Where did the summer go? Hard to believe that school will be starting again in just a few weeks! If you’re a college freshman, this is probably the first time you’ve lived on your own. So along with your favorite new jeans, the bedspread you picked out with your roommate-to-be, and the stuffed animal that reminds of your dog at home, be sure to pack these financial five tips that will get you through the year – and your college career – without emptying your wallet!
- Create an estate plan. Yes, really! You may only be 18-years old, but even though you can’t buy alcohol legally, the law considers you responsible enough to vote, and to take care of your own financial and medical records. As I wrote in my blog back in March, if you don’t have a HIPAA release, a health-care proxy, and a financial power of attorney, your parents may not be able to make decisions for you if you become ill or severely injured. Cover the basics now to protect yourself in an emergency!
- Watch out for those credit card offers. They may come with a free t-shirt, or points toward free airfare, but they may also come with high interest rates and annual fees. Unless you’re ready to accept the responsibility of a credit card, and you fully understand the terms and conditions, just keep walking when you see those kiosks! When you are ready to consider a credit card, do your homework first. Look at the grace period, late fees, annual percentage rate and annual fees.
- Don’t spend more than you have to for books. The average student spends about $1,300 on books and supplies at a four-year public college, according to The College Board. Prices can be the highest at campus bookstores, so shop around. Consider buying used or renting books (sites like Chegg.com offer rentals), and remember – if you do buy books – sell them back at the end of the semester. While it may be tempting to keep them as references, the fast pace of research and technology may render your textbooks obsolete before you know it. Rely on the Internet for more current references.
- Don’t borrow unless you have to. And if you have to, borrow as little as possible. CollegeinSight offers some pretty scary statistics for students in Michigan. In 2014, the average debt of students at a four-year institution in the state was $29,450, with 62 percent of Michigan college students in debt! If you must borrow, do some comparison shopping first. While the federal government may offer the cheapest loans, those loans can’t be refinanced later. Before seeking a loan, be sure you’ve exhausted all opportunities for grants, scholarships or other types of financial aid based on the type of degree you want, your gender, religion, or ethnicity. You may be able to find an alternative. Don’t wait to search for funding!
- Start saving now. I can’t stress this enough. If you begin saving now – even a few dollars here and there – compound interest works in your favor. If you were to start a Roth IRA at 18, and contribute just $1,000 per year (assuming a seven-percent annualized return), your balance at age 65 would be somewhere in the neighborhood of $350,000. (Check it out with this calculator from Bankrate.com.) Of course, you’d want to increase your contributions as your income increases, but it’s never too late to start saving something, and your 65-year-old self will thank your 18-year-old self all through retirement!
As a financial adviser, I could go on and on about the things our younger selves could do to help our older selves enjoy a better retirement. (If you’ don’t believe me, check out Kobe Bryant’s letter about money to his 17-year-old self!) But these are a good start. If you keep these five tips in mind, you’ll be better off than many college graduates who start life after school with crushing debt and no savings. Good luck, study hard, and make the most of your time at college. And if you or your parents have questions, please feel free to contact us.