College students are at an awkward transition period of their lives. A few months to years ago, we were sustained off of mom’s cooking and allowances. Well, we aren’t quite working full-time and actual independent adults, but we still are expected to one day be able to do the miraculous, scary “adult-ing” that our parents do on a daily basis.
In order to lessen the blow that adulthood will surely hit us with once we have that glorious diploma in our hands, it’s important to start to develop financial stability. Like a beach body, it doesn’t just happen in one day. It’s a process that you should start as soon as possible because it makes being a mature adult all that easier. Let’s start with the basics.
1. Learn about your loans.
As someone who is paying an unbelievable amount of money for education (especially at CMU), probably the majority of the student body on any campus has had to take out loans. There’s no shame in it; college is a huge investment and it’s unrealistic for most to pay for it all out of pocket. Even if you don’t have loans to pay for college now, it’s still a good idea to learn about them because you most certainly will have them in the future (for cars, houses, and other large purchases).
There are many different types of loans—federal, private, subsidized, unsubsidized, parent co-signed—I recommend you learn about them all. Each loan has a different repayment method: some don’t start to accumulate interest until 6 months after you graduate and others start accumulating interest the day you receive the check. That’s why it’s VERY important to see when you are obligated to start paying interest—you don’t want to drown in debt and or have an embarrassingly low credit score just because you were too lazy or afraid to read the fine print on the money you borrowed.
2. Apply for a credit card
I know, I know. It sounds scary. We all know the stories about people who dig themselves into a hole because they can’t pay off their credit card bills. The horrifying tales that end in bankruptcy, no one willing to be the landlord, and no one willing to lend money. But these stories are about people who didn’t use their credit cards responsibly, and probably didn’t read the fine print on their credit card policies.
Credit cards are nearly impossible to avoid as an adult. They instantly offer the ability to pay for things that you don’t exactly have enough money for in your checking account. But, by saying this, I don’t mean that you should spend more than you can afford, and not even close to using your entire credit line. Purchase with a credit card as you would with cash or debit: if you don’t have enough cash or a high enough balance, then you can’t purchase it. Make sure anything that you purchase on your credit card is an amount that you can afford to pay back on the due date, or else you may find yourself paying more than you spent originally because of interest and late fees that kick in.
If you pay your entire statement balance on the due date, then you will have no interest. If you keep being responsible and paying your credit card bills on time and in full, the credit card company may increase your credit line or lower your interest rate. Most importantly, however, is that your credit score will increase, which means landlords will willingly rent to you, banks will lend to you, and you will be well on your way to a happy and stable financial adulthood.
3. Know what affects your credit score
Credit cards are not the only things that affect your credit score. Loans, rent, and many other things factor in. This means that if you constantly pay your rent or loan interest late, your credit score can be adversely affected. Being aware of what affects your credit will force you to make responsible decisions to protect yourself and your credit score from financial ruin.
4. Pay your bills
This pretty much goes without saying, and sort of overlaps with credit cards and loans, but this goes for your utilities, rent, tuition, and subscriptions, too. When you borrow from a friend, you can usually pay them back a few months later and it (probably) won’t affect the friendship. The gas company, your landlord, college, and Netflix, however, will cut you off faster than you can say Fico. If you don’t pay your bills on time, not only can your credit score be affected, but these people and companies will not just “spot” you. This is cold, harsh reality, and to ensure that you have a roof over your head, Wi-Fi, instant streaming, heat, and water pressure, I urge you to get used to paying your bills on time.
5. Set thresholds
Some call this a budget. Budgeting isn’t exactly great, because it is very strict and usually life isn’t super predictable to put a solid monetary limit on things. However, it’s very important to keep track of your spending and keep your expenses tracked. This may mean saving grocery receipts, having a spending app, or even writing down everything you purchase in the back of your check book (if you’re a bit more old-fashioned). You know exactly where your money is going and how much you’ll need to make to sustain your lifestyle without capping yourself at $40 a week for food and fun.
6. Get a job
Whether it’s super flexible tutoring or working on a time clock, this is important to see how much time and effort translates into cash. This basically makes you more aware that buying that $30 dress at Forever 21 would translate into working about 4 hours at your job. Earning your own money makes you spend money with a different perspective, and makes you think about if that dress was really worth that entire shift. It also teaches you responsibility (showing up on time) and gives you freedom to make purchases separate from you parents constantly watching you as they would if they spotted you a twenty.