Waking up at 9:30am for 8am finals and subsisting on a diet of Poptarts aren’t the only questionable things students do in college. Overusing credit cards and mismanaging their budget often lands new graduates with thousands in debt to go with their cap and diploma.
The Class of 2011 will graduate into a shaky job market and a rising cost of living, often saddled with upwards of $22,000 of student loans. While many college students stumble on financial mistakes, our early financial actions are the ones that set up our financial future, influences the financial products available to us, and determines the amount of debt we’ll be paying off for years, or even decades, to come.
In addition to polishing up their resume and looking for their first apartment, new college graduates should focus on how to graduate into mature money management skills. Here’s some of the common financial mistakes college students make, and how to start fixing them.
1) Haphazardly paying bills. It’s can be hard to squeeze in due dates for credit cards, utility, and phone bills into a schedule packed with classes, term papers, and finals. But paying even one credit card bill late will result in a $35 late fee and could hurt your credit score as much as 40 points.
Fix: Paying bills on time is one of the most important financial habits to solidify. Good payment habits will benefit your credit score, avoids unnecessary late fees, and keeps debt from ruining your credit score. Set up calendar reminders or email and text alerts to ensure you pay your bills on-time, every time. As you grow older, your financial portfolio will grow, so it’s important to lock down great payment habits now.
2) Forgetting to save. College student often forget to save money, even the smallest financial cushion. Students, already on shoestring budgets, often feel it’s unaffordable or that they can start when they are older.
Fix: Having a financial safety net helps when you hit financial snags, need to get on your feet post-grad, or start paying back student loans. Putting just $20 a month towards a savings account is a way to get into the habit of putting a little aside for your future. Automatically deposit into your savings account in the beginning of the month, so you won’t be tempted to spend. If that stretches your budget too thin, check out a tool like Piggymojo, a mobile tool that helps you curb small purchases (like a latte) and put it towards savings instead. These small financial tradeoffs are do-able, and your future self will thank you.
3) Misusing credit cards. Getting your first credit card in college is a great credit-building tool, but can land you in credit trouble too. With the mentality that credit cards were for impulse buys and nights on the town, many end up graduating with hundreds or thousands in credit card debt. These debt payments become a financial burden that restricts cash flow, especially as graduates take on more living expenses like rent and a car loan.
Fix: Credit cards aren’t for paying for what you can’t afford right now. Start paying debt off faster and save on interest charges by paying more than the minimum payment every month. The best way to build credit is to keep a credit card active by putting a few affordable purchases, and paying it off in full and on time every month.
4) Not setting up a budget. Learning how to budget is a financial task even adults struggle with; it’s how we end up living beyond our means and digging ourselves into debt. Many college graduates find that as they take on more fixed payments'”like rent, student loans, and car costs'”as part of living independently, they’re ill-equipped to learn how to juggle these costs and support a lifestyle they expect as young adults.
Fix: Setting up a budget at an early age gives you reasonable spending boundaries that can grow with your income. Try a money management tool like Mint, which pulls your financial accounts to automatically set up a budget and visualize where your money is going. If you find yourself putting purchases on credit cards or constantly short on cash, it’s a red flag that you are living beyond your means. Look at your budget picture and start cutting down on expenses that add up to a big hole in your wallet'”like cab rides, watching movies every weekend, or eating out with friends.
Looking at past mistakes is one of the ways we learn to do things differently the second time around. For college graduates, the Real World will contain a lot more financial choices and difficulties'”as well as opportunities'”that they’ll learn to manage.
Develop a healthy financial attitude in college, and you’ll navigate the Real World with the kind of personal finance know-how that is as valuable as any degree.