Student Finances: 5 Critical Things You Must Learn Before Graduation
Student finances can be challenging to control, especially when you’re amassing record student loan numbers with no guarantee of a fair job market or source of income once you graduate. No doubt it’s tough out there, but you can give yourself some advantages as long as you do some planning ahead.
In the following article, we’ll be discussing the five critical things you must learn about your financial situation before stepping out into the so-called “real world.” While five doesn’t seem like much, there’s quite a bit to unpack here. The faster you learn, the better off you’ll be. Now let’s get started because there isn’t a moment to waste.
1. How to Make Money
As a student, people tell you not to worry so much about making money. Education comes first, they say. That’s not wrong, but it sort of underestimates what you’re capable of accomplishing. Advances in technology and student adoption of it has made it easier to pick up some extra cash. Here are the areas where you should focus your efforts for generating revenue as you go to school.
Take your pick. Don’t expect anything that pays too great, but if you live in a high minimum-wage area, it can be a great idea to get on somewhere flipping burgers or selling clothes and hardware items. You might consider delivering furniture. One college student got a job transporting dead bodies for a local funeral home. Morbid, yes, but we include it here just to show you that there are a variety of ways to earn money through part-time employment if you’re looking outside the box.
One easy way to generate extra income is to get a job on campus as part of the work-study program. To qualify for work-study programs, you might have to keep a certain grade-point average or work within your specific field of study. The key is to check with your student financial aid office to see what is available. From there, start applying.
Side hustles take creativity, but they can be some of the most fun ways to earn extra dollars. That’s mainly because you can do something more akin to your interests, and it might even be the start of a viable business idea. Something that could take care of you not only after college but also during it in a way that goes well beyond minimum wage.
There are even plenty of stories of students who quit college to pursue their entrepreneurial endeavors full-time. We wouldn’t recommend doing that without a great deal of discernment and proven success, though.
2. How to Manage Debt
Between rogue credit card offers and a lack of financial literacy courses leading into college, your freshman year can be a time that sets you up for failure. Debt management is critical to not hindering your future financials. To handle this all-important aspect of your life, it’s important that you keep the following three areas in mind at all times.
Knowing Your Expenses
Expenses and bills are two different things. Expenses are what you require to live on in the present. Think food, clothing, and shelter. Most students don’t have to worry about paying for their student loans right away, so that qualifies more as a bill (or debt) that you will pay when you get out of college. You also may want to “price in” spending money to your expenses, but be careful not to go too lavish with it. To really get a handle on what your expenses are and what to do about them, you’ll want to pay special attention to the next section.
And How to Budget
Budgeting is where you sit down with pen-and-paper (or app, if you prefer) and list out every single category that grabs a piece of your revenue each month. We recommend monthly budgets because so much can change about your financial situation in a short amount of time. What you’re spending on right now may not be what you’re spending on six months from now.
It doesn’t hurt to have a yearly projection, just don’t let it be set in stone. This will force you to keep a closer watch on the inflow and outflow of your money each week (or even day). Learning how to put your finances under such a microscope will give you the chance to appreciate time and opportunity costs as well as the face-value.
While Avoiding Debt
The way credit card companies come at 18- and 19-year-olds with offers is nothing short of criminal. They are skilled in the art of making you not want to say no, and they are familiar with your demographic’s inexperience with handling financial matters on your own for the first time.
As a result, they’re able to come in and sell you a bill of goods that can lead to poor spending habits and way more debt than you need to have much earlier than you need to have it. If you can control your spending, keep up with your expenses, earn money, and budget, then you will never have the need for a credit card. At least, not this early.
3. How to Invest
Investing might seem more like an activity for Wall Street stuffed-shirts, but apps like Acorns have made it easier to get in the game at a young age. And you really should be in the game. After all, it’s the number one way that people build wealth and move up in economic class. Always has been, always will be. To do it wisely and effectively, though, you’ll need to hone in on three key areas.
Individual stocks can be fun to buy and a source of pride. They’re more volatile, than trading a mutual fund. But if you study the one-, five-, and 10-year returns and also keep up to date on quarterly earnings reports, you’ll be able to avoid a lot of the risky purchases known to wipe out portfolios. Just make sure you research each stock and don’t buy based on emotions or how you feel about a product. A great product can make for a lousy stock if the company is poorly managed.
Mutual funds are put together by financial experts who take an assortment of stocks, bonds, and other financial instruments to mitigate volatility and produce more consistent, less-volatile returns. Study mutual funds in the same way that you would an individual stock. By all means, check what they’re invested in, but focus more on the performance of the mutual fund as a whole. So long as you do this, you can make some smart buys that yield anywhere from 5-10 percent per year versus 0.5 percent a year in a bank.
We’ve already mentioned one such round-up account (Acorns). These are great for college students because you simply link them up to your debit card, and each usage results in a deposit to a mutual fund of your choice. You can pick either conservative funds or those with higher volatility. While this could result in bigger returns, it also could produce steeper losses. The best part of it is that it’s easy to invest painlessly. You don’t really even realize you’re doing it, but over time, it can build up a nice nest egg.
4. How and When to Get Insured
Young people often don’t think about getting insurance of any kind until they’ve found their first jobs. Like, career jobs, not part-time hourly work. We would argue that borders on being too late. There are great reasons to make room in your budget for insurance right away. Specifically, here are four that you need to keep in mind.
Thanks to the Affordable Care Act, students can stay on their parents’ insurance until the age of 26. However, the political winds do blow, and at some point, they could shift in another direction. As long as you’re insured through your Mom and/or Dad, don’t worry about this so much. With so many people unable to afford insurance, though, you may have to step up and get some on your own. The good news is that, at least for now, there are subsidies for low income and it will naturally be cheaper on you while you’re young.
You may be putting off life insurance until you have a family of your own. Big mistake. Buy it with foresight in mind. Policies that build cash value (whole life) act as mini savings accounts. With each premium, the value builds, and you can borrow against it at a low interest rate or withdraw the full amount in the event of an emergency.
As you get older, these policies become much more difficult to qualify for due to health issues that go along with aging. Getting into a policy in your early 20s is cheap and an effective way to start building towards your future.
Live in an off-campus apartment? Many college students do. If you are one of them, you will need a way of protecting your things against any theft or calamities that might come your way. Purchasing a cheap renters insurance policy can keep you from a total loss in the event something unexpected happens to your things.
Having at the very least a liability policy that will pay for damages that you cause while driving yours or another person’s vehicle is a good idea. That’s true even if you don’t own a car because it can help you build future credit through on-time payments and such. A clean driving record with insurance will also more easily qualify you for cheaper rates when you do get a car of your own.
Student finances and taxes usually don’t overlap too much because Mom and Dad are still handling the details. For an increasing number of college students, however, that is not the case. You’ll be introduced to the world of taxation the moment you fill out your first W-2 form. From that point on, it’s your responsibility to file every year, so it helps to know something about what works and what doesn’t.
Familiarize Yourself With Deductions
That student loan interest you’re paying can be deducted from your taxes once you start making payments. You also can deduct medical expenses, charitable donations, and any expenses that you may have incurred as a result of business. For a full list of deductions relevant to college students, you may wish to speak with a tax accountant or search online “tax deductions for college students.”
Learn the Progressive Tax System
The progressive tax system can appear complicated, but it ultimately works to your advantage if you are low income. Essentially, you are not taxed at all for a certain amount of the earnings you make. As you rise in earnings, however, you enter into a new tax bracket. The money you earn in that tax bracket is subject to whatever the tax rate is. Since earning money isn’t a college student’s primary objective as they’re attending classes, most get refunds provided they’re choosing zero dependents and withholding taxes from their check at the higher rate.
Know How to Complete Your W2
Your human resources person where you work should be able to walk you through this relatively simple process. Of course, if Mom and Dad are still claiming you as a dependent, you may not see much of a refund. But if you are withholding and zero dependents and claim yourself, you’ll see most of what you paid in returned in full.
The Best Move You Can Make for Your Student Finances
We hope this guide to student finances gives you some idea of the concepts and language with which you need to familiarize yourself. As you move through your educational journey, read as much as you can on smart financial moves. Graduating with a self-taught degree in financial literacy can be just as effective as any degree hanging on your wall. Best of luck!
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