For many young people, college represents their first major experience managing money independently. It’s an exciting time but also a financially vulnerable one. Studies show that finances are one of the leading reasons students drop out of college, often stemming from poor money management.
Here are common mistakes college students make and some tips to secure your financial future during college.
Common Money Management Mistakes
Failing to plan for emergencies: College students often overlook the importance of building an emergency fund. While it might seem unnecessary during your college years, unexpected expenses can and do happen—whether it’s a car repair, a medical emergency, or needing to travel home unexpectedly.
Without savings set aside for such situations, you may resort to using high-interest credit cards or taking out personal loans to cover these costs. This not only adds to your financial burden but can also disrupt your academic progress if you need to take time off work or school to deal with the financial fallout. Failing to plan for emergencies is a key factor in why many students end up financially overextended.
Ignoring or misunderstanding student loan terms: Taking out student loans without fully understanding the terms is another common mistake. Many students accept financial aid packages without reviewing the interest rates, repayment terms, or total amounts borrowed. This can lead to a situation where students graduate with much more debt than they anticipated.
Furthermore, you might mistakenly believe you won’t have to worry about repayment for many years, which can cause you to ignore opportunities to minimize borrowing through scholarships, grants, or part-time work. Once the loans come due, you might be faced with overwhelming monthly payments and long-term financial struggles.
Living beyond your means: It can be tempting for you to want to maintain a social lifestyle that mirrors your peers, especially when living in college towns with lots of entertainment options. However, trying to keep up with others’ spending can lead to living beyond your means. Whether it’s dining out frequently, attending expensive events, or overspending on clothes and gadgets, these costs can quickly add up.
Without discipline, you may dip into savings or rely on credit to fund your lifestyle, leading to financial stress and potential debt.
Not budgeting or tracking expenses: One of the biggest mistakes students make is neglecting to create a budget or track their spending. Without a clear picture of where your money is going, you may find yourself running out of funds before the end of the semester. Impulsive purchases on dining out, entertainment, or shopping can quickly add up, leaving little room for essential expenses like rent, utilities, or textbooks.
Additionally, failing to track expenses makes it harder to spot areas where you could save, budgeting mistakes that can lead to unnecessary financial strain.
Overusing credit cards: Credit cards can be a convenient financial tool, but they also carry risks, especially for students who are new to managing money. Many students sign up for credit cards to build credit or cover short-term expenses but end up using them as a way to fund their lifestyle.
Without understanding how interest rates and minimum payments work, you can accumulate debt quickly. This can lead to years of repayment, even after graduation. In addition, maxing out credit cards can negatively impact your credit score, making it more difficult to secure future loans, rent apartments, or even get a job in some cases.
Skipping financial aid opportunities: While student loans may seem like the easiest solution to cover college costs, there are often many other forms of financial aid that go untapped. Scholarships, grants, and work-study programs can significantly reduce out-of-pocket expenses, yet many students either don’t apply or aren’t aware of the resources available to them.
Waiting until the last minute to apply for aid or failing to research opportunities specific to your field of study can result in missed chances to lower your college expenses. Free money like scholarships and grants can help students avoid unnecessary debt, but this often requires effort in searching and applying.
Planning for the Future
Establish good credit habits: Building a good credit history while you’re in college can significantly impact your financial future. Your credit score is used to determine everything from loan eligibility to rental applications and sometimes even job offers.
You can start building credit by responsibly using a student credit card or becoming an authorized user on a parent’s card. The key to building good credit is paying off your balance in full every month and never maxing out your credit card.
Plan for student loan repayment: It’s easy to overlook student loan repayment while you’re still in school, but developing a repayment strategy before graduation can prevent financial stress later on.
If possible, make interest-only payments while you’re still in school to avoid accumulating interest. Even small payments can make a big difference by the time you’re required to start making full payments.
Set financial goals: Setting specific financial goals for after graduation can keep you motivated and focused. Whether your goal is to save a certain amount for travel, pay off your student loans within a set time frame, or save for a down payment on a house, having clear objectives will guide your financial decisions.
Financial goals also include lifestyle goals. Do you want to live in a certain city? Purchase a car? Knowing what you want in the future allows you to budget accordingly and make informed choices about saving, spending, and investing.
Start saving for retirement early: Retirement may seem like a distant concern when you’re focused on finishing college and starting your career, but the earlier you start saving, the better. Thanks to the power of compound interest, even small contributions made now can grow significantly over time.
Even if you’re only able to contribute $20 or $50 a month, it’s a good habit to develop. Use online retirement calculators to see how your savings can grow over the next few decades.
Let AZCCU Help With Your College Success
Financial literacy is critical for college students to ensure their academic and financial success. By understanding common money management mistakes, creating a budget, and planning for both emergencies and the future, you can focus more on your studies and less on financial stress.
Arizona Central Credit Union is ready to help with all your banking needs, from checking to savings to student loans. If you have any questions, contact us online or call (866) 264-6421.
