Student loans receive a lot of attention, and rightfully so, but college students have many other important money matters to consider. As you start a new school year (or help your student navigate it as a parent), here are some financial to-dos.
Have a question about personal finance? E-mail me at ted.rossman@bankrate.com and I’d be happy to help.
Build credit
Your credit score is one of the most important numbers in your financial life. It’s a key factor in whether you’re approved for loans and lines of credit, along with the interest rates you’ll pay.
It has become more challenging to establish credit in recent years. For example, starting in 2010, the minimum age to obtain a credit card in your own name rose to 21 (although you can qualify starting at 18 if you’re able to show sufficient income). Experian says 28 million Americans are credit invisible and another 21 million can’t be scored because they have too little information in their credit files. Collectively, that’s about one in five U.S. adults (many of whom are young adults).
A good way to jumpstart your credit history is to get on a parent’s credit card as an authorized user. You could also apply for a credit card in your own name, perhaps a starter card such as a secured credit card or a student credit card.
You could also sign up for alternative credit monitoring programs such as Experian Boost and eCredable Lift which incorporate certain utilities, streaming services and cell phone plans into your credit reports.
A strong credit score will serve you well throughout your life. Even if you’re not in the market for a loan or line of credit right now, it pays to start early.
Invest
Investing is the ultimate example of how an early start can lead to long-term benefits.
Consider this
The biggest advantage that young investors have is time. As Albert Einstein put it, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.”
If you wait to invest that $1,000 until you’re 40, It will only be worth about $6,700 by the time you’re 60. With an average annual return of 10 percent, your money doubles roughly every seven years. The more doubling periods you have, the better. And you can really gain momentum over time, like a snowball rolling downhill. That last doubling period or two makes a huge difference.
Just like how a penny doubles every day to become over $5 million in 30 days, starting small with investing can lead to significant growth over time. Setting aside even a small amount of money from a part-time job or graduation funds can make a big difference in the long run. Adding to your investments periodically can further boost your returns and set you up for financial success.
Select the best bank accounts
Bank fees can quickly erode your balance, so it’s important to choose the right accounts. Overdraft fees and ATM transaction costs can add up, especially for young people who may not use cash frequently. Consider opening a separate account if your home bank doesn’t have ATMs in your college town. Many checking accounts charge monthly service fees, but these can often be avoided by meeting certain requirements. It’s essential to have a traditional bank account for FDIC insurance and comprehensive services.
Practice smart spending
Living below your means is key to a strong financial strategy. As your income grows, so will your expenses, making it crucial to develop good spending habits early on. Saving and investing for the future is important, especially as the responsibility for retirement planning falls more on individuals. Balancing fun expenses with short-term savings and long-term investments is vital for financial stability.
Explore side hustles
Many adults, especially Gen Zers, have a side hustle to supplement their income. Side hustles can provide extra money for discretionary spending, help avoid credit card debt, and build valuable skills. While student loans may still be necessary for college tuition, having a side hustle can reduce financial strain and fund additional expenses. Additionally, side hustles can open up opportunities for future career growth.
The key takeaway
As a college student, it’s important to prioritize your finances alongside your academic responsibilities. Taking these proactive steps can lay a solid foundation for your financial future.