Personal Finance. Your Money Matters

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1 Personal Finance Your Money Matters

2 The decision to attend college is one that will create many opportunities for you. What lies ahead of you is full of possibility. While this is cause for excitement, it also can be overwhelming. Continuing your education is often the first step toward achieving goals pertaining to your career and personal accomplishment, but it can be expensive and full of challenges. Financial literacy (education on the management of personal finances) is an essential part of planning and paying for your college education. Everyone needs to understand the options available to them with respect to the vast array of financial aid, services, and providers in order to make sound financial decisions. Temptations abound... College students receive an average of 4 phone calls and 5 mailings each month encouraging them to apply for credit cards. 1 The average college student graduates with $3,000 in credit card debt. 2 Learn fiscal fitness now for a lifetime of financial well-being Fiscal fitness means practicing smart money management. Decisions you make about handling your money before and during college can have a huge impact on your future. Before making major financial decisions, educate yourself about available options and be consistent in making informed financial decisions. Learning good personal finance skills now can help you reach your goals and find success sooner. Financial Planning When you want something in life, it's best to have a plan for how you will get it. Everyone wants a life of financial security the ability to save and invest so that your money is working for you in a way that enables you to fulfill your life's goals. To achieve financial security, you need to create a financial plan. A financial plan is simply a roadmap for how you will manage your money on an ongoing basis. A basic financial plan involves defining your money goals, identifying the steps it will take to reach those goals, and then following through with those steps. Practice Good Credit Habits Even if you don't need loans to pay for college, sooner or later you will probably need to borrow money. Your borrowing and repayment history is tracked by the financial industry to create your credit score, which helps lenders gauge whether you are a good credit risk. The better your credit score, the easier it will be for you to borrow money and the better terms you will be offered. A good credit score can save you thousands of dollars over your lifetime. Here are some ways to build and maintain a good credit score (typically a score of 700 or higher) and avoid financial headaches: Always pay your bills and loan installments on time. Avoid late fees; note the due dates for bills and installments as soon as you receive them. Keep a copy of all bills and loan payments you make. Don't bounce checks. Bouncing a check means writing a check for more money than you have available in your account. Aside from hurting your credit score, banks usually charge you a fee for every bounced check. The fees are automatically charged to your account, which can cause subsequent checks to bounce, leading to more fees, more bounced checks, a vicious cycle. Bounced checks can lead to real money problems and even get you into legal trouble. The good news is that with a little due diligence, you can prevent bounced checks altogether by being aware of the amount of money in your bank account and spending only what you can afford. Avoid credit cards. In college, you'll get tons of credit card offers. Your best move? Shred them. Don't sign up for a credit card just to get something for free. As attractive as easy credit might seem, credit card interest can put you in a very deep financial hole that can take years to dig out of. If you feel you need a credit card or you want to start building your credit history, apply for one credit card with the lowest interest rate available then charge only what you can afford to repay. Also, pay the balance in full to avoid interest charges. 1

3 1 National Postsecondary Student Aid Study (NPSAS) 2 Teaching Financial Literacy Using Game-Based Instruction; Jack A. Naglieri, Ph.D. and Cynthia Wengert, M.Ed. Don't ignore credit problems, get help ASAP. In spite of your best intentions, you may get in over your head. Credit problems include missed payments, bounced checks, and credit card debt; these problems lead to a lower credit score and a more difficult time when borrowing money in the future. Sometimes, people mistakenly believe that if they ignore their credit problems, these problems will go away. Instead, their credit problems will only get worse. If it happens to you, don't waste time feeling foolish and ashamed, because you will be in good company; even celebrities have credit problems. A Few Basic Financial Tips for College Students Organize your files. Creating a paper and/or electronic filing system will make paying your bills on time and meeting deadlines easier. You'll also want to keep records for tax purposes. Make a budget and stick to it. A budget is just a self-imposed guideline for how much money you can spend and what you can spend it on. You will be amazed at how much farther your money goes when you have a budget. Life is unpredictable, so don't forget to allocate money for unexpected expenses in your budget. Buy used books. Many students and their parents are shocked to learn how much textbooks cost. They can average $1,000 a year. Most campus bookstores sell used books that can help reduce this cost. You might also save money by buying or renting textbooks online. Leave your car at home. Cars cost more than just gas money. Don't forget about insurance, parking (and parking tickets!) and repair expenses. Walk, carpool and/or ride a bike; someone you know will have a vehicle while attending college. Watch the ATM fees. They can add up quickly. Look for a bank with free ATMs near your school, such as Higher One and your FlaglerOne Debit Card. Save on snacks. If you can, avoid buying snacks at vending machines or convenience stores. Stock up at your local grocery store and keep them with you during the day to avoid more expensive and less healthy on-the-go options. Consider all the costs of living off-campus. Many students like the idea of trading dorm life for their own offcampus apartment, only to realize that there are more costs involved than they realized. Aside from rent, you will probably have utility bills and grocery expenses, at a minimum. You may also need to pay rental insurance and property maintenance fees. So before you decide to move off campus, learn what other expenses you'll be responsible for, in addition to rent. Use student discounts to your advantage. It's common for movie theaters, concert halls, restaurants, insurance and travel companies to offer steep discounts with a student I.D. Just ask! Start saving. A few dollars here and there can make a big difference later in life. Saving and investing your money puts your money to work for you. If you have a job, pay yourself first. Have your bank automatically deposit a set amount from your paycheck into a savings account. MAKE A SPENDING PLAN FOR NEXT MONTH AND STICK TO IT. Keep life in balance. Money management is important, but it's only a means to get you where you want to be in life. Strong values, good friends, and a solid education should all be part of your plan for success. Forgo Unnecessary Expenses To find money, track your expenses for a month or two. Making mini-cuts: Buy a medium coffee instead of a large, or try similar downsizing in other ways you spend. A daily 50-cent savings equals about $15 per month or $180 a year. Packing your lunch: Cut lunch expenses in half by making your own. Save the $5 to $10 you would have spent to buy a mid-day meal and you ll save $650 to $1,300 a year. Watching power usage: Shutting down your computer and monitor overnight can save $88 a year or more than $7 a month, the Department of Energy says. Save $10 to $30 more a year by using your computer s sleep mode instead of screen savers. Estimate your savings and put it in your savings account. Pay cash instead of using credit, which carries potential late fees and interest. Renting or borrowing from a friend, what you can afford to buy. 2

4 Take charge of your life and your money 1. Define your financial goals. 2. Make plans to reach your goals. 3. Take action until your goals become a reality. What financial goals do you have for your money? To buy books next semester? To save $100 per month for the next four years to buy a car when you graduate or just save $50 a month? Write down some of your financial goals including how much you will need to save each month and how long you will have to save to achieve these goals. Protect your Personal Information Don t give anyone your Social Security, credit card, or bank account numbers unless you know why the individual or organization is requesting it. If you are unsure, ask the person to send you a request by mail instead of asking for it over the telephone. Also be sure to ignore and delete s requesting personal information. Don t just throw away papers that list important account numbers or other financial numbers. Shred anything with your name, address, credit card information, or bank account numbers before putting it in the trash or recycle bin. This includes unused credit card offers. Don t send your credit card number over the Internet unless you are sure the website is secure and your computer is protected by a firewall and anti-virus, anti-spyware, and other security software. Keep your security software updated If you re a victim of identity theft, report the crime to the police and your bank immediately Find the Best Deal for Your Checking Account Having your money in a checking account lets you write checks, which costs less than purchasing money orders to pay for things. If you re paying regular bills such as car insurance, rent, credit card payments, and so on, these can t be paid with cash. In addition, your cancelled checks are a good record of your paid bills. With a checking account, you have easy access to your money through writing checks, using a debit card, or getting cash from an ATM while having the security of keeping your money in a bank. If you choose to use Higher One as your bank, they offer free online bill pay, the Student Accounts Office will overnight any bank deposit on your behalf and a free ATM is located on campus for your use. Wants vs. Needs It s easy to spend money. What s not so easy is spending money wisely. One way to help you spend wisely is to separate your needs from your wants, and spend money primarily on your needs. Wants are nice to have but are not essentials: eating out, going to movies, text messaging, or getting the newest cell phone and ring tones. Needs are the essentials, the basics of life that you must have to survive: food, housing, clothing, etc. Before you buy something, ask yourself, Do I need this item, or do I just want it? You may be surprised at how many things are actually wants. Create a Spending Plan Putting your financial goals in writing can make them seem more concrete and achievable. However, it's easy to allow everyday purchases to get in the way of saving for your future. One of the best ways to make sure your daily spending habits don't overwhelm your financial goals is to create a spending plan. A spending plan is not meant to be a strict budget. Instead, it's a guide that will help you take control of your financial future and, ultimately, reach your goals. To create your spending plan, follow these four simple steps: Step One: Identify Your Income. Step Two: List Expenses. Step Three: Compare Income to Expenses. 3

5 Step Four: Set Priorities and Make Changes. Use this worksheet to help you map out your daily spending habits. Item (Examples) Cost of Item(s) Cost Per Month Cost Per Year Soft drinks (2 each work day for 20 days) from vending machine (example) $0.75 $30.00 $ New clothes Long-distance phone calls Snacks/convenience store purchases Eating out Coffee with friends Magazines/books Movies Video/DVD rentals CDs Gifts Cable TV Cellphone 3 4

6 3. Education is powerful... Research shows that people who understand basic financial principles are better at retirement planning, accumulating wealth and avoiding debt. 4 Studies show financial pressure is the leading reason college students drop out. 5 Some words of wisdom to remember: He who does not economize will have to agonize -Confucius Don t spend money until you have it -Thomas Jefferson The saving man becomes the free man -Chinese proverb The money management skills you develop now will help you throughout your everyday life. Learning these skills at a young age gives you an advantage. What s standing between you and your financial success? Nothing, if you can set goals and make an actionable plan for achieving them! Remember, knowing how to manage money is one of the most important life skills you will ever master. Essentially, proper money management gives you a well-managed, effective life plan. "The mint makes it first, it is up to you to make it last." Evan Esar 5

7 4. U.S. Department of Education 5 Anna Maria Lusardi, Ph.D., Professor of Economics at Dartmouth College and Editor of Overcoming the Savings Slump: How to Increase the Effectiveness of Financial Education and Savings Programs 6