College Student looking at computer in dorm room
15 December 2020

With coursework, activities, internships and job-searching, college students have a lot on their plates. Although the majority of their time is focused on learning, it’s also important to prioritize setting up a solid financial footing for the near and long-term future.

Having a basic understanding of personal financial management can add tremendous value to your future success. College students can take several steps to improve their financial stability odds throughout a lifetime, starting with mastering the arts of saving and building credit.


The How and Why Behind Saving

Smart money habits are easier to maintain the earlier they’re started. Saving money is a necessary part of every adult’s financial life, but the reason why it’s so important may not be inherently clear to college students. On top of not realizing the “why” behind saving, most aren’t sure where to start a healthy savings habit. First and foremost, having ample savings offers several advantages, not the least of which is being able to cover an unexpected bill or a costly emergency.

The idea of an unplanned expense showing up is likely not a substantial concern for most college students, but it is relatively common. From emergency car repairs to an unplanned doctor’s visit, unexpected costs can come from a handful of different places. Having savings on hand provides the monetary cushion necessary to cover these costs without going into debt. Once this is understood, creating a plan for how to save is the next best financial move.


Creating a Budget

To get started on the right path toward savings, college students can and should focus on what they have available to spend each month. Establishing a realistic but flexible budget is the foundation for this type of financial management. When initially setting up a budget, try to keep it simple. First add up how much money is coming in. Then, add up expenses that you need to cover each week or month, including rent, dining out, gas, school supplies and groceries. Subtract these expenses from what’s coming in, and voila, you can see what you have available to spend or save. Don’t worry—there are also a handful of budgeting apps and websites available for little or no cost that can do this work for you.

  • Many financial experts suggest following a 50/30/20 rule. This approach recommends spending 50% on basic needs, 30% on wants, and 20% on savings. If you are not close to these suggested amounts, or you have a cash-flow deficit each month, it is a good idea to take a close, hard look at income and expenses. Correcting a cash flow deficit requires earning more money or spending less, neither of which may be accomplished easily as a college student. Consider what you can do to create a surplus, like leaning more on financial aid or taking on additional part-time work between classes to create a stronger financial foundation each month. 

If you are fortunate enough to have a surplus, it’s time to start saving. Calculate what you can easily save each month, then establish a no-cost savings account where you can deposit the extra funds. Automate the process by setting up systematic transfers every pay period or month, and be sure to increase the amount of savings when there is a decrease in expenses or an increase in income. This simple step lays the foundation for a healthy financial future.


Building Credit 101

Above and beyond establishing healthy savings habits early on, college students must also know about credit. Having a strong credit score and credit report provides opportunities for affordable borrowing in the future. But before you can build good credit, it’s essential to understand what credit is and how to calculate it.

Your credit is a representation of your financial past and present. Within a credit report, creditors like student loan lenders, credit card and auto loan companies provide information about current or past accounts. These details include how much you owe, the monthly payment, and the payment track record. Missed or late payments and other damaging marks, including bankruptcy or judgments against an individual for non-payment, are included in a credit report. Based on these data points, a person is assigned a credit score. The higher the score, the better an individual has managed credit accounts in the past.

Credit does not happen naturally—it has to be built. A smart place for college students to start the process of building credit is by applying for a student credit card and managing it responsibly. This type of card often has minimal to no fees and low-interest rates, like the Teachers Student Visa Credit Card. It may also come with a low credit limit to help keep spending on the card to a minimum. As long as they pay the card balance each month, college students can begin building a track record of on-time payments that positively impacts their credit score moving forward.

Additionally, taking out student loans can help college students, not only in offsetting the out-of-pocket costs of earning a degree but also on the credit-building front. A person’s credit report includes student loans, just like credit cards and other debts. Again, as long as payments are made on-time, student loans can help build a healthy credit history for college students.


Bringing it All Together

Being a college student comes with a slew of responsibilities, and financial management should fall somewhere on the priority list. Start with saving whenever possible, and do so with the help of a realistic budget. Follow that up with credit-building activities like getting a student credit card or utilizing a student loan. Combining these habits surrounding saving, budgeting, and credit proves immensely beneficial throughout one’s life. Although you probably won’t master these financial principles overnight, taking small steps to build savings, and establish and manage credit consistently can have a substantial impact on your financial health and well-being in the future.

Smart money habits are the building blocks to smart (and happy) living!