Tips to achieving lifelong successful financial outcomes
Choosing to continue your education is the first step towards accomplishing your career and personal goals, but there are challenges. Perhaps this is the first time you are on your own managing your personal finances and you have many questions as to where to get started. However, getting financial education and appropriate tools now will assist you in creating good habits and achieving lifelong successful financial outcomes.
I believe that financial education is not an elective in life. Here are my tips that college students should know before graduating.
- Get to know your money personality, that is, what are your money attitudes and your money habits. Are you a saver or a spender? Do you worry about money or do you refuse to think about it? How do your emotions control your money? A person’s life experiences affect how they handle money, the attitudes they have towards money, the decisions they make, their values, and their willingness to risk in money matters.
- Set financial goals. A goal is something specific you intend to work towards. Goals should be ambitious and realistically fit into your current situation. For example, you have a goal to finish your education. To do this, make a plan. Write down how many semesters you have left, add up the costs (cost per credit hours, fees and living expenses), and where the money will come from (complete FAFSA on time, apply for scholarships, work part-time, assistance from family). After college, make a plan to repay educational debt, set a plan to start saving for a home and for your future children’s education (such as a college savings account).
- Get organized. Find the best financial institution for you (convenient, helpful, low or no fees, low minimum balances, overdraft protection). Set up files for your savings and checking accounts, for bills, receipts and warranties, tax records, renter’s policies, car and health insurance, college records, health records, birth certificate, Social Security card, and financial aid applications. The better organized you are, the more on-top of things you will be and the more money you will save.
- Create a spending plan by setting a budget. I cannot emphasize enough how important this is! This tells you how much money you have coming in every month, where you must spend it and where you can find money to save. You won’t save unless you have a place to put it, so use your savings account for saving only. Your checking account is for money going in and for paying your bills. Anything extra, goes into saving. You will spend it, but it will be a more thoughtful spending that matches your goals. Your savings needs to have money in it for your non-monthly expenses. For example, if you have a car, your savings will need to have enough money for quarterly oil changes, emissions and safety inspections, car repairs and new tires. If you don’t have this savings, you are likely to put these expenses on a credit card without a plan to pay these expenses off. At my credit union, I have five savings accounts for my non-monthly expenses. They are for car repair, home repair & taxes, friends & family (gifts, etc), travel, and emergency. Students will need a savings for school expenses and should deposit loan and scholarship money into this account, only taking money out as needed.
- Build good credit. Having good credit will allow you to make large purchases, such
as for a car or a home and to, perhaps, start a business. Follow these five steps:
- Pay your bills on time. This payment history makes up 1/3 of your credit score.
- Keep amounts owed low. Divide your debt on revolving credit lines by the amount of revolving credit available to you. Try to keep this ratio below 25%. This makes up another 1/3 of your credit score.
- Start early as 15% of your credit score is based on length of credit history. Parents with good credit can help their students by adding their children’s names on their credit cards.
- Every so often, it is OK to open a new line of credit as credit reporting companies like to see how you handle new credit. This comprises 10% of your score. But too many inquiries for credit in a short period of time can hurt your score.
- Having credit cards and installment loans with good credit history will raise your score. This is the final 10% of building a good credit score.
- Avoid credit card pushers and pre-approved credit offers. Put on your consumer-savvy hat and find the best credit card for you. What is “the best?” Depends on how you will use it. To start creating credit, look to your financial institution for your first card. It will have a low limit and low interest rate as you are learning how to use credit responsibly. Rewards cards are appealing, but use these only when you are a good budgeter and saver so that you can pay the card’s balance off each month as rewards cards have a high interest rate.
- Protect your personal information by knowing how to avoid identify theft and fraud. Keep important papers in a safe place. Review your credit card and bank statements often for unauthorized use. Don’t give anyone your Social Security, credit card, or bank account numbers unless you know the individual or the organization. Don’t use a debit card for online purchases. Shred important papers before putting them in the trash or recycle bin. If you are a victim of identity theft, know how to report the crime.
- Learn the basics of investing and retirement plans. This will prepare you for your first job out of school and allow you to understand how to retire comfortably. Learn the difference between saving and investing. Learn the power of compounding interest. Learn how to fill out a W4 withholding form. Learn the different investing options, such as stocks, bonds, and mutual funds. Know about different retirement options, such as pensions, 401s, IRAs and how they work. If a college student is working, has an emergency savings, a budget and their financial affairs in order, they can start an IRA. Little bits of money today will mean a lot of money in the future!
- Learn to become a savvy consumer. This will assist you with a life-time of making good financial decisions. As consumers, we are susceptible to being taken advantage of. Understand your student loan obligation by carefully reviewing the contract. Watch out for scholarship scams as legitimate scholarships never charge fees. Stay away from non-traditional banking services such as pay-day lenders. Lastly, know where to get help when you are in trouble.