For those who graduated high school and are now moving on to a university, college is a huge milestone. It’s when most young people essentially “leave the nest” and live on their own for the first time. With that comes many responsibilities, one of the most important being personal finance and financial health. It can be hard for college students to know how to properly manage money on their own, and because of this, many make significant financial mistakes early on. Parents who have conversations with their college-bound children about budgeting and smart spending will give their kids the upper-hand when it comes to managing their money. Here are a few ways you can help your child prepare for what’s ahead:
Create a Budget
Budgeting is essential when it comes to smart money management. Sit down with your child and go over everything you can think of that will require spending. Room and board, books, and meals should be considered, but don’t leave out potential late-night pizza deliveries or extras like snacks, sodas, and coffee that may be needed while powering through studying sessions. After a budget is realized, it’s imperative that the student understands that they need to stick to it. Staying within a budget is one of the most important, if not the most important, step to wise money management.
Know Where the Money is Coming From
Does the student plan to work part-time to offset some costs? Are they borrowing money via student loans or their parents’ generosity? For college students to end up in the best financial situation upon graduating, being in as little debt as possible is the goal. It’s not realistic for many which is why there is so much student loan debt. If your child needs to take out student loans in order to finance tuition and expenses, aim to take out as little as you can while still making it work. Applying for scholarships means free money for students if they are received, so that should be the first step. After exhausting all scholarship and grant options, determine how much realistically is needed to borrow, and avoid taking out more than that in student loans.
Consider Building Credit
Many first-time credit cardholders are college students. This can create murky waters and needs to be approached with caution. Credit cards can get students in way over their heads with debt, but if used wisely, can be incredibly useful. Not only will it provide funds in a pinch, but it also is a first step in building credit – something important for students once they graduate and enter the working world. Building and maintaining good credit allows you to qualify for other big loans down the line, such as car loans and mortgages. To avoid racking up too much credit card debt, the plastic should only be used in emergencies or dedicated to just one type of expense (such as gas money). Balances should be paid on time and in full to avoid penalties.
For those looking for additional financial counseling, Richmond Neighborhood Housing Services offers programs that are designed to support and assist individuals in understanding and mastering the “basic” financial habits of budgeting, managing credit, and homeownership. For additional information on what we offer, reach out to us at [email protected], call (510) 237-6459, or visit our programs page.