Lack of financial literacy is a universal issue among college students. It’s one of the top reasons why students drop out of college. As young adults, they must learn how to manage their money because they will face plenty of complex financial decisions in college.
Some costly money mistakes can cause damage that remains for decades. Even as a college student, ensuring your finances are in order can go a long way to help you get an impressive start after your college years.
Below are a few money missteps college students should avoid.
No Spending Plan
Do you ever wonder how some people become wealthy? The secret is living within your means. Even Elon Musk has to make financial decisions based on what he has. With that said, the first thing college students must do is to gain complete control over their expenses.
You can do that by creating a spending plan. It will allow you to see where your money is going and what you can cut back to save money. When creating a spending plan, compare your expenses against your income.
The goal is to have more income than your expenses. Otherwise, it would be best if you changed your spending habits.
Wants Versus Needs
Most college students fail to live within their means because they haven’t thought about what they need versus what they want. For example, a Starbucks coffee can be categorized as want even when food itself is a need.
Instead of having a Starbucks coffee, brew your own at your dorm for a lot less. Categorizing your expenses will undoubtedly help you avoid overspending and impulse purchases.
Amassing Credit Card Debt
Credit cards are an excellent way to pay for things. What’s more, most credit cards offer cashback incentives or rewards programs that add to their allure. However, the perks often overshadow the disadvantages, like the potential to rack up debt.
Take note that many credit cards have unfavorable terms and high interest rates, which allows college students to spend more than they can afford. Once they get into the habit of overspending and only paying the minimum each month, they could be stuck repaying the credit card long after graduating.
But this does not mean you need to avoid credit cards altogether. Remember that they can play a crucial role in building your credit history. Just make sure to use your credit card wisely. To attain a good credit score, only apply for a new card when you need it, charge what you can manage to repay in full and pay your bills on time.
Also, you must read the credit card’s fine print to know what rates or fees might be charged when you use the card.
One of the common mistakes students make is choosing an expensive education based on the school’s name. It puts them in big trouble later on. For some, this may work. However, if you’re not financially ready for an overpriced education, you shouldn’t pursue this path.
You and your family can go into deep debt, which is very disadvantageous after you graduate. Even if you learn a lot from this education after several years, you will likely lose tons of time trying to get out of debt. In that case, you may consider debt consolidation and settlement to reorganize and reduce the total amount of your debt.
Moreover, consider attending a community college or choosing a less-expensive university for the first two years, and then you can transfer to a better option. In doing so, you will set yourself up to start your professional career with less debt. Plus, you might learn that a not-so-prestigious school proves to be an equally good option.
Caving In to Peer Pressure
Peer pressure is common in life, especially on a college campus. But college students must understand that it’s okay to say “no.” Say, for example, your friends want to go to a club, see a movie or go out to eat, but you don’t have the money for these activities — in that case, don’t go with them. Do not succumb to peer pressure. Focus on what you want in your life to avoid overspending and racking up debt.
Fight peer pressure by involving yourself in a group of people who have the same goal in life as you and are focused on their schooling. Surround yourself with positive-looking and future-forward individuals.
Practicing good money habits can be tricky, but with patience and practice, it’s possible. Exercising good habits is a very empowering experience that can give you satisfaction in life. It helps college students be financially successful both during and after college. Plus, they gain confidence in themselves.