If you’re a college-bound student, it’s time to start dealing with your money seriously and responsibly. Your future self will thank you!
- DO be thoughtful and strategic about student debt. The days when a lot of student debt made sense are over. Sure, you did your homework before selecting a college and a major, but it makes sense to continue reassessing whether the investment is worth it and to try to keep loans as low as possible. As with any debt, your goal with student loans is to only borrow what you are reasonably sure you will be able to comfortably pay back – ideally, within five years after graduation. Consider exploring scholarships or work student programs to keep your debt down.
- Once in college, DO understand where your money goes. You’ll be busy with classes and making new friends – you don’t want to fuss with your bank balance, I get it. But knowing where your money goes is the foundation of living within your means and avoiding unwanted debt. It will give you peace of mind, help you avoid unpleasant surprises, and empower you to adjust your spending to fit your priorities. And, fortunately, it’s now very easy to stay on top of your bank balance thanks to programs and apps like Quicken and Mint. Many banks and credit cards will also send notifications straight to your smartphone when your account is under a preset dollar amount or you have a bill due.
- DON’T open a credit card while you’re in college.
It’s dangerously easy to rack up debt when you’re carrying plastic, especially when you’re young and just learning to manage your money. To make matters worse, first-time credit cards tend to come with higher interest rates – that means carrying a balance can easily snowball into debt that takes years to pay off.
My advice: wait until you graduate and you have a steady paycheck before you open a credit card. A credit card should be associated with a job. If you are taking on debt, you need a way to repay that debt. (Tip: Want to use a credit card to start building a good credit history? Become an authorized user on an already-established credit card – like your parents’ card. You’ll be able to spend freely on the card, but you won’t be responsible for payments.)
- If you are a parent of a student heading off to college, my #1 piece of advice for you is: DO start putting yourself first financially. Believe it or not, right now, saving for your own retirement, not paying for your child to go to college, should be your top priority.For most parents, this advice is hard to hear, much less put into practice. In a recent SUM180 poll, for instance, we learned that saving for college is the #1 worry of people age 35 and up. 33% said paying for their kids’ college was their number one concern, compared to 22 percent who said paying off debt was the monkey on their back. It’s natural for a parent to want what’s best for his or her child, including trying to spare them the burden of student debt. But the fact is, supporting college-age children by picking up expenses like tuition, insurance, car payments, smartphone bills, etc., is a generosity that parents can ill-afford if they have not yet saved enough for retirement.The period between now and retirement is a window of opportunity you won’t get back, so until your retirement nest egg is squared away, make building your retirement assets your #1 priority. This includes paying down debt and trying to pay off your mortgage by the time you retire. Your future security and peace of mind depend on this. Think of it as putting the oxygen mask on your face first. It may feel counter-intuitive, but, after all, your security in retirement is something your children want for you, too.