We recently asked David Bakke, financial columnist for Money Crashers Personal Finance for his thoughts about how to make the best use of good financial strategies in college. Here are his thoughts. He writes on topics like college and careers, getting out of debt, and smart money management.
5 Ways NOT to Save Money While in College
When I was in college, money seemed like air to me: free, abundant, and to be taken for granted. I chose to ignore the fact that all the student loans I took out would someday have to be paid back. Besides, I figured I'd be rolling in dough with a high-paying job as soon as I stepped foot off campus.
Had I been financially savvy, I would have realized that saving more and spending less would have a huge effect on my life after graduation. But savvy I was not, and as a result, I graduated with more than $30,000 of debt. The high paying job didn't come as expected, and I spent years digging myself out.
Don't let yourself arrive in this unenviable position. There are a number of things you must avoid to keep yourself in a comfortable financial position. Here are the top five money mistakes to stay away from in college:
1. Pay for College With Credit Cards
Whenever you use a credit card to pay for something that you can't pay off by the end of the month, you are setting yourself up for financial disaster. Forget about enticing credit card rewards or low APRs - paying your college tuition with a credit card will drive up your debt and likely damage your credit score. Those low APRs may escalate, and the rewards will not make up for the massive interest payments you'll be making.
When it comes to using credit cards, there is one simple rule: If you can't afford to pay it off by the end of the month, put the credit card away.
2. Abuse Credit Cards
Card issuers specifically target college students for one reason: They view you as a money-making opportunity. However, by educating yourself now, you can avoid falling into their traps.
Avoid carrying a balance, and never go over your limit or pay a bill late. The fees and interest payments will eat you up financially, and late payments can destroy your credit. If you don't manage credit well during your college years, it could become a lifelong habit with irreversible consequences.
3. Use Student Loans Irresponsibly
While it's great that help is available to finance your education, there are few limitations as to what you can spend this money on. Taking a mature, responsible approach to your finances is especially invaluable when it comes to managing your student loans - you must commit to utilizing these funds for school-related expenses only.
It may seem enticing to go out and purchase electronic gadgets or new clothes, but you will be doing yourself a serious disservice. Student loans should only be used for paying tuition, textbooks, housing expenses, and anything else directly related to college. If you don't end up spending it all, pay it back immediately. Better yet, look into ways you can pay for and afford college without student loan debt.
4. Pay Full Price for Textbooks
When I attended college, I did what many college students do: I grabbed the syllabus for each of my classes, trudged to the college bookstore, and shelled out a ton of cash for the books I needed. But times have changed, and there's no reason to take this dated and expensive route.
With a little research, you can save as much as 97% off what you would pay buying brand new textbooks from the campus bookstore. You can purchase used textbooks via the Internet (and resell them when your course is finished), purchase e-Books at websites like CourseSmart, and rent textbooks at websites like BookRenter to save money.
5. Don't Generate Income
If you have time to watch television or party, you definitely have time for some paid employment. You can start by getting a part-time job or participating in a work-study program. If you're up for the challenge, you can even start your own side business - you never know where it might take you. I started a reselling business several years ago with my wife's unused textbooks, and it ultimately blossomed into a full-time venture.
Of course, it's important that you enjoy your college years, but you can have fun and be smart at the same time. Never allow your youthful exuberance to negatively affect your financial future. Remember, once you get out of college, all the debt you racked up will become your responsibility to pay off. While you can certainly investigate student loan deferment options, you will be better off finding ways to pay down your debts before interest fees and balances rack up further. This can cause your credit - and your quality of life - to seriously suffer.
What other money mistakes should college students be careful to avoid?