College Students: Here are The Biggest Financial Mistakes You Need to Avoid
Slipping up while in college is basically a rite of passage. I made so many mistakes at Indiana University – many of which I would never admit publicly – that reminiscing on my college years comes with a heavy dose of embarrassment.
Thankfully, most mistakes made while at university are temporary. They may have short-term consequences, but drinking tickets and dorm infractions don’t tend to follow you into adult life. Financial mistakes, on the other hand, can be a little stickier.
College may seem like a safe little bubble, but money is still money. The cash you blow on parties and takeout doesn’t magically get reimbursed once you earn a diploma. Beyond that, the bad habits you develop during these crucial years can haunt you for decades to come. Trust me – I’ve been there.
Here are some of the biggest mistakes I made in college, and how you can avoid them.
Not Keeping a Budget
My forays into budgeting as a college student usually fizzled out. Like a New Year’s resolution, I’d make a firm commitment and then give up after a few weeks.
When I was a second-semester senior, I decided to finally buckle down and stick to a budget. Graduation was fast approaching and I knew I hadn’t been handling my money responsibly. It was time to get serious about budgeting before I entered the real world.
At first it was really hard. I wasn’t used to depriving myself, and seeing how much I was wasting on eating out and buying new clothes was a hard pill to swallow. It wasn’t until I started my first real job after college that I finally got the hang of budgeting – but it took a lot of trial and error.
If you’re interested in starting a budget, set up a Mint account and try tracking your expenses for a few weeks. Knowing where your money is going could be enough to change your behavior and establish better spending habits.
Not Making Loan Payments While in School
Did you know you can start paying off your student loans while you’re still in school? Yeah, I didn’t either.
When I was in college, I was certain I’d find a well-paying job after graduation. My loan balance was filed under the “worry about it later” category. It wasn’t until much later that I learned a hard truth – if I had paid just $50 a month, I could have saved hundreds in accrued interest.
Start paying back those loans as soon as possible, even if you can only afford ten bucks a month. You’ll still make a dent in the total balance, and the solid repayment habits you develop in college will pay dividends when life gets crazy after graduation.
Not Researching My Student Loans
I knew while applying to college that I’d have to subsidize my tuition with student loans. Before I made my decision, my parents told me to pick an affordable school where I wouldn’t need to borrow more money than I expected to earn in my first year out of school.
I wanted to be a journalist, and the average starting salary for a reporter was around $26,000 a year. I planned to take out $24,000 total, so I felt good borrowing slightly less than my future salary.
That was the only research I did into my student loans. I didn’t examine what my monthly payments would be or what it would be like to actually live on $30,000 a year while repaying my balance.
When I graduated, I got a job making $28,000 a year and was shocked when my first student loan payment came due. The minimum payment was $350 – or 20% of my take-home pay. After rent, utilities, groceries, gas and loans, I had little left over to save for retirement, travel or spend on hobbies.
If you’re not sure how much money you’ve borrowed, it’s time to take a closer look. I had so many friends in college who had no idea how much they were taking out. A few years ago, my alma mater, Indiana University, started sending out annual letters to current students showing them how much they’d pay every month. The result? Borrowing dropped 16%.
Talk to your financial aid office about your loans and see if you can take out less next year. If you’re using loans for living expenses, consider getting a part-time job to cover those instead. The less you borrow now, the less you’ll have to repay down the line.
Succumbing to Peer Pressure
When I was in high school, I heard a lot of lectures about peer pressure. Teachers told us not to do things just because the “cool kids” were doing it. They’d tell us to avoid alcohol and drugs and stick to our own values.
Unfortunately, no one explained how your peers could pressure you to spend more money. I can recount dozens of instances where I didn’t want to go out for dinner or go shopping, but gave in because my friends were doing it.
It’s so tempting to live the good life in college, putting off the stress of adult life until after graduation, but it’s also important to learn how to say no and think about long-term consequences. You can always strike a balance between having fun and staying on top of your responsibilities.
Not Applying for More Scholarships
Students usually assume the only time to apply for scholarships is before they start college. The thing is, there are plenty of scholarships available for current students. While I applied for a couple scholarships during my time in school, I didn’t take the applications seriously.
I told myself applying for scholarships was a waste of time. “What’s the point,” I’d think. “I probably won’t get it.”
That line of thinking probably cost me thousands of dollars, and it wasn’t until I was repaying my loans that I realized how much money I’d left on the table. If it seems like a hassle to apply for a $500 scholarship, consider how long it would take you to earn that amount in the real world.
One of the biggest mistakes a college student can do is not track their credit history. A credit report is like a financial grade that lenders, landlords and sometimes even employers use to gauge your creditworthiness. If you have a low credit score or no credit, you probably won’t qualify for an apartment by yourself and will need a cosigner.
Thankfully, I didn’t have to worry too much about my credit while I was in college. My parents made me an authorized user on their credit cards, so while I was attending class and partying on the weekends my credit history was slowly growing.
If you don’t have a credit card right now, and you think your parents could be in a position to help, ask your parents if you can become an authorized user on their card or ask them to cosign on a student credit card.
Using a credit card to improve your credit history is simple if you have great self control. Pay a couple small bills with your card every month and then pay the balance in full once the monthly statement posts. Doing so regularly can give you a huge leg up after graduation.
But do remember a credit limit is not “free money” and should be looked at as a tool for your financial health. A credit card only has benefits if you pay it off in full every month, carrying over debt could be problematic for your financial future.
This blog post does not constitute, and should not be considered a substitute for legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.
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