Smart Money Management
Managing money — especially limited amounts of it — is no small task. Gourmet coffees each morning, lunch and/or dinner out with friends, and weekend activities can easily cost more than $100 a week. Thinking about spending habits now can make the difference between living like a student while in school and living like one after you graduate.
Good spending habits and a little planning will help you take control of your finances during and after school.
Create a Spending Plan
Create a budget while in school and stick to it. If you've never created a budget before, it's not difficult. By determining your monthly income and then deciding ahead of time how to spend it, you can reduce unnecessary expenditures and better anticipate your monetary needs. To begin, do the following:
- Calculate your monthly income
- Calculate your anticipated expenses
- Determine what amount is left
Are you spending more than you have? Track your daily expenses for a week and see where your money goes. You might be surprised how much you can save by changing some of your spending habits. Then use those savings to pay for future expenses or pay down debts.
To develop a realistic spending plan, use online financial tools that are convenient and packed full of tips and information, like the online financial planning guide at www.edwise.org.
Credit Cards — Be in Charge
While credit cards can be handy — in emergencies, especially — they are another way of taking out a loan. If you get one after high school, remember to be extremely careful about when and how you use it. In most cases, if you can't afford to pay cash, don't buy it. Reserve credit cards for times when a retailer won't accept anything else — such as for travel arrangements — or in absolute emergencies.
Remember: Credit cards come with risks. Annual, late, and cash advance fees add up quickly. Many credit cards also offer low introductory or "teaser" rates that can rise to 19 percent or more in just a few months.
Perhaps the biggest risk of using credit is also its greatest benefit: convenience. Sometimes it's just too convenient to make an impulse purchase. Consider these convenient alternatives to using credit:
Cash. The most convenient way, cash assures that you spend only what you have.
Check cards are just as convenient as a credit card but the money comes directly out of your checking account, and you pay no interest or fees.
The same goes for ATM cards and checks. Just be sure to track your expenses so you don't accidentally overdraw.
Increasing your buying power with a credit card also increases your debt load. Studies have proven that people who have more credit cards end up with higher debt and have difficulty paying beyond their minimum monthly payment. According to the federal government:
"Making only the minimum payment will increase the interest you pay and the time it takes to repay your balance. For example, making only the typical 2 percent minimum monthly payment on a balance of $1,000 at an interest rate of 17 percent would take 88 months to repay the balance in full."
- Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Section 1301, 11A
For more information on planning, budgeting and managing credit cards, visit www.edfund.org, click on "Students & Parents," then "Online Money Management Library."
