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Written by: Cathleen D. Phelps
For years, your mission in life was to get into college. Now that you’ve cleared that hurdle, it’s time for some more grown-up goals, like how to manage money in college. It’s time to prove that when you graduated from high school, you also graduated from the Bank of Mom and Dad (BOMAD).
Going to college and managing your own money is going to test the skills you learned by having an allowance when you were little. Still, some of you may be surprised to realize how much your parents helped you regulate your purchases or funded most of them even as recently as high school. It is possible that the BOMAD is no longer open for business but, even if it is, do you really want to go there?
NO. Don’t approach the BOMAD except in an extreme emergency.
Here’s what you need to do to make it on your own:
1. Earn money
Your biggest asset now and going forward is your ability to work. Get a summer job and save for school. Plan to work during school breaks to replenish your bank account. Once you have the hang of living away from home and managing your studies, work part-time during school. Explore the career counseling center at your school for internship and future job opportunities. Having a job forces you to structure your time rather than waste it, and money coming in reduces the need to go crawling back to the BOMAD.
2. Pay yourself first
Start this habit now. Every month, before you pay your bills, sock some money away into a savings or investment account. Birthday money from Aunt Martha? Sock it away. Got a raise? Sock it away! You’ll never miss it, and this is a habit that will help you pay as you go for vacations and fun stuff without the temptation of debt. Need help setting up an account? It is okay to ask questions at the BOMAD about this… they will be impressed and happy to help you.
3. Stick to a budget
Budgeting is not very fun, but it is one of the best ways to avoid a visit to the BOMAD. Temptations are everywhere, and you may find that some of your friends may have a different and more lenient arrangement with their BOMAD. But stay strong! There are free and fun things to do in college, student discounts on everything, and school services to help you find work, apply for scholarships and financial aid, manage debt and so on. Take full advantage of all of these. As they say on SNL, “Don’t buy stuff you cannot afford!”
4. Minimize debt
You may have had to take on loans to go to college. Use this money wisely, like for classes and not spring break, and don’t take on additional debt. Be careful with credit cards including any credit card you got from the BOMAD. Debt, especially credit card debt, makes unpleasant trips to the BOMAD much more likely and will follow you for a very long time.
5. Build good credit
Start off right by paying all bills on time every time. One bad decision to skip a payment can stay on your credit report for 7 years… almost twice as long as your college career. Using your budget should make it easier to do this. When you’re a pro at managing your budget and it gets closer to graduation, then consider getting your own credit card. The BOMAD may have already given you a credit card to help you build your credit history, but the BOMAD may also be making all the payments for you. If this is the case, you aren’t on the hook quite the way you would be if it was your own card. Practice paying that balance off to the BOMAD every month.
A history of using credit wisely will result in a good credit score and help you when you go to buy a car or rent an apartment on your own. When you’re ready to get your own card, choose one with no fee and a modest credit limit, buy groceries on it once a month, then pay it off completely each time. Before you know it, you’ll have a good credit rating and no debt. And you know what that means? No BOMAD!
6. Ask for help if you need it
Big unexpected expense? Job fall through? Not sure how to file your taxes? Or do you have a decision you’re unsure of? While we’ve spent this article talking about avoiding the BOMAD except in dire situations, it actually can be good to go to the BOMAD or another trusted source for advice. Even if you feel embarrassed, don’t hide a question or a problem…financial problems grow in the dark. Your BOMAD or other financial mentor will appreciate your maturity and willingness to problem-solve.
So that’s it! You have four years as a college student to develop sound money management habits using these six practices. You won’t have to hit up BOMAD for money due to immaturity, inexperience, or lack of planning. The BOMAD won’t have to deal with constant requests from you. Everyone will be happy! And your start on the road to financial independence is priceless!
Related: The Hardest Lesson for Investors: Staying in the Market