Congratulations on making it to college and doing all the work to get there! Now you are there, and college has opened your eyes to endless opportunities. It has also filled you with endless questions. What is this? What does that mean? Do I need to do this now? When will I need it in the future? How do I get it?
Here are some “money” things you should consider while in college:
- What is a Credit Score and how can I build one while in college?
- Should I get a credit card?
- When should I start investing and how do I invest?
- Should I have a savings account and how do I open one?
These are key things to work on now that will help set up your future and one day your family’s future. So, let’s look at these things.
What is a credit score and what makes it important? A credit score is a number assigned to an individual based on their credit history to represent their credit worthiness. Lenders will use this score to determine whether they will loan you money and possibly what kind of interest rate they will charge you. Without a credit score, it is incredibly tricky to get a mortgage loan, car loan, credit card, line of credit, etc. No matter how much money you have in the bank most lenders are going to look at your score and determine how much of a risk you are of not making your loan payments. A credit score is something you will want to establish before graduation.
The first step most people take to establish a credit score is to get a credit card. There are many ways to get started as a young adult in college compared to later in life. Most credit card companies have a credit card that is specific for college students. These cards are designed for students who have little to no experience with credit. They are easier to obtain as a student rather than traditional credit cards that usually have a credit score minimum. Things to look for when signing up for one will be what fees are required and what is the annual percentage rate (APR). These items can increase or decrease your cost if you don’t choose wisely. Now some cards provide you with perks like cash back or airline miles. These can be a plus for you, but make sure the cost does not negate the perks. Be sure to do your research when trying to find the one that best suits you.
The most important thing here is pay it off every month! Credit card can be a tool, but if used irresponsibly, it can be your greatest financial enemy to a good start.
To start off on a firm foundation, a good savings account will allow you the freedom to not worry about finances on a gloomy day. Many college students will work in college but forget to save for later. Saving for many seems like an impossible task especially if working part time or making minimum wage. Trust me, you are not alone in that thought. Many people have those thoughts, but do not let the difficulty prevent you from taking a significant step forward. Saving even just a small amount now can help you for the future. The significance of putting just one dollar from each paycheck can help you build the right habits for your future.
Set aside some time and create a budget. Write down what you make in a month and where you plan to spend it. Really pay attention to how much is coming and going. Without a spending plan, you won’t save. Set an amount, large or small, that you will put aside into your savings with the understanding that you are not going to touch it unless there is an emergency. Many research studies have shown that the habit of putting aside money even in the lean times can help you be successful and prepare you for possible difficult times (hopefully not) in the future.
You have a spending plan and are starting to accumulate savings. Now, you can think about investing. When it comes to investing, the sooner you start the better you are in terms of long-term gain. Time has a huge impact on total gains in a lifetime. Unless you LUCK upon a shooting star (a stock that shoots up overnight – they are rare) one dollar today will not be two, five, or ten dollars tomorrow. It takes time for companies to grow. It also takes time for money to grow if you are investing for interest returns (banks or institutions paying you a set rate for you lending them your money via a savings account or bond purchase). So, when you get to a point you feel you’re financially stable and have extra funds, consider putting it aside in an investment account. This can truly help you in the future with goals that you want to achieve or retire one day.
The main thing about college is it is a learning experience for education AND personal life as well. You are finding out what you want to do for the rest of your life while figuring out how to do it on your own. It is hard at times, it can be scary, but the prize at the end is so worth it if you truly immerse yourself and prepare yourself for what’s ahead. Talk to professors, deans, bankers that you trust, family members, etc. to get advice on how you can set up your personal finances for your future. One word of wisdom I was always given was to not wait for the opportunity to come to you but rather look at the opportunities you want to have and run towards them. Your success lies in your own hands, remember that as you travel through this great adventure called life.
*The information presented here is not specific to any individual’s personal circumstances. FMP Wealth Advisers is not providing investment, tax, legal, or retirement advice or recommendations in this article.
**To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
***These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.