4 financial moves before you leave for college

Shelly Gigante

By Shelly Gigante
Shelly Gigante specializes in personal finance issues. Her work has appeared in a variety of publications and news websites.
Posted on Aug 12, 2021

You’ve toured the campus, registered for classes, and attended orientation. Perhaps you even picked your dorm room décor. As you embark on your college journey, however, don’t forget to make money management a priority, too.

Financial professionals say incoming freshman have a unique opportunity not only to broaden their knowledge of science and literature, but also to educate themselves on sound saving and spending habits that will set them up for a lifetime of success.

“College may be the first time that you’re on your own and it’s important to go in with a basic understanding of personal finance because those are the skills that will serve you for many years to come,” said Alicia Figueroa, a financial professional with Coastal Wealth in Ft. Lauderdale, Florida. 

That begins with:

Creating a budget

College students have expenses far beyond tuition and room and board. For example, you will need extra money for school supplies, clothes, transportation (if you commute or bring a car to campus), dorm room essentials (microwave, sheets, toiletries), meals off campus, and social activities (including sorority and fraternity dues, if you plan to rush).

Your savings and sources of income will need to cover those expenses for the full academic year.

A budget will help you stretch those dollars further. It can also relieve a major source of stress, which means one less thing when you’re cramming for exams.

To create a budget, start by making a list of all your expenses (not including student loans if you can defer those payments until after graduation). That may include housing, utilities, parking fees, car insurance, gas, cable and internet service, cell phone service, car maintenance and repairs, dining out, groceries, health club memberships, entertainment, and medical copays for doctor’s visits and prescriptions.

To help keep their spending on course, the U.S. Department of Education advises students that their expenses will likely fluctuate depending on time of year: “Larger expenses (such as car insurance and books) and seasonal expenses (such as a trip home at the holidays or a higher electricity bill in summer when the air conditioning is on) need to be incorporated into your budget.” 1

Next, tally your available savings, any allowance you receive from your parents, and any income you may have coming in from jobs, loans, grants, and work-study. If, based on your monthly spending, you’re on track to run out of money before the semester or school year ends, you’ll need to scale back. Or find ways to increase your income. (Learn more: How to be on a budget: The essentials)

“Spending less can be a lot easier than earning more,” the Department of Education writes in its budget guide for college students. “Rent books rather than buying them, or buy books to download to your computer. Use a shopping list when grocery shopping, and buy only what you need. Ask yourself before buying anything, ‘Do I really need this?’”

A budget is not a "set it and forget it" tool. It must be monitored monthly to ensure that your financial picture remains on track. This will also help you identify pockets of waste. (For example, if you pay for a meal plan, but are eating out several times a week, switch to a less expensive meal plan next semester, or one that permits dollars to be used at on-campus vendors like Starbucks and Subway that are not affiliated with the dining hall.) 

Budgeting apps make it easy to keep your spending on track. Some, like Mint, connect directly to your bank account and automatically track your spending, while Slice keeps tabs on all your online spending. Pocket Budget similarly displays your budget alongside a list of your monthly transactions, so you can improve your daily spending routine and cash flow.

Getting a credit card for emergencies

This advice comes with a warning. Colleges are filled with students who fall prey to the high-interest credit card trap, racking up large balances that they struggle to repay.

According to a 2019 survey by Everfi, nearly half of college students with credit cards juggle payments on two or more cards (45 percent, up from 25 percent in 2012). Just 51 percent plan to pay off their credit card bill in full, down from 79 percent in 2012.2

Don’t think carrying a balance can inflict pain? Think again. If you made only the minimum monthly payment ($200) on a credit card with a $5,000 balance, it would take you nearly 12 years to pay it off. Worse, it would cost you an extra $3,400 in interest fees, assuming the credit card charged 20 percent interest. Some charge more. (Related: Handling credit card debt)

Despite the dangers of overspending, however, most financial professionals agree that college students should open a credit card for emergencies. It’s wise to start with a small credit limit, say, $1,000, which caps how much you can borrow.

Over time, as you demonstrate your ability to pay your bills on time, not only will you be eligible for a higher credit limit, but you will also build a strong credit history, which you will need to rent an apartment or purchase a car or future home at a favorable interest rate.

“Your adult life starts the day you walk out that door and go to college,” said Figueroa. “If you have the ability to take on debt, you also have the responsibility to act in your best interest and make sure that you’re making good financial decisions along the way.”

Communicating with financial aid

If you received financial aid in the form of loans, scholarships, work-study, or grants, you’ll want to stay in close contact with the financial aid office before you head off to campus and throughout your college career. 

As a freshman, you need to be sure you understand the terms of your financial aid offer, the academic criteria required to maintain your financial aid package, and what needs to be paid back when.

Be aware that you will need to submit the Free Application for Federal Student Aid (FAFSA) every year, which is used to determine your eligibility for need-based federal loans. Many colleges and universities also use the information submitted in the FAFSA to determine institutional aid.

To be sure you are getting all the financial aid for which you are eligible, it’s a good idea to annually review your Student Aid Report, a summary of the information you submitted on the FAFSA, and correct any mistakes you find.

If at any point your family’s financial situation should change (due to a job loss, unexpected medical bills, or a separation or divorce), you should let the financial aid office know without delay. They may be able to work with you to reevaluate your expected family contribution. Come prepared with documentation, including federal income tax returns, to support your new financial status. (Learn more: How to request more financial aid for college after a job loss

Figueroa said students should also check in every year with the financial aid office on campus to find out about any new scholarships for which they may be eligible to apply. “You’d be surprised,” she said. “There is often money waiting to be given away.”

Talk about money

College is a major expense. As the student and the one signing for any loans, it is your responsibility to understand exactly how much that degree will cost you and how long it may take to repay.

It is also your job to make good financial choices. Is the amount of money you are planning to borrow appropriate, or even manageable, given your earnings potential? If you borrow the maximum allowed in federal loans for your undergraduate degree, will your options for graduate school be limited? (Related: Is student debt worth it?)

“Your decision on what school to attend and how many degrees to obtain should take into account what it will cost and what your future income potential will be,” said Figueroa. “What portion of your salary will the monthly loan repayment be? For example, if the monthly repayment is too high relative to your overall income, it may affect your ability to get financing in the future for other goals like buying a home.”

It is also important to initiate an open and honest dialogue with your parents, so financial expectations are clear.

They may believe that college students should pay their own way, or at least pay a portion of tuition to ensure that they have some skin in the game. Alternatively, they may expect you to take a loan for all four years, but plan to help you pay it off after you earn your degree. You’ll never know unless you ask.

College is an exciting time for young adults, filled with challenges, new experiences, and hopefully a little fun. By learning to budget, managing debt, and staying engaged with your financial affairs, you can also ensure that you graduate with not only a diploma on the wall, but also the tools you need to succeed.

Discover more from MassMutual…

Biggest college freshman financial blunders

Paying off student loan debt: 5 tips

Need financial advice? Contact us

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StudentAid.gov “Not sure where to start in creating and managing your own budget?”

Everfi, “2019 Money Matters on Campus Report.”

The information provided is not written or intended as specific tax or legal advice. MassMutual and its subsidiaries, employees, and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel. Opinions expressed by those interviewed are their own and do not necessarily represent the views of MassMutual.