Money MistakesCollege expenses have sky rocketed in recent years so that most young adults will require multiple sources of financial aid, or student loans, to attend a four-year college or university. Securing the financing is the first step in navigating the busy semester schedules, which include paying tuition and fees, earning spending money and completing the coursework. Every student must consider financial management skills to be one of the most important life skills to learn while in college. Mistakes during these years can set a difficult course for the early years of working life.

Mistake 1 – An Expensive University

With few exceptions, the chosen institution will not matter after the first job is secured. Students must choose an affordable school. Out of state schools can be comparable in cost to the in-state universities if the other state has options for incoming students. Ivy League schools will require hundreds of thousands of dollars for tuition and fees in four years. Private universities can be very expensive since they are not subsidized. The student is wise to determine what type of school would be required to complete the desired degree program.

Some students decide to complete the foundational courses at a community college or local school to reduce the cost of the degree program. Living at home for the first two years of college can save thousands of dollars each year. The selection of schools is broader than ever before, so students can make wise choices that will prevent the accumulation of a massive student debt in four short years.

Mistake 2 – Lack of a Budget

A monthly financial plan begins with a detailed budget that provides a framework for the student’s decisions. Inconsistent income, such as a student loan, causes mismanagement of funds if the student feels wealthy before the tuition is paid each semester and poor for most of the semester. Strict budget management allows the student to track each dime to prevent shortfalls at critical junctures throughout the school year.

A simple budget is a good starting point for the student since a budget is a living document. As the situation evolves, more details can be added. Weekly reviews are helpful to prevent overspending before the end of the month. Computer software is helpful for those who want to connect the budget to their checking account. Close monitoring of the budget allows the student spending flexibility when needs arise.

Mistake 3 – Misuse of Loan Funds

Access to student loan financing does not give the student license to spend the money on vacations, cars and a lavish lifestyle. Borrowing more money to enjoy the college years can cause devastating consequences in the first five years of professional life. Careful management of the borrowed money will prevent the problem of amassing too much student loan debt.

Misuse of the student loan money delays the realization of a debt-free living goal, which is possible. All of the funds must be repaid, with interest, once the student is out of school. College students are not guaranteed a job after graduation, so the wise student will restrain costs throughout every semester of college. Discipline with the student loan funds is an important training ground for the young professional with more monthly obligations.

Mistake 4 – Amassing Credit Card Debt

Without a steady income, the college student might resort to using a credit card to fill the gaps. This practice can create a sense of having money when none is available. Studies have shown that people who use credit cards will spend 30 percent more each year than those who use cash. Infrequent use of a credit card is acceptable as long as the balance can be repaid when the bill arrives.

Students can create significant debt issues if a credit card is used in place of the student loan money. Carrying credit card debt clouds the picture revealed in the budget. Payments to credit card companies will use funds that could be used for other needs. A high debt ratio will weigh on the credit score, which determines interest rates on loans of all types. Credit card use must be limited to extreme circumstances when the student has exhausted all other options.

Mistake 5 – Ruining Credit History

Non-payment of bills can cause marks on the credit history that remain for years past graduation. The wise student will realize the significance of the credit history when applying for jobs and attempting to secure credit, such as car loans and mortgages. Early mistakes can cause the graduate to delay many important dreams while the credit history is repaired and rebuilt.

A student with multiple outstanding student loans following graduation might be unable to qualify for a student loan consolidation program. Credit scores indicate to creditors the probability of default for the applicant. Careful management of credit is essential for the student who wants to graduate with every door of possibility open.

photo by: jDevaun