For better or worse, habits formed during the early years of college often harden into long-term lifestyles. This is especially evident in the area of finances. Discipline learned during the college years often pays dividends well into the future. Financial mistakes, on the other hand, may take years to undo. Start your college freshman on the right track with these three tips:
- Live within a budget. A simple spreadsheet with two columns — one for budgeted amounts, another for actual spending — is all that’s needed. For most young people starting college, the budget should be relatively simple. A schedule that includes tuition, books, room and board, clothes, spending money (the expense side of the equation) and grants, loans, part-time jobs, dollars provided by Mom and Dad (the income side) can be easily prepared. Of course having a budget and living within a budget are not the same thing. But learning to deny oneself a current pleasure (dinner at a fancy restaurant, the latest and greatest video game) in exchange for a future benefit (a nicer car, money for a post-graduation trip) is part of responsible adulthood.
- Go easy on credit. Credit card issuers seem to hover like vultures around college campuses. Teach your college freshman to look beyond the colorful t-shirt and fancy water bottle. Point out the pitfalls of those seemingly innocuous pieces of plastic. Watch out for student loans as well. The average college graduate heads into the job market with over $20,000 in student loans. Add graduate school and your home mortgage begins to look small in comparison. If debt becomes necessary, the cost of borrowing should be fully researched before signing.
- Save, then save some more. Show your freshman the benefits of saving even a little each week. If, for example, your son can scrounge up $20 a week which he deposits in a mutual fund from age twenty to age thirty (assuming an annual return of 6%), he’ll accumulate over $14,000. If he stops contributing and leaves that money alone (again assuming a 6% return), he’ll have over $109,000 by age 65. For relatively little sacrifice, he can get a great start on a retirement nest egg. In addition, encourage your son or daughter to develop a habit of setting aside money for emergencies and short-term expenses during those initial college years.
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