College students have a lot to deal with: New classes, new surroundings, new friends, and adjusting to a new lifestyle away from home. It’s easy to get wrapped up in the college scene and forget to take care of your finances, but making good decisions early will pay dividends later. Here are fifteen financial missteps often made by college students and strategies to avoid them.
1. Not budgeting
This is undoubtedly the biggest mistake we college students can make. It is important to set realistic goals to get a handle on your finances so that you know how much you can afford to spend on fun stuff. Look at past fixed and variable expenses, know the payments you have to make on a regular basis, make a plan, and stick to it! Check out our budgeting tips.
2. Only making minimum credit card payments
Freshman year of college is an easy time to get plastic happy and spend more than you can afford. If you’ve gotten into debt, you may think that making the minimum payments on your credit cards is paying down your debt. In reality, only paying the monthly minimum means you’ll end up owing much more in the long run. Most cards have a minimum payment of 4 percent of your balance. If your card has an 18 percent interest rate, it will take more than 10 years to pay off a balance of $3,000, paying more than $1,700 in interest. If you paid $150 per month instead, you could save $1,100 and be debt-free in two years. Try to put as much money as you can toward paying down credit card debt – you’ll be thankful later.
3. Overusing your student ID
Credit cards aren’t the only way for students to overspend and end up in debt. Most students have a university ID that can carry meal plans, laundry money, bookstore credit, vending machine cash, etc. When you swipe your ID for a new sweatshirt at the bookstore, it may not feel like spending money. But those charges don’t just disappear – you will wind up getting charged for expenses at the end of the semester. Having meal dollars on your ID is certainly convenient, but keep track of how much of your $500 semester allotment you’ve spent – you don’t want your late night snack runs to end in October because you’ve already spent your cash! Know how much money you have on your student ID and don’t use it recklessly.
4. Buying a new cell phone
It seems like every month an awesome new must-have cell phone is on the market. It’s easy to fall prey to ads for “free phones” or phones that only cost a dollar. Don’t be fooled, cell phone companies offer deals to lock customers into contracts for years. The real cost of that new phone is hidden in your monthly bill. Losing or damaging your free phone can cost you hundreds of dollars. Before you sign up for a phone contract, figure out how much you’ll end up paying. A $70/month plan with a two year contract adds up to $1,680. Not exactly a free phone – a cheaper plan can save you a lot of money for a rainy day.
5. Not having insurance
Buying any kind of insurance can be expensive, so it is important to assess risk before purchasing coverage. But in college you never know what might happen. If your belongings aren’t covered under your parents’ homeowners insurance what will you do if someone sets off your dorm sprinkler or there is a fire? More importantly, do you have health insurance? Most universities offer low cost health insurance to students, so make sure you’re covered! (Also, using university health centers to get your prescriptions can be a great way to save – most have special pricing for students.) For more, look at our Money Matters piece on Insurance: Risk vs. Reward.
6. Opening new credit cards
It’s easy to think that signing up for a credit card to get the free John Belushi “College” t-shirt is a good idea. But signing up for all those credit cards to get “free gifts” is an easy way to damage your credit score without even realizing it. Even if you never buy anything with the credit card, applying to many cards at once can damage your credit. If you’ve signed up for one recently make sure you’ve called to cancel. Are you looking for a credit card on campus? Consider cards designed for students or an affinity card with your University.
7. ATM fees
When you “approve” a $3 fee at an ATM, you might assume that the fee is all you’re being charged. The truth is that you are probably getting hit with two fees, one from your own bank, and one from the bank that owns the ATM. With a little advance planning, you can get the cash you need from your own bank’s ATMs, without paying any fees. If you go to school away from your home bank, you’ll save a lot of money by opening a free local checking account.
8. Not using your meal plan
Mom’s not cooking dinner for you anymore, and it’s easy to get sick of college cafeteria food. But that doesn’t mean that you should ignore the dining hall altogether, especially if your meal plan is already paid for. Take advantage of endless breakfast cereal in the morning (and late at night) and bars of sandwich fixings during the day. Saving money on meals and snacks will allow you to budget more for eating out on the weekends. Remember to eat healthy, though, unless you want to experience the other, better known, “Freshman 15.”
9. Overdrawing your bank account
Overdrawing your bank account is one of the most common and most expensive financial mistakes. Each fee can cost $20 to $60, and they add up fast. Some banks will even rearrange your purchases to charge you more times in a single day! The best way to avoid overdraft fees is to make sure you have some savings in the bank. Even though your bank statement shows a positive balance, you may still have outstanding checks.
10. Not taking advantage of campus amenities
Are you spending money on a monthly gym membership? Paying to use a pool or tennis court? Going to study at the coffee shop? Paying for Netflix? These are just a few things you may have access to on campus that could save you a bundle in the long run. If you have a fitness center, pool, and tennis courts on campus, your student activity fee has probably already covered the cost of using them. Try studying in the library or study rooms instead of wasting $5 on the cup of coffee to sit in a cafe. Check with your dorm front desk or your library – most campuses have a wealth of must-see DVDs you can rent for free! Take advantage of what is around you, so that you don’t waste money going off campus for resources you have at your fingertips.
11. Not saving
You may think that just because you’re in college you don’t need to start saving, but we all know that starting to save early is critical to financial security down the road. Even if you’re saving for the short term – spring break, a new bike, a bigger television – savings are important. If you have a job, look at your net income and designate an amount to save even before you start spending your paycheck. Setting aside money early (and earning interest over time) is an important factor in building wealth.
12. Ignoring your credit report
Of course you’ve seen the freecreditreport.com commercials, but you’ve probably wondered how they apply to you. Decisions you make in college can affect your credit report down the road. The credit card debt you accrue now could prevent you from buying a house in the future. Maintaining good credit by paying bills on time and managing your money will pay dividends later. Learn more with our Money Matters pieces on credit scores and credit reports. And thanks to federal law, you are allowed one free credit report a year from each of the three credit bureaus – get your real free credit report at AnnualCreditReport.com.
13. Keeping a car on campus
Going from your parents’ house to college, you may think that you absolutely have to have your car. This likely isn’t the case – many campuses have all sorts of public transportation for students including airport rides, safe rides, and rides to the grocery store. The city you live in may have a transit system of its own. The costs of keeping a car on campus can seriously crunch your budget, what with the high cost of parking, gas, insurance, and the inevitable campus parking tickets you’ll receive. There’s a good chance you’ll come out ahead by leaving your car at home. If you can’t stand the thought of going car-less, look into car-sharing systems like Zipcar, which are often cheaper than owning your a vehicle outright.
14. Spending all your summer earnings during the summer
This goes hand in hand with saving, saving, saving. Not every student works during the school year, which means that if you work a summer job it is important to save some of your earnings to expand your budget for the school year. If you don’t set money aside or spend it all at the end of the summer, you’ll be leaving your pockets empty for when you want to buy the latest edition of Rock Band for your dorm room. Save now, or you won’t be able to spend later.
15. Not being thrifty
Avoiding financial mistakes in college takes a little bit of effort and being smart with your money. Being thrifty in college is easy, so look for opportunities to save. If you’ve been buying your books new at the bookstore, chances are you can get used copies much cheaper on eBay, Amazon, or other textbook websites. Instead of going out for pizza or ordering lunch see what events are happening on campus. There is almost always a free meal somewhere (and they usually come with a fun activity or speaker)! Check your student newspaper for free and discounted activities, and don’t forget to ask for student discount. You’ll be amazed how much you can save!
