How Can I Save While I'm Still in College?

As a college student--or someone just about to start college--you have a lot on your plate. Between worrying about lectures, exams, extracurricular activities, and employment, it's easy to push financial responsibilities to the back burner until after you graduate into the "real world." However, knowing the basics of money management now can make a huge difference to your standard of living--not only now but potentially for years to come.

Here are some savings and personal finance basics every college student (or rising college student) should know.

Financing College Costs

2 + 2 = savings. Don't finalize any decision about what school to attend until you've got a feel for how much financial aid you're likely to get. If you score a nice chunk of grant or scholarship money, even high-end schools might become affordable. However, if it looks like you can't afford your dream school, consider the 2 + 2 approach. This means that you spend two years at a low-cost community college and then transfer to complete your four-year degree at the school you really want to attend. This way, you get the name-brand school on your resume, but only have to pay the higher price for two rather than four years. Just be sure to check on your dream school's policy about recognizing credits and admitting transfers before you pursue this option.

Prioritize your financial aid. Prioritizing the college financing you use from the least to the most expensive forms of aid could save you thousands of dollars. You probably know that the best form of aid is grants and scholarships, because they do not have to be paid back--they are simply applied to your tuition bill at a qualifying school. Many grants and scholarships are available to those who are already enrolled, so keep applying even after you begin your program.

If, like many students, you've applied for grants but still need to take out loans to cover tuition and expenses, look first to government-backed loans. Government-backed loans such as Stafford loans generally will have lower interest rates than other bank loans. To apply for these, fill out a federal student aid form at the US Department of Education's Web site, www.fafsa.ed.gov. Non-government student loans should be a last resort because they have the highest interest rates.

Track your debt total. Most college loans don't require repayment while you are still in school and may give you a grace period after graduation as well. However, this doesn't mean that you should ignore the build-up of college debt until you graduate. Keep track of your total debt burden, and use an online calculator to determine what your total monthly payments will be on that debt. Ask yourself if you can make those monthly payments on a normal starting salary in your field. Except in really extreme cases, student loans won't be discharged even if you declare bankruptcy.

Banking Basics: Savings Accounts and Checking Accounts

Choose bank accounts that are right for your needs. If you haven't already, you should open bank accounts in your name. Each bank will have different fancy names for accounts, but the basic types boil down to these two: savings accounts and checking accounts.

Because savings accounts generally offer higher interest rates than checking accounts, use a checking account just for your short-term spending needs and put the rest of your money in a savings account. (For example, when you get a lump-sum "refund" in your student account after your loans cover your tuition, put most of that money in a savings account for the semester.) Focus primarily on monthly fees when choosing checking accounts and on interest rates when choosing savings accounts. Some banks may have special free checking accounts for students.

Access to your money is also important. If you are going away for college, choose a bank that has ATMs near your school. Otherwise, you'll likely incur charges for using another bank's machines. If you go with an online checking account, you should also check that area ATMs are in that internet bank's network.

Using Credit Responsibly

Don't run up credit card debt. Using a credit card might seem like the perfect solution when you are short on cash. It's not. Credit card debt is very expensive and can become a bad habit. Be smarter about this than your parents' generation. Years of easily available credit led to steadily rising household debt burdens that many people cannot escape. Taking on too much debt now can have a real effect on your ability to buy a car, buy a home, or even rent a home later in life. Take a pay-as-you-go approach so you don't end up working for years as a slave to your credit card debt.

Be selective about credit card offers. The above is not to say that you shouldn't have a credit card or two. They can be useful for emergencies and help you establish a credit history. Choose cards with low or no annual fees and that charge the lowest interest rates you can find. Don't be seduced by a free t-shirt or other gimmick if the card is not the right one.

Make payments on time. Whether it is credit card bills, student loans, or car payments, be sure to pay what you owe on time. You don't want to get your credit history off on the wrong foot--it's a vicious cycle that will just make obtaining credit more difficult and more expensive in the future.

Other Tips for Good Money Management

Work all you can in the summers. There are basically two ways to increase your savings with certainty: spend less, or earn more. For many college students, working in the summers to help finance education is not really an option. Even if it is optional for you, consider these arguments for working summers or part-time during the year:

  • It helps build up your savings account for the school year ahead.
  • It reminds you how hard it is to come by spending money, which makes financial discipline easier.
  • It builds your resume for that full-time job search ahead.

Create a monthly budget. If you do work a summer job, you may find your savings account builds up nicely in the summer but can quickly be drawn down once the next semester starts. This is why you need to budget. List all your expenses through the year, then match your savings and income against those needs. If your income and savings are less than your projected expenses, prioritize the really necessary expenses (books, tuition) and cut out those (cable TV, spring break trip) you can't afford. Stick to that spending plan through the year.

Protect your personal information. Living in a communal environment like a college dorm often means that there are no secrets, but make every effort to keep financial information confidential--especially your social security number and any bank account or credit card numbers. If you're using public or shared computers on campus, log out of your profile.

Good money management is a process, and the truth is you never stop learning about finance and investments. However, the more you challenge yourself to read a little about the topic and take financial literacy and saving seriously, the less expensive those lessons about money are likely to be down the road.

This Guide to Money answer includes the topics: Save, How to save.

Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.

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