Money 101: A Financial Education for College Students

Are you in college or headed there soon? You likely consider yourself a well-read, highly-educated person. But how's your financial literacy?

If you don't know the first thing about getting your money straight, don't wait until after graduation to figure things out. Investing in your financial education (and the right money management skills) now could help set you up for long-term success. Money 101 is a prerequisite course for meeting and exceeding your financial goals — so enroll now.

Manage Your Student Loans & Avoid Too Much Debt

As a current or future college student, chances are you have student loans or will need them someday. However, there are still things you could do to help set yourself up for financial success.

One strategy is to avoid accepting more financial aid than you actually need. The less debt you have coming out of college, the more manageable your finances will be in the real world. And the less debt you have, the easier it may be to strike out on your own after graduation.

It could also be helpful to consider subsidized student loans, which means the loans will be free from interest as long as you're enrolled as a student.¹ Unsubsidized loans start accruing interest the moment you borrow them — and can cost you far more in interest.

Nurture Your Credit Score

If you have student loans, you also have a credit history and a credit score. That score is crucial if you want other types of financing in the future, such as a car loan or a mortgage. Lenders use your score as one measure of your creditworthiness.

The lower the credit score, the more likely it is that the lender will view you as a risky borrower. While they may lend you what you asked to borrow, it could come at a cost — in the form of a higher interest rate. That interest rate is what costs you money on your debt since it's the fee you pay for the financing.

The higher your credit score, the more likely it is that you'll get a favorable interest rate for your loan. A reasonable interest rate could save you tens of thousands of dollars when it comes to big purchases like your first home.

You could nurture your credit score by practicing the following tips:

• Make any student loan or credit card payments on time and in full.
• If you have credit cards, don't max them out — even if you pay off the balance before it's due! This strategy helps you keep your credit utilization rate low.
• Avoid opening and closing lots of credit accounts within a short period. Frequent account additions or changes could signal to lenders that you struggle to manage money — and your score could drop as a result.

Set Financial Goals

Knowing how to manage your money is important, but you probably won't feel motivated to stay on track if you don't understand why you're working so hard in the first place. That's where financial goals come into play. Setting financial goals could help you think long-term and do what you need to start building a nice financial cushion for the future.

Consider what's most important to you: What do you want your life to look like in the future? What financial means do you need to create that? What big purchases might you want to make in the future? What significant changes or transitions — such as getting married or starting a business — are in the cards for you?

Think about how you can set goals that are important to you — and not just things other people say you should want. It's your money, and the possibilities are endless when it comes to setting your objectives.

But you'll need to be clear on what you value and what motivates you to achieve these goals. Consider taking these aspirations and turning them into "SMART" goals, which are objectives that are:

• Specific
• Measurable
• Actionable
• Realistic
• Time-bound

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 achieve the financial goals you set. And it's not a big, scary undertaking to have and keep a budget. It can be something that's simple and can help you stay on track to get what you want.

The following questions could help you establish the foundation for your budget:

• How much money is deposited into your checking account every month?
• How much of that money do you spend?
• What are your necessary expenses? (These are things you must pay for, such as food, room and board.)
• What your discretionary expenses? (These are things you want to spend money on, such as going to the movies or out to dinner with friends.)

Don't spend more than the amount of money you have on a monthly basis. If you do overspend, think about how you can dial back your spending on discretionary expenses. If you spend every dollar that comes into your account, you won't have anything left to save. Write down your necessary expenses and find places to cut back on your discretionary expenses, which could help you allocate funds for your short- and long-term financial goals.

The Bottom Line

These basics can help you get started, but think about how you can keep building on your financial education. Knowledge is power, and that's true when it comes to financial knowledge too! The more you understand, the better the decisions you can make — and the more successful you can become at managing your money.

Sources

1. Subsidized and Unsubsidized Loans. https://studentaid.gov/understand-aid/types/loans/subsidized-unsubsidized.