Money Management
Even if you don't have the cash flow you might wish for – this is the real world, remember; only a few adults ever have the cash flow they wish for – now is the time to learn how to manage your money.
As a college student, you already have a lot to think about when it comes to finances – financial aid, credit cards, tuition, fees, grocery money, part-time paychecks. To balance it all, you need to understand budgeting and know the benefits and pitfalls of financial tools like credit.
It all takes time and practice to learn, but money management is one of the most important life skills. Build your abilities now so when your cash flow does increase, you know how to handle it.
Budgeting
It's easy to lose track of where your money goes. Small daily purchases add up quickly, and as you progress into the world and become responsible for larger expenses such as rent, car payments, college tuition, it's important to know exactly how much money you have and create a spending plan. That's where a budget comes in.
A budget can help you track where your money goes and control spending.
- A budget can also help you:
- Know if you're spending too much on certain things.
- Stay out of financial trouble.
- Avoid impulse spending.
- Set and reach financial goals.
- A budget is created in three simple steps:
- Track your income and expenses for one month.
- Subtract your expenses from the income. Think about the result – are there areas where you can cut costs?
- Maintain your budget on a monthly basis. Keep looking for ways to reduce spending or increase income.
Use an in-school budget calculator to figure your budget.
To create your monthly budget:
1. Identity your monthly income
- Do you have a job?
- Do your parents give you an allowance?
- Do you regularly get gifts of money?
2. Keep track of your spending
- Include fixed monthly bills like car payments and insurance.
- Estimate monthly spending on things like clothes and entertainment.
3. Subtract your expenses from your income to find your balance
- Use a budgeting calculator.
4. Look at the result
- If you have a positive result (your income is larger than your expenses):
- Keep up the good work.
- Try to save most of your extra income for the future or an emergency.
- Set goals so you don't spend all your savings at once.
- If you have a negative result (you're spending more than you're making):
- Try to reduce some of your expenses, especially items you don't need.
- Increase your income with more hours at work; filling in with odd jobs.
Learning to live on a budget is a life skill. No matter how much or how little money you make, you need to know how much you can spend and how much you should put away for the future.
Understanding Credit
Maybe you've heard a commercial for loans "even if you have no credit or bad credit." Does that make you wonder what kind of credit you have or how you get good or bad credit? Do you wonder why it matters if you can get a loan anyway?
What those commercials don't tell you is that you can get a loan if you have bad credit, but it will cost you. Instead of paying a low interest rate on loans, people with no or bad credit often pay rates at the top end of the scale, which often just turns into a spiral of never-ending debt.
"Credit" is often shorthand for your credit history, or how well you can be expected to meet your financial obligations – how many debts you have, how often you make payments on time, how many years you've been paying your bills. Having a good record means you may get to pay lower rates in the future on things like:
- Credit cards.
- Student loans.
- Car loans.
- Home mortgages.
- Other types of loans.
A credit report is the document that shows your credit history. Credit reports are:
- Used by lenders, landlords, employers and others.
- Available for free once per year by visiting www.annualcreditreport.com or calling (877) 322-8228 from:
- Equifax
- Experian
- TransUnion
- Also available for a fee from Innovis.
Your credit score is simply a number that represents the information in your credit report. Credit reporting agencies use a complex mathematical model to find your number. A higher credit score means you will be given better terms and pay lower interest than you would if you had a low score.
Credit Score
A credit score is a number given to you based on your credit report.
- Good credit means a higher score.
- A high score means lower interest rates and better terms.
- Your score changes as information in credit report changes.
Build Good Credit
These tips will help you make good choices when it comes to building your credit.
- Be on time. Pay all your bills, including cell phone payments, and make all your payments on time. Late or missing payments have a big negative impact on your score.
- Manage credit cards. When you're able to have your own credit cards, keep only 1 or 2 cards in your name and keep the balances low. You should never charge to the limit of (or max out) your credit cards.
- Be nontraditional. If you have a hard time getting approved for a credit card or loan, you may need to show some credit history.
- Save copies of the bills you pay and the checks you used to pay them.
- Ask for letters of reference from landlords, utility companies or others you do business with.
- Show your bills, payments and letters to lenders to show your history of paying on time.
Avoid Bad Credit
Just as good choices give you good credit, some poor decisions lead to not-so-good credit. Some things that can give you bad credit are:
- Late or skipped payments.
- High credit card balances.
- Too many accounts.
- Closing accounts you've had for a while.
- Going over your credit limit or having a too-high credit limit.
- Foreclosures, bankruptcies and accounts in collections.
Good Credit vs. Bad Credit
| Good Credit | Average Credit | Bad Credit | |
| Amount Borrowed | $15,000 | $15,000 | $15,000 |
| Interest Rate | 7.00% | 12.00% | 18.00% |
| Monthly Payment | $297 | $334 | $381 |
| Total Amount Spent | $17,821 | $20,020 | $22,854 |
