College is about more than just getting a degree. It’s also when you should be learning the skills you need to survive and thrive as an adult, including personal finance skills. Start practicing your personal finance skills while you’re still in college so you’ll have them mastered by the time you begin your professional life.
You may be a student working part time or not at all, but that doesn’t mean you can’t start developing your personal finance skills. Learn to create and stick to a realistic but reasonable budget, learn how to make financial goals and how to attain them, and learn how to manage your debt. It’s never too early to start saving, either. Even though retirement may seem far off, there’s still the possibility that an expensive emergency could break your bank account. Your parents may still claim you as a dependent on their taxes, but you’ll soon need to file your own taxes — learn how to do it now.
Make and Keep a Budget
Budgeting is one of the hardest — and most essential — personal finance skills. The object of a budget is to make sure you don’t spend more than what you earn. Ideally, you want to spend less than what you earn, leaving some extra to go toward your emergency fund, long-term financial goals and retirement savings.
The first step toward making a budget is to form a picture of your expenses. Be realistic — budget for your entertainment, grooming and clothing costs in addition to your rent, utilities, school, food and transportation costs. You should also leave yourself a little spending money.
Track your spending for a month before creating your budget. This will give you an idea of how much you need to cover your basic expenses. It could also shed light on areas where you may need to cut back.
Set and Achieve Financial Goals
Financial goals are an important part of personal finance. They’re what help you save the money to take that semester abroad or buy a car.
When you set a financial goal, make sure it’s specific and attainable. If your goal is to buy a car, decide how much money you’ll be able to spend. Choose an amount you can realistically earn in a relatively brief period of time by setting aside a little extra money from each paycheck. Factor this savings plan into your budget.
Manage Your Debt
Chances are good you’ll graduate from college with some student loan debt. You’ll also need to take out loans throughout your life for major purchases, like cars and houses.
Manage your debt while you’re still in college by minimizing the amount you borrow — don’t borrow more than you absolutely need for school and living expenses. Take it easy on the credit cards — while using credit cards responsibly can help you build a good credit score, always pay off your balance in full each month to avoid high interest charges and always pay on time to avoid substantial late fees.
Don’t rely on your credit cards as an emergency fund. You should have emergency savings in your budget anyway.
When you finish college, concentrate on paying your debt off as fast as you can. Borrow as little money as you need to cover necessities like a car or house.
Always Try to Save
As a college student or new graduate, retirement may seem far off. However, it’s never too early to start saving for your twilight years. You’ll also want to set aside a little money each month for emergencies and for any future financial goals.
It’s OK to prioritize important goals like buying a house over saving for retirement, but begin saving for retirement by your mid-30s at the latest. Keep your saved funds accessible enough that you can get to them if you need them, but not so accessible that you’ll spend them on a whim.
Learn to File Your Taxes
While you’re a student, your parents will either claim you as a dependent or file your taxes for you. Prepare yourself for the day when you’ll need to file your taxes.
You can file your taxes for free online through IRS.gov. If you make less than $57,000 per year, you can use free filing software that will walk you through every step of the process. If you make less than $51,000 per year, you’ll also qualify for free tax help through the IRS Volunteer Income Tax Assistance Program.
Work on your personal finance skills while you’re still in college so you’ll have the habits and skills you need to succeed financially when you’re on your own. Even if you’re only working part time or depending financially on your parents, you can still use what money you have to practice your budgeting, saving, debt reduction and other skills.
About the Author: Contributing blogger Michael Der lives in California with his wife and daughters. He works for www.mybookbuyer.com. You can meet the team online as well as find out what your old textbooks are worth!