High school graduation is an exciting time in a teen’s life. Between deciding on what college to attend or possibly taking time to pursue work opportunities instead, there are a lot of things that can be top of mind for a young adult. What may not be top of mind is your financial future and determining how you will manage your finances in college as a young adult.
Transitioning to college from high school comes with new responsibilities and having a financial plan now will have an impact on you in the future. Below are some tips on how to set yourself up for success in young adulthood and beyond.
Budgeting is Crucial
One of the most fundamental life skills that you will need moving forward is money management. This skill set will help you not only temper your debt but will also help you be successful with spending and saving habits as you get older. One massive component of this skill is learning how to budget your money. To put it simply, a budget is a way to know how much money you have coming in (from places such as your job) and how much money you have gone out to places like bills or food expenses. To help you create a solid budget plan, first, determine what expenses are absolute needs (like a car payment or rent) and which are wants (like entertainment or subscription services).
Take those expenses and document your monthly spending on each, then subtract those from the money that you have coming to you on a monthly basis. If you’re in the negative, you need to readjust your spending habits because you are spending more than you are making.
If you are in the positive, you can then start to build an emergency fund, which is exactly what it sounds like: a savings account built for emergencies only. To help manage your finances in college, you can utilize different methods such as the notebook method or different phone-based apps.
Credit Cards Can Be Dangerous
When you were in high school, you likely opened a checking or savings account. Now that you are entering adulthood, you might want to consider opening a credit card for large purchases or to build your credit score. An important thing to remember is the difference between a debit card and a credit card.
While a debit card is directly linked to your bank account, a credit card is essentially a loan from the bank that you must pay back in monthly installments, (plus interest if not paid in full each month).
Credit cards can be beneficial because they can help increase your credit score by showing you are responsible by paying off the amount of debt you accrued each month. However, they can be a major hindering factor if you end up missing payments or overspending. As a good rule of thumb, keep your credit card utilization below 30% and try to keep your credit card payments less than 10% of your average monthly income.
Future Planning is Key
With so much excitement in your present-day, you are most likely not extremely focused on what your finances in college. Many factors of your life can change from young adulthood to late adulthood, such as marriage, divorce, children, and shifting careers. Even though you may not have dependents or responsibilities now where you would need life insurance just yet, it’s important to understand the basics as you move into adulthood.
Although it’s not the most enjoyable topic to think about as you enter into college, you may consider securing a life insurance policy now to protect your tuition and future assets. If your parents cosigned on a private student loan and you were to pass away unexpectedly, they would still owe on this amount. The payout from your potential life insurance policy would help them pay off this debt or any other school debt you had incurred under their name. Keep in mind that the designated beneficiaries can always be updated as your life changes, and typically rates are lower when you are young and healthy.
