09/01/2006
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You made it out of your parents' house and you're finally on your own. Congratulations! But wait. While independence and no questions when you come home late are great, there is one thing you may miss in the adult world: your parents' money.
If you have gotten a job and are trying to support yourself while you're in school, you have some new challenges that take skills you may not have learned thus far. Even if you are still getting a monthly check from the folks, learning how to handle your money is important to your success in life, both in school and out.
Basic Money Management
So first things first: your budget. Before you roll your eyes and skip this section, keep something in mind. You will make your money go further if you manage it well. This means more financial freedom and fewer hassles. A budget really is not as complicated as it sounds. It's simply a list of your monthly expenses subtracted from your monthly income.
So if you get $500 from your folks and two paychecks totaling $1,000 each month, you have $1,500 to play with. Now subtract your rent, utilities, car payment, and any other regular bills. Also subtract money for groceries, entertainment, transportation, medical check-ups, and other miscellaneous expenses. You may have to start collecting receipts or use your online banking statements to see where exactly your money is going.
The difference between your monthly income and your monthly expenses is your monthly net income. If this number is greater than zero, then you're in good shape. If not, you either need to cut back on your expenses or find ways to earn some extra income.
In your budget, consider incorporating a small amount for savings. Many companies will automatically take out a percentage of your check and directly deposit it into a savings account for you. This is the best way to save money successfully because you will never see it. It just goes straight to a savings account. Slowly, even two to five percent of your checks will add up. You will be happy to have this when you want to go to Cancun for Spring Break or get your car out of impound.
Student Credit Card Offers
But what about all those student credit card offers you get at the bookstore and in the mail? There are definite advantages to having a student credit card and we will look at some of them below.
But first, keep in mind that sooner or later what you charge on that card is going to be paid for by the money in your checking account. You can put it off briefly, but you must realize that credit card interest can add up very quickly, much more quickly than any interest you can earn in a savings account.
Score Credit Points
When you apply for a student credit card, you immediately begin building your credit. It's hard to imagine at this point, but what you do with this card will either help you or haunt you for the rest of your life. Well, at least for the next seven years.
Your credit score helps to determine whether or not you get things like car loans, home loans, and other credit cards. It also determines the interest rate you receive for these types of loans. The more responsible you are with paying off your monthly credit card bills, the more that earns the trust of lenders.
A credit score is figured according to various aspects of your spending history. So it is vital that you start out right by paying your credit card bills on time and over the minimum amount due in order to score good credit points. If you do this consistently while you are in college, you can have a head start on good credit when you graduate.
Score Rewards Points
In addition, most student credit cards today offer rewards points for spending with your card. Most programs typically offer one point per dollar spent. You can redeem your points for merchandise, gift certificates, or cash. So using your credit card for things like groceries is a good way to earn a little back. Just be sure you pay the full amount when the bill comes due.
Student Credit Card Tips
A good rule of thumb is to never put on your card more than you have in your checking account. So if you have $200 in your checking account, use your credit card to pay for the things you want and pay off the balance in full when the bill comes in the mail. This will show that you have active credit history and great payment history.
If you run up a balance that is too high, you risk two things. First, you will accumulate a lot of money in interest payments. Some cards may charge more than 20% interest on past due amounts. So before you buy that shirt you want but don't have the cash for, add on twenty percent to the price and ask yourself if it's still worth it.
The second risk when running up a high balance is defaulting on the card. As your balance increases, so does your minimum payment. So if this minimum due becomes all you can afford to pay, you will continue to earn interest on the huge unpaid amount. Eventually, this amount will go over your credit limit even if you stop spending. This kind of mark on your credit report can really stand in your way to qualifying for credit in the future.
People who abuse their credit cards at an early age pay for it for years to come. Again, it may be hard for you to imagine, but consider what it would be like if you maxed out two credit cards in college and couldn't pay them off.
You would have creditors calling you at all hours. Your bank would not approve you when you want a car loan for that great new convertible. You would not be able to qualify for financing to buy your fiancée's engagement ring. You would not be able to qualify for a mortgage to buy your first house. And you might even be turned down for a job based on your credit.
So when it comes to managing your money while you are in college, caution is the name of the game. Save a little money each month, write out a budget and try to stick to it, and be smart using your student credit card. Then you can go crazy in Cancun.
Beth Derkowitz recommends Find Credit Cards for comparing student credit cards. Visit: http://www.findcreditcards.org/type/student.php for more information.
© 2006 Beth DerkowitzThe views and opinions expressed in these articles do not necessarily reflect those of College Central Network, Inc. or its affiliates. Reference to any company, organization, product, or service does not constitute endorsement by College Central Network, Inc., its affiliates or associated companies. The information provided is not intended to replace the advice or guidance of your legal, financial, or medical professional.