Off All Debt Except the House
  • 3. 3 to 6 Months Expenses in Savings
  • 4. Invest 15% of Income for Retirement
  • 5. College Fund for Children
  • 6. Pay Off Mortgage
  • 7. Build Wealth and Give

Use Dave Ramsey’s budgeting tool, Every Dollar to create a monthly budget and track expenses.

Understanding Credit Cards

  • Warning! Beware of Credit Card Debt!
  • A 2016 Deal News survey suggests there is a correlation between credit card debt and student loan debt. Among respondents with student loan debt, 76 percent also carry a credit card balance.
  • The average monthly credit card balance of students who pay more than the minimum, but not the full balance, is $935, while the average balance of students who pay only the minimum is $1,635.
  • In 2015, 44 percent of Gen Xers and 39 percent of millennials had card debt.

Even though it is best to avoid credit card debt, credit cards can be a useful tool when used in the right way. Ideally, students will have a savings account in place for emergencies, but having a credit card as a backup can be helpful as well. Credit cards allow students to begin building their credit score, and having an established history of paying off a credit card each month reflects well financially on a student’s spending habits. It also helps to have a backup card in case something happens and a debit card no longer works. Students who are considering getting a credit card need to become familiar with some credit card basic terms before signing up:

  1. Student Credit Card
  • Almost the same as a regular credit card, student credit cards are offered by most credit card companies. They offer perks like low or no cost annual fees, lower interest rates, and point rewards while maintaining a smaller balance, insuring students don’t spend too much. Check out the Resources section below for some top-rated student credit cards.

2. APR

  • Annual Percentage Rate, or the yearly rate of interest on a credit card.

3. Balance Transfer

  • Transferring the balance owed on one credit card to another. This can be beneficial if the amount owed is too high to pay off, the balance can be moved to another card, usually accompanied by a fee.

4. Annual Fee

  • The amount of money paid annually to have that particular credit card.

5. Credit Score

  • A three digit number generated by a mathematical algorithm using information about a person’s credit history. It is used to predict risk and the likelihood that a person will meet their financial obligations.

6. Grace Period

  • The amount of time a person has to pay off their credit card before interest rates apply.

Visit the resource section below to find some of the best credit cards currently available to college students.

Resources

Tips and Advice:

Credit Cards:

Saving Money:

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