A college student’s guide to money


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As a college student, financial planning is probably the last thing on your mind. College is seen as a time for finding your passion, charting your career path and, of course, partying. But financial decisions you make in college will reverberate through your life for years, even decades.


With college costs soaring, more people are accumulating mountains of debt to pay for their education. However, that debt can affect your future in all sorts of ways — from what kind of car you can afford and how much you can save for retirement to whether you buy a home or rent. Minimizing your debt now will make life much easier once you’re out of school.


Being broke can be part of the college experience, but the savviest students turn the financial pain to their advantage by learning money habits that will serve them well for the rest of their lives.


“College is a great time to learn to live within your means,” says Eric Roberge, a certified financial planner who runs Beyond Your Hammock and works with clients in their 20s and 30s.


Even after you land your dream job, you’ll still need to spend wisely and live within your means. So college is the perfect time to learn to take control of your personal finances.

Why Should I Care about Personal Finances?

Where do you see yourself in 10 years? Chances are your vision includes some degree of financial security — vacations to Europe, perhaps, or a nice car. At the very least, you’ll want enough room in your budget to go out to dinner or buy a concert ticket without financial angst. As college costs have risen, so have the debt loads of young adults. The number of first-time homebuyers has fallen to a generational low as young workers find their personal balance sheets weighed down by student debt. In other words, you’ll pay the price for — or reap the rewards of — today’s financial decisions years from now.


If you start saving $100 a month at age 18, in four years you’ll have $4,800. (Assuming you keep the money in a non-interest bank account). If you charge $1,000 on a credit card at age 18, in four years you’ll still owe $652 (Assuming an 18% interest rate and a $20 monthly payment).

Earning Money: Your First Job

Earning a paycheck is empowering, but it also requires you to think about all sorts of new financial details and legal obligations. Whether this is your first paid internship, a part-time job to help cover your college expenses or a work-study arrangement, you need to know your rights and responsibilities as a worker.

Financial Rights

What you’re entitled to as an employee:

  • Fair pay: You’re guaranteed the right to earn at least the federal minimum of $7.25 an hour ($2.13 an hour for tipped employees). Many states — including California, Massachusetts, and Washington — impose higher minimum wages than the federal standard. Employers aren’t allowed to deduct money for uniforms or other expenses that would push your pay below the minimum wage. One important caveat: It is legal for employers to offer unpaid internships.
  • Overtime: If you work more than 40 hours a week, your employer is required to pay you at least time and a half. Some states have their own rules on overtime pay.
  • A discrimination-free workplace: Federal law prohibits employers from discriminating against workers based on age, race, religion or gender.
  • Benefits: Depending on your employer’s policies, you might receive extra perks beyond your pay. Starbucks, for instance, provides health coverage, retirement benefits and tuition assistance to workers who put in 20 hours a week.
  • Some employer-paid taxes: Employers must pay part of your social security and Medicare taxes.

Your Financial Responsibilities as an Employee

Once you start bringing home the bacon, you might be obliged to pay federal income taxes. If you work in a state with a high state income tax, such as California, Oregon or Hawaii, you’ll also have to factor those in. Here is what you need to know about taxes:


After you join the working world, your employer will report your earnings to the Internal Revenue Service. When you’re hired, you’ll fill out an IRS Form W-4 that directs your employer how much in taxes to “withhold” from your paycheck. Your employer also will report to the IRS how much you were paid each year. If you’re an employee, your employer will send copies of Form W-2 to you and to the IRS. If you’re an independent contractor, you and the IRS will get copies of Form 1099.


These forms, typically sent in January or February, show your earnings for the previous year.


One important distinction: If you’re a W-2 worker, your employer will pay part of your social security and Medicare taxes. If you’re a 1099 employee, paying those taxes is your responsibility. The U.S. tax code is endlessly complicated, but if you’re single, work only part-time at a low-paying job and have an otherwise-uncomplicated financial situation, the IRS might not require you to file a tax return. However, it’s possible that your employer withheld more in taxes than you owe. In that case, the IRS owes you a refund, and you must file a return to claim it. You can file your tax return yourself using TurboTax or another software package. Or you can hire a tax preparer, such as H&R Block, or use your parents’ accountant.

Your 5-Minute Action Plan

Here is a list of items to remember as you start a new job:

  • Fill out a W-4 and keep a copy of it
  • Ask your employer for the company’s employee handbook
  • Ask your parents if they still claim you as a dependent
  • Gather copies of any W-2 or 1099 forms issued by employers
  • Figure out if you need to file a tax return (The IRS can help, as well as a tax professional)

Managing Your Money

The basics of financial planning sound deceptively simple: Spend less than you earn and save for the future. Basic though this advice may be, living within your means is easier said than done. Just ask the huge percentage of American adults who say they have no emergency savings and no retirement nest egg. As a college student, you can either rely on your parents and your credit cards to fund your lifestyle or take control of your money. If you choose the latter option — which may be more difficult but ultimately more rewarding — your college years can provide a crash course in financial responsibility. Make this your mantra: Ramen now, filet mignon later. In other words, sacrifice now for rewards later.


If you find yourself running out of money halfway through the semester, it’s time to take a look at your spending habits.


“The little things add up,” says Mark Kantrowitz, an expert on student financial aid. “A $10 pizza a week over a four-year college career is $2,000. And if you pay for that pizza with student loans, that will cost you $4,000.”


To control your spending, Kantrowitz urges taking a hard line on defining wants and needs. His calculus is simple, if brutal: You’ll die without food or medical care, so those are clearly needs. Everything else — such as a movie ticket or a smartphone — is a want.


“Cell phones are really expensive,” he says. “If you truly need a phone for an emergency, you can buy a really cheap cell phone at Wal-Mart and dial 911.”


He also suggests tracking your spending every day. Keep your receipts or mark down each purchase, then enter the figures into an Excel spreadsheet or Mint.com every night.

Your 5-Minute Action Plan

Here are some tips on how to manage your money.

  • Open a checking account. Many banks and credit unions offer no-fee checking accounts to college students.
  • Opt out of overdraft “protection.” The typical bank overdraft fee is $35. To avoid that fee, make sure your debit card declines your purchase if you lack sufficient funds.
  • Track your spending. Set up a budget spreadsheet in Excel or on Mint.com. Every night, record what you spent that day.
  • Pay bills on time by enrolling in auto-pay. If you automate credit card payments and other monthly bills, you’ll reduce the risk of incurring late fees.
  • Define financial “needs” vs. “wants.” You need basic food, clothing, and shelter. Most other things are wants — so don’t buy them.

Credit Cards: Should You Get One?

Five or 10 years from now, when you have steady income and money in the bank, a credit card will be a great tool for making purchases conveniently, and for building your credit score. Now, though, a credit card can be hazardous to your financial health, if not managed properly. For unprepared consumers, credit cards come with a potentially huge downside: If you don’t repay what you borrow in full every month, you’ll fall into a debt trap and potentially ruin your credit score for the future.


“A great goal for a student is to leave college without credit card debt,” Roberge says.


Interest rates on credit cards for college students are as high as 24%, much higher than the interest rate on student loans. That means you pay a lot to borrow. Say you have a credit card with a 24% interest rate, and you charge $1,000 for a laptop and books. If you pay only $25 a month, it’ll take you nearly seven years to pay down the loan — and your interest will total more than $1,000. If this scenario could apply to you, try to pay for large purchases with cash rather than plastic.


“A credit card feels the same whether you’re spending $5 or $500,” Kantrowitz says. “Use cash for big purchases, because it’s going to feel like you’re spending money.”

Your 5-Minute Action Plan

If you are thinking about getting a credit card, take the following steps:

  • Determine why you want a credit card and if you really need one:
  • Choose which card is best for you. Look for a combination of no annual fee and low interest rates.
  • Read the terms and agreements when you receive the card. The fine print dictates such factors as late fees and interest rates.
  • Mark the due date of the card on your calendar. Better yet, set up auto-pay so you don’t eat a late fee.

Saving and Investing: Time is on Your Side

Young investors have a huge benefit: Time. Thanks to the miracles of compound interest, even a small investment each month can grow impressively. Say you put away $100 a month and get a return of 5% a year. Here’s how much you’ll have at age 40:

  • If you start saving at age 18: $47,548
  • If you start saving at age 30: $15,599

It’s never too early to start saving and investing. However, soaring college costs may make this unrealistic for most college students. “Just because you’re not saving doesn’t mean you’re doing anything wrong,” Roberge says. That doesn’t mean, though, you shouldn’t try to save. Bank your summer earnings, and stash any loan proceeds or scholarships in a safe place. Try to save a little each month to build up a rainy day fund.

Tips on How to Save

  • Create a budget
  • Figure out how much you can spend each week or month.
  • Track your spending
  • A budget isn’t much good if you ignore it.
  • Build an emergency fund
  • Try to build a small cushion for unexpected car repairs or other expenses.
  • Take advantage of your school’s resources
  • Students often have free access to computers and fitness facilities.
  • Skip full-price textbooks
  • Buy used, or share with a friend.
  • Skimp on transportation
  • If you need a car, buy a used vehicle, not a new one.

Your 5-Minute Action Plan

  • Slash your spending and stash away the savings. This is the time to live to learn within your means and start saving for a rainy day.
  • Look for textbook deals. Buy used or share with a friend.
  • If you need a car, buy a used one. If you can live without a car, ride your bike or take the bus.

Student Loans: It’s Not Free Money

For most college students, student loans have turned into a necessary evil. The typical 2019 graduate owed around $31,000, certainly a pretty penny. For many students, borrowing is the only way to pay for college. Student loans can make perfect sense; college grads earn more than those without degrees. But it’s crucial that if you do borrow, you do so wisely and responsibly.


The most important thing you need to remember is that you will have to repay this debt when you graduate. Keep track of the potential monthly payment after graduation when you borrow each year. To minimize borrowing, look for scholarships, grants and work-study programs since those don’t have to be repaid. If you must borrow, start with federal loans rather than private loans. Federal loans carry lower interest rates and more generous forgiveness provisions. Compared to credit cards, student loans carry lower interest rates, and you don’t need to start repaying until after you graduate.

Your 5-Minute Action Plan

  • If you already have student loans, review that debt so you know where you stand.
  • Limit your total student debt to one year’s salary. If you expect to make $50,000 your first year out of school, limit your borrowing to that amount.
  • Make an appointment with a financial aid adviser. Discuss how much you can borrow and how much it will cost.
  • Once a semester, ask the adviser or use a student loan calculator to estimate your monthly payments after graduation.
  • Search for scholarships, grants, and work-study programs. You don’t need to repay them, so they’re preferable to loans.

Get Insured

Yes, you need insurance, and no, it’s not just for old folks. Auto insurance is required by law, so that’s a no-brainer. Insurance companies view young drivers as risky, so premiums can be steep. Shop around for the best deal. Using your parents’ policy might help you qualify for discounts. Most auto carriers offer good-student discounts for policyholders who maintain at least a B average.


Health insurance is another must. You’re unlikely to face hefty medical bills, but hospitalization is so costly that it can be financially devastating for you and your parents. The Affordable Care Act lets you stay on your parents’ health insurance until you turn 26. If you’re attending school in one state and your parents live in another, check to see if your health insurer’s network extends to the area where you attend school. Many schools also offer student health plans. They’re typically not as generous as insurance from a private carrier, but the premiums tend to be affordable, so the plan might make sense for you.

Your 5-Minute Action Plan

  • If you have a car, shop around for auto insurance.
  • Good student discounts typically cut premiums for policyholders who keep at least a B average.
  • See if staying on your parents’ health insurance makes sense.
  • Find out if your parents’ insurer network extends to the area where you’re attending school.
  • Your school’s student health plan might be an affordable alternative.

Lessons You’ll Wish You Learned While in College

  • Financial discipline: You’re bombarded with advertising every day, and online retailers make it easier than ever to spend money. However, learning to spend wisely instead of impulsively is a skill you can use for the rest of your life.
  • Financial independence: If you blow your budget halfway through the semester, it’s tempting to ask your parents to bail you out, but learning financial responsibility is an important part of growing up.
  • Prudent borrowing: In medical school? Your degree is an investment likely to yield a six-figure income so you can likely handle a larger debt load. However, philosophy majors may want to be more careful. “If you’re going into a career as a social worker, don’t go into a lot of debt,” Roberge says. “It’s irresponsible to say, ‘I want the best education I can get no matter what it costs.'” Take a hard look at the earning potential from your degree and borrow accordingly.
  • Long-term planning: Pursuing a college education means you understand the value of planning ahead. At its most basic level, college is a short-term sacrifice for a long-term gain. Now, apply that lesson to your financial life.
  • Lifestyle creep: When you start earning a paycheck, it’s easy to forget the discipline you learned as a student. Roberge says he fell victim to “lifestyle creep” after he finished school. “You make more money, so you spend more money,” he says. He soon realized he needed to keep an eye on his spending.


This article
originally appeared on 
MoneyGeek.com and was
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Lifestyle creep occurs when your standard of living starts to outpace your actual income. It’s generally related to making more without saving more — foregoing important financial goals, like establishing a proper emergency fund or saving for retirement, in lieu of buying a larger house, nicer car or luxury vacation.


While it’s tempting to start spending any extra money you earn as soon as you, well, earn it, lifestyle creep can expose you and your family to a certain amount of financial risk. After all, there’s no guarantee that you’ll stay at a given income level.


To prevent you from falling prey to lifestyle creep, also known as lifestyle inflation, we consulted Certified Financial Planners, financial advisers and other personal finance experts. Here are 38 ways to avoid lifestyle creep.



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Keep your standard of living as low as possible for as long as possible, particularly if you’re a recent graduate, says Danielle R. Harrison, a Certified Financial Planner at Harrison Financial Planning in Columbia, Missouri.


“Rather than buying a brand new car, cell phone, or apartment, take that extra money and aggressively pay down your student loans or put away as much as you can for both your short- and long-term goals,” Harrison suggests. “If you’ve never experienced the money, it is much easier to not know what you are missing.”




“How can you track your spending if you have no idea where it’s going in the first place?” says savings expert Andrea Woroch. “A budget tells your money where to go and keeps you from wasting it on things that don’t matter.”


“Savings” is an essential line item of every budget. Pay yourself first before allocating or upping your discretionary spending.




There are varying opinions on how much of your total income should go toward savings and retirement goals each month. Moreover, the answer is likely to vary, depending on your full financial profile.


But if you’re looking for some base guidelines, consider applying the 50/30/20 rule, a budgeting method that allocates 50% of your income to essentials, like rent and bills, 30% to discretionary spending and 20% to savings.





“If you keep a low balance in your checking account, you’re less tempted to feel like you have money to spend,” says Shang Saavedra, personal finance blogger at SaveMyCents.com.




Set up direct deposit to ensure your access to excess funds is minimal.

“For many of us, we view funds as available to spend the moment they hit our bank account,” says Nicole Gopoian Wirick, a Certified Financial Planner based in Birmingham, Mississippi. “To avoid this, I encourage clients to implement a direct savings plan where money automatically transfers from their bank account to a savings and investment account.”


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Americans are allowed to put a certain amount of money each year into designated retirement accounts, like 401(k)s, individual retirement accounts (IRAs) or Health Savings Accounts (HSAs). For instance, in 2021, employees can contribute up to $19,500 to their 401(k) plan.


If you aim to hit these limits each year, you can establish a robust nest egg for retirement while keeping lifestyle creep at bay. At the very least, you can ….


Flickr: American Advisors Group


“Many employers are also now offering automated 401(k) deferral increases that will increase the amount you contribute to your employer-sponsored retirement plan by a certain percentage annually,” Harrison says. “Some even coincide the timing with annual merit increases or bonuses.”




When receiving a raise or bonus, make sure you have a firm understanding of how much more income you’ll net after taxes before changing your spending habits.




“Use the increase to pay down debt or increase your savings,” Harrison says. “Then any extra can be used to increase your standard of living.”




Monthly commitments can be deceiving.


For instance, “buying a car with a $400 monthly payment vs. one with a $250 monthly payment is only $150 more per month, but a significant $1800 extra per year,” says David J. Haas, a Certified Financial Planner with Cereus Financial Advisors in Franklin Lakes, New Jersey. “I recommend keeping both a monthly and an annual budget and look at any new monetary commitments through the lens of both budgets.”





A budget is only helpful if you actually use it. Use a budgeting app or a simple spreadsheet to monitor your spending each month.


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Many banks, credit card issuers and budgeting apps will send you notification via text, email or push alert when a large transaction hits your checking account. These notifications can serve as a deterrent for large purchases — and also keep you abreast of how much money may be available in an account at any given time.




As we alluded to earlier, seemingly small monthly purchases can add up over time. Review bank and credit card statements for “zombie charges” — recurring subscriptions, renewals or fees for goods or services that you’re no longer using or don’t really need.


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“Re-evaluate every year whether or not you’re saving enough,” says Rick McCallister, a Certified Financial Planner based in Torrance, California. “Adjust as necessary.”




“Instead of living a life that is ‘expected’ of us from our friends and from media, design a life that goes along with your values,” says Saavedra. “I don’t need to have a fancy car if I don’t want one. I don’t have to have a big house if I don’t want one.”




“For a lot of people, Covid-19 has led to lower expenses in certain areas,” says Jason L. Williams, a Certified Financial Planner based in McLean, Virginia. “I’d suggest that people really think about the amount of joy that spending brings before just simply adding it back without any reflection once they are able to do so.”


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Otherwise, you’re more prone to popular spending traps as your income increases.




“Review your goals and make sure that you are on track for living the future life you want,” says Molly Ford-Coates, founder and CEO of Ford Financial Management. “Having your goals front and center reminds you what you are working for.”




A financial adviser or certified financial planner can help you set up more sophisticated savings strategies if you have a complex account or need more assistance.


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“Having someone to hold you accountable for your financial decisions can be an excellent method to avoid lifestyle creep,” says Forrest McCall, owner of personal finance site Don’t Work Another Day.


Check in with this person regularly to make sure you’re not straying too far from financial goals.





“To set up my clients to succeed, I have them set up two different checking accounts,” says Stephanie Trexler, a Certified Financial Planner, CEO and Financial Advisor of Golden Goose Wealth Planning in Grand Rapids, Michigan. “The first is for bills, which are set up on auto pay each month. The other is for everything else, including fun spending money.”




Absent other savings goals, experts generally recommend having enough money to cover three-to-six months’ worth of expenses set aside in a designated savings account. Bonus tip: Maximize these funds by looking for an account that offers a competitive annual percentage yield (APY).


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“Don’t carry balances,” Avani Ramnani, a Certified Financial Planner with Francis Financial, says. “This will ensure that you spend only what is in your bank account.”




If you start over-charging, “cut-up your credit cards and go purely to using cash or a debit card,” Ramnani says. “This will automatically restrict your spending to what is in your bank.”




Resist the urge to “move up” unless a larger home is absolutely necessary.

“If the smaller house continues to fit your needs, you could be saving thousands of dollars in moving and closing costs and even more with the reduced costs associated with your ‘starter’ home, relative to a more expensive house,” says Joyce Streithorst, a Certified Financial Planner based in Melville, New York.




If you’re looking for guidance on how much to spend on a home, the government has described homeowners who spend 30% or more of their income on housing as “cost-burdened” or “house-poor”.




It’s better to live below your means than above it, so think twice before taking out a loan or making any purchase that is going to put you in the red.




If you’re already in debt, prioritize payoffs over spending. There are a variety of strategies you could utilize — we’ve rounded up 50 of them right here.


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A good credit score helps you qualify for the best deals on credit cards, mortgages and other loans — leaving more money for saving and responsible spending.


You can maintain good credit by making on-time payments, keeping credit card balances low and limiting the number of new credit applications at any given time. Learn more about credit scores.




“When we bombard ourselves with images of others ‘best’ lives it is hard to not yearn for more. Spend time finding what is most important to you,” Harrison says. “Because of the hedonic treadmill, spending more on consumer products doesn’t make us happier in the long-run.”




“Just because you have more money to spend doesn’t mean you should waste it because you don’t feel like looking around for savings,” Woroch says.


There are plenty of savings tools, browsers and sites that can help you quickly comparison-shop and find discounts. Check out this guide for 50 ways to save more.




For “some of my favorite luxury items, I shop thrift stores or online platforms like Poshmark and Ebay,” Saavedra says. “I always tell myself ‘once you use a new item once, it is used.’ So there is very little difference to me in buying used vs. buying new, other than the savings.”




Resist the urge to spend all of your tax refunds, annual bonuses or other windfalls on pricey wants as opposed to needs. However …




“Avoiding lifestyle creep can be similar to straying from a healthy diet,” says Scott A. Bishop, a Certified Financial Planner based in Houston. “Most don’t do well on restrictive diets as they also do not do well with restrictive (seemingly punitive) budgeting. If you are having financial success, enjoy some of your successes, but pay yourself first.”




Control splurges by setting up an account for them specifically. Joseph R. Stemmle, a Certified Financial Planner based in Richmond, Virginia, keeps a “treat yourself” account, inspired by Amy Poehler sitcom “Parks and Recreation.”


“If I do want to treat myself or splurge on something, I know I have money set aside that won’t impact my overall budget,” he says.




“Focus on creating experiences and quality time together with family and friends, as opposed to buying,” says Marguerita M. Cheng, a Certified Financial Planner based in Potomac, Maryland.




If you find yourself yearning for more, you can consider new ways to generate more income to put toward spending or savings. Here are 49 side hustles to consider.


This article was produced and syndicated by MediaFeed.org.




Featured Image Credit: Deposit Photos.