Student Finances: Managing Your Money in College

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What do you think of when it comes to the subject of college and student finances? Many aspiring students are more inclined towards thinking about following their dreams through a college education, clearing a path to their future career, and enjoying the exciting college experience altogether. As much as all these things should be kept in mind, there is one crucial aspect that needs to be well addressed – managing your money. The financial decisions that you make in college will significantly influence your life following college. These effects of these decisions tend to stick around for years, or even your lifetime, which is why you need to make the best possible moves with your student finances today.

College Doesn’t Come Cheap

Over the years, college costs have only spiraled. Meanwhile, no-one is talking about the student finances. As the prices continue to soar, so does student debt. These tons of debt could easily reflect the type of life you will be living years from now, financially. What you owe institutions of higher learning today will determine whether you can buy a home, afford a flashy car, or even enjoy vacations around the world. Therefore, as a college student, you must adequately minimize your student debt as early as now to ease the financial strain that could be awaiting you once you are done with school. In recent years, a sizeable decline in first-time home buyers has been noted. Most first-time buyers are in the young adult bracket – people who just recently left college to venture out into the world. This general low is due to young workers having their personal accounts being pulled down by their high standing student debt accumulating from student loans. You have the chance to avert these heavy financial strains simply by getting your personal finances in check now.

Savings vs. Debt: An Example

It is without a doubt much easier to spend money rather than make and save it. Even so, what is the end effect? Take a look at these numbers: On the one hand, if you begin to save $100 every month at age 18, five years from now you will have saved $6,000, with the assumption that the money is not gaining any interest. On the other hand, if you charge $1000 on a credit card at the same age, you will still owe $652 in four years, assuming an 18% interest rate and $20 monthly payment. Evidently, saving is the better alternative of the two.

All About Your First Job

There is a sort of empowerment that comes with earning your first paycheck and all those that follow. When you start earning, specific financial responsibilities and expectations come with the pay. Managing your money well will help you cover your student loans gradually. There are various jobs you may come across such as part-time jobs or paid internships. You can also get involved in a work-study agreement that also helps with the loan payment. So, what are your rights and responsibilities as an employee?

Your Financial Rights

Here are some of the things you are entitled to as an employee:

There are extra benefits that an employer offers their workers. These vary from job to job and depend on the employer’s policies. Some benefits you may come across are like retirement benefits, health insurance, and even tuition assistance that will help you pay off your student loans.
Businesses are required by law to pay a portion of your Medicare and social security taxes.
Once you hit forty working hours in a week, you have the right to be paid at least time and a half for every additional hour. Although this is the federal requirement, some states impose their own laws on overtime pay.
Employees are prohibited by federal laws from discriminating against their workers on the basis of race, gender, age, or religion.
The federal minimum wage is $7.25 an hour or $2.13 an hour for tipped employees. This means that by law, you are entitled to earn at least that much- though some states do have higher minimum wages. Also, your employer cannot lower your pay in any form that would result in it being under the listed federal minimum. The exception is if you are doing an unpaid internship, which of course, is legal.

Your Financial Responsibilities

As much as you are entitled to certain perks of employment, you may also be obligated to pay some federal income taxes, like every other working citizen. Some states also impose additional state taxes which you may be required to pay, so you need to be fully aware of all taxes imposed on you. Here is a short guide: Once you are employed, your employer will notify the Internal Revenue Service (IRS) of your yearly income.

You will start by filling out a W-4 form which discloses to your employer the amount to withhold from your paycheck for taxes. Then, depending on if you are an independent contractor or an employee, you will receive either a 1099 form or a W-2 form showing your earnings from the year prior. You should note that if you are an employee, then part of your Medicare and social security taxes will be handled by your employer; however, independent contractors are solely responsible for paying all of their taxes.

Although the US tax code is complex, you may have a less complicated time doing your taxes if you are single, employed part-time at a low-paying job, and are generally in a simple financial situation. If it happens that your employer withheld more in taxes than you are required to pay, you will need to file a tax return to claim and be refunded the amount. There are many software packages that you can use to file returns yourself; you can otherwise hire a tax preparer or use your parents’ account.

Your 5-Item To-Do List

  • Fill a W-4 and keep your copy of it
  • Request for and thoroughly go through the employee handbook
  • Keep copies of W-2 or 1099 forms
  • Find out whether your parents claim you as a dependent
  • Find out whether you are required to file a tax return

Managing Your Money

Managing your student finances is not an easy task, but it is a necessary one which when done well is rewarding in the future. Financial planning is built on the basic concept of spending less than you make and saving as much as possible for the future. The percentage of young adults living with no emergency savings or retirement funds is astounding, and growing at a fast rate. It takes dedication to make finances work in favor of a debt-free future, which is what you are aiming for. This is why managing your money well to pay off student loans early in life is a necessity. When you are just getting into college, you can choose to leave your parents’ nest and fend for yourself or continue to depend on them and build your credit card debt. As much as the first choice will be difficult, it will also be worthwhile. Taking charge of your money as early as when you are still in college sets an essential foundation of financial responsibility for the future. Your sacrifices today will be rewarded years from now. Now, if you notice that you are running out of money halfway or even sooner than halfway through the semester, then you need to give your student finances a closer look. You may not notice it, but it’s the little things that you buy that add up to high expenses. For example, a weekly $8 movie ticket may sound like its no big deal, but in just a year it adds up to cost you over $400. Which is a lot of money, especially to a college student. You must be able to separate your needs from your wants, and while food is definitely a need, other things like a cell phone or a ticket to a movie can be done without. Monitoring your daily spending can help students like yourself identify between the two, and it can all be done on your phone or computer.

Your 5-Item To-Do List

Below are some things you can do to manage your money and student finances:

  • Create a bright line between your wants and needs. What you need is that which you cannot live without, such as food, health care and a place to live. Most of everything besides the mentioned three can be classified as “wants.” It is upon you to know the difference
  • Track your spending on a daily basis or as frequently as possible. With this, you can create a budget which keeps spending at a minimum
  • Pay your bills on time, preferably by enrolling in auto-pay so that you avoid incurring late fees

Should you get a credit card?

At the moment, when you are a student, getting a credit card may not be the smartest move. A credit card usually works best for a person who has a steady income and money in the bank. It is an excellent tool for building your credit score, which will become relevant to you probably more than five years from now. A credit card while in college could be the start of a severe spending binge, primarily when it’s not managed correctly. If it is your first time having a credit card, you could face a massive dent in your student finances. Money borrowed on a credit card needs to be paid back on a monthly basis which if not adhered to leads to late fees and increased debt, and additionally a terrible credit score. With interest rates on credit cards as high as 24%, a percentage higher than that on most student loans, you may want to hold off on credit card borrowing for now. Using cash to pay for large purchases makes you really see how much you are spending.

Your 5-Item To-Do List

Are you considering getting a credit card? Before doing that, go through these five steps:

  • Find out why you want a credit card. Do you really need it?
  • If you do need it, choose the most pocket-friendly one – a card that does not charge an annual fee and has low-income rates
  • Make sure that you read between the line of the terms and conditions of using the card before using it. Keep a close eye on things like interest rates and lateness fees
  • Take note of the due date on the credit card on your calendar. You can even set up an auto-pay system
  • Ensure that you have a clear and realistic plan on how to pay back the borrowed amount in due time every month

Save and Invest

You are a young adult, just venturing into the world of earning. This is accompanied by the need to save and invest in opportunities that will mature well in the future. As a young investor, you have the advantage of TIME. Compound interest works in your favor because any amount you invest is guaranteed to grow substantially. Let’s say you invest $100 every month, which has a 5% return every year. If you begin the investment at age 18, by age 40, you will have made $47,548. If you start saving at age 30, by age 40, you will have made $15,599, less than a third of what you would have made starting at age 18. Impressive, isn’t it? Although there is no pressure to start saving and investing this early in life, it wouldn’t hurt to try. Whenever your personal expenses are not soaring, for instance during the summer, you should bank your earnings. If you make any loan proceeds or scholarships, tuck them away in the back too! Regardless of how little it is, any investment at the bank counts and will help you build your emergency funds and even assist with paying back your student loans in good time.

How to Save

Here is a simple guide to get you started on saving some bucks for the future:

Work with a budget. Determine what amount you can spend every month or week
Build your emergency fund. You need to have a rainy day fund in case of unexpected financial emergencies
Record our spending and keep it in check. Once you have a budget, monitor your daily spending habits to ensure they are on track with the budget
Cut your transportation costs. A used car is cheaper than a new one
Don’t go for full-priced tuition materials. Get used books or cost share with a friend
Make the most out of school resources. Make use of computer labs, fitness facilities and other resources that you would otherwise need to pay for

Understanding Student loans

Sometimes, student finances become overwhelming, and you are inclined towards borrowing a student loan to cover the hefty costs of studying. Well, a study done in 2016 shows that 60% of college students who did just that- graduated with their debt too. Which left the average 2016 graduate with over $37,000 in student loans. So as much as you might think student loans are a good option, managing your money wisely is what determines the true worth of the borrowed money. Before you begin to spend your student loan, you need to remember that you must repay your debt immediately after you graduate from college. This is why keeping a close eye on your student finances is paramount. Before despite their easy availability, student loans should be your last resort, after trying out options like college grants, scholarships, and work-study programs. These three options do not require you to pay back the money; they are not loans, unlike student loans. If college grants and scholarships do not come through for you, then start off with federal student loans instead of private loans since federal loans offer better forgiveness provisions and have lower interest rates.

You Need Insurance

Insurance is a must-have for you. The law requires you to have auto insurance. Auto insurance companies tend to set their premiums’ rates highly for college students because they assume you are riskier compared to older adults. You can search for an affordable deal or use your parents’ policy for cheaper offers. Try to maintain a B average to be considered for the good-student discounts. Health insurance is crucial for you because medical care does not come cheap. If you are studying in a different state from that which your parents live, find out whether your health insurer can extend their services to you while you are in school. If your parents’ insurance carrier is not accessible to you in school, you can opt for student health plans which have affordable premiums but are not as high as private carriers.

Your 5-Item To-Do List

Here is a simple guide to becoming an insured college student:

  • Find the most affordable auto insurance for your car
  • Try to keep up a B average in school to get reduced  premium rates
  • Find out whether your parents’ insurance cover is the best option for you
  • Find out whether you can use your parents’ health insurance in your school area
  • Look into student health plans and determine if they are right for you

Learn to manage your money; don’t regret it later

As a college student, you need to take student finances seriously to ensure you do not suffer from student loan debt and its implication in the future. The highlights that you should keep in mind throughout college are:

Learn to be financially disciplined

You must learn to spend wisely and solely on what you need, not want. Only when you understand how to prioritize your needs will you master the art of affordable living.

With financial responsibility comes financial independence

When you get a grip on budgeting adequately, you won’t have to call on your parents’ for allowances halfway through the semester. This gives you a sense of independence.

Borrow only when you have to

As you borrow, remember you will need to pay back all student loans after graduation. Before opting for borrowing, try other solutions like scholarships, student grants, and work-study arrangements which do not leave you in debt.

Plan for the future

College will not last very long; it is merely a bridge to your future life and career. Ensure you make financial decisions that favor a bright future.

Continue your strong financial discipline

After graduating from college, you’ll usually receive a higher income. Do not begin the cycle of spending more, because you are making more. Keep managing your money just a strictly.

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