College students are back in classes, back in the dorms, and back in arrears to Mom and Dad. Yes, all the signs point to school year being back again.
While hitting the books and meeting new friends are an enjoyable part of college life (unless the books being hit are about philosophy and the friends being made are not all that into you), slipping into debt is not. But it is popular.
College kids very rarely have a sense of financial responsibility. That’s what makes them college kids, in addition to their lack of hygiene responsibility and showing up on time responsibility. Sooner rather than later, they will fill their dorm rooms with the latest trendy toys and hit the town with their new best friends often enough to make a jetsetter blush.
But they don’t exactly have the money to pay for it all. Before they know it, they’ve outlasted mom and dad’s generosity, they’ve run themselves into credit card debt, and they’re still spending, spending, spending.
So in order to change their impractical and ill-advised ways, college kids are going to have to change their outlook on personal finance. Or, in the case of many fresh-faced coeds, they will have to create a personal finance outlook in the first place.
Here are four common college pitfalls to avoid on the road to 20-something solvency.
1. Too many credit cards
The first rule of college budgeting is that credit cards are off limits, no matter how cool the free t-shirt is. The credit card is the death knell to a coed’s chances of fiscal survival. Plastic creates problems, especially when plastic is associated with insanely high fees and interest.
Of course, some might argue that they can handle a credit card because they never spend more than they have. These students either grew up with a silver spoon in their mouths or are lying. If college kids are known for one thing, it is that they are poor. They go to class all day, work occasionally, and spend frequently. Having a credit card just exacerbates the process, and with no money to make payments, the credit card fees, interest rates, and penalties start flooding in.
That really is the catch. College students tend to get in trouble when they throw too many purchases onto a credit card because all too frequently they don’t plan on paying them off. Furniture, Xbox, and any number of other frivolous expenses that cost big bucks end up on the card, and with no way of paying for the purchases, the college student quickly ends up in debt.
Credit cards provide a very easy way out for college kids who love easy ways out. And what’s worse is that a lot of companies target college kids because they are the ones who are often most profitable. Instead of buying into the credit craze, college kids would be wise to put their purchases on their debit card, pay with cash, or keep themselves from buying altogether. They’d do well to remember not to buy anything they can’t afford.
2. Too many unnecessary purchases
College kids might reply, “What other kinds are there?” These are the kids who are probably in credit card debt.
Unnecessary purchases are rather easy when you’re in college because they come in all shapes and sizes. First off, there are dorm room purchases. Couches, rugs, pictures, TVs – these are necessities in the eyes of most college kids, but when it gets right down to it, they don’t need them. Really, if they live in a dorm or in an apartment building, then chances are good that their neighbors will have all that stuff anyway.
The freedom to buy new clothes is also a big temptation once college-aged kids leave the house and set out on their own. Combine that sense of entitlement with the new tastes and styles of dozens of new friends, and before you know it, some freshmen find themselves with an entirely new wardrobe.
College students need to keep in mind the necessary purchases, like school books and a meal plan, before they start making plans on where to put that new plasma TV. There are many more important ways to be spending money on a college campus than on bells and whistles that do nothing more than show status or entertain. To truly set a college budget straight, youngsters should make room for necessities and savings and splurge with the leftovers.
3. Going out every night
Another temptation for college kids is to constantly hit the town. They’re young, they’re freewheeling, and their Friday and Saturday nights are always free.
But those Friday and Saturday nights are also expensive. Combine the weekends with weekday trips to the restaurant or to the movies and social coeds can find themselves in money trouble fast.
Strangely enough, all the going out is fairly unnecessary. There are just as many fun events on campus, and with a cafeteria nearby, there’s no need to go out to eat every night. Rather than having a datebook filled to the brim, a money-conscious college student would know when to say “no” and would find their fun for free down the hall or in the Quad.
4. Mortgaging your future
College life is a once-in-a-lifetime experience, yet many people pay the consequences for that experience throughout their lifetime. Student loans, unwise purchases, and other issues can rear their ugly heads long after students have tossed their mortar boards into the air.
That’s why it is important to plan ahead, at least a little bit, while still in college. If a college student has an income (perhaps from a campus job or a benevolent allowance), he or she should think long and hard about putting a little of it away each month. That way, when they hit the real world, they can have a little bit of savings built up, or if an emergency comes their way, they can be prepared.
One of the great parts of being in college is the freedom and independence, but taking a little bit of responsibility when it comes to money will be a decision that college kids will be glad they learned early.
Spending less than you earn is one of the most basic principles of making positive progress towards your personal finance goals, yet so many of us have a difficult time implementing the process. Below are some of the ways we allow ourselves to falter, along with suggestions on ways to improve.
We aspire to a higher class
It’s perfectly normal to want nicer and better things in our lives, but we need to be patient enough to earn such things. You can only “fake it till you make it” for so long without actually making it. Consistently living above your means is not sustainable. If you are looking for habits of the wealthy to fake, try to mirror their frugal habits rather than their wasteful ones.
We don’t practice what we preach
Living a frugal life is usually fine with most people; at least until we are tempted by something we want to buy. Obviously it might take a few tries to persevere and meet your goals, but if you are going to give up each time you face a difficult choice, it’s not worth your time pretending to be someone who wants to improve.
We often confuse our wants and needs
This is one of the biggest culprits. In such cases we convince ourselves that even our most basic living expenses consume most of our income, making it virtually impossible to get ahead. Other than true necessities like food and a safe place to live, nearly every other expense satisfies a want in our life. It’s hard to believe that we don’t need a cell phone or cable (or a TV at all), but that’s the honest truth.
We’ve made poor decisions in the past
It can be difficult to spend less than you earn when some expenses are from past mistakes. Until you pay off old credit card debt, for example, the interest that you pay each month may be hurting your ability to reach your goals. The only consolation is that good habits will eventually overcome such obstacles, though rarely as quickly as bad habits created them in the first place.
We choose to live in an expensive area
We can’t change where we were born or grew up, but we can choose where to live as adults. Taking a pay cut to work in a less expensive area could end up cutting expenses by an even larger percentage. Your income can only take you so far; eventually expenses need to be reduced in order for you to spend less than you earn.
We justify our actions because “Everyone else is doing it”
Our perception of “normal” is highly correlated to what we observe in our daily lives. Everything is relative. That’s why people would rather earn $50K if all of their neighbors earned $40K than $60K if all of their neighbors earned $70K. The fact is that it’s usually the people you least expect who are probably doing the best financially. Sure, some people are flashy with their wealth, but many more are discreet.
These are just some of the many excuses and reasons we use to justify spending more than we earn. We all have tough breaks and reasons for bad habits in our lives. The important thing is to identify the ways we fool ourselves and take positive steps to improve. For those with the determination to do so, spending less than you earn is achievable in nearly every case.
Having too much money sounds like one of those problems we’d all like to have, but there are legitimate concerns over the safety of deposited money when FDIC insurance limits are exceeded. Understanding these limits and taking appropriate steps can help to ensure your cash, which is generally believed to be the investment with the lowest risk, is safe.
The Federal Deposit Insurance Corporation (FDIC) insures deposits at most banks. You should check with your bank before opening an account to verify that it is insured by the FDIC. The basic limit for FDIC insurance is $100,000 per depositor per financial institution. So a single person with $110,000 in one bank would be guaranteed to get back $100,000 if the bank were to fail. The simplest way to avoid a loss is to place any deposits exceeding the limits into an account with a different bank.
Married couples get the $100,000 protection for each of their individual accounts as well as their joint accounts. As much as $300,000 could be protected at a single bank if the husband held $100,000 in his account, the wife held $100,000 in her account, and they held another $100,000 in a joint account.
Due to the larger amounts typically associated with retirement accounts, FDIC insurance limits increase to $250,000 for traditional IRAs, Roth IRAs, SEP IRAs, SIMPLE IRAs, self-directed 401(k) plans, and self-directed Keogh plans
For people with deposits that considerably exceed the FDIC insurance limits, there are more advanced strategies to protect their money. Such topics are beyond the scope of this overview, but it’s important to remember that they do exist. For most of us, managing accounts at multiple banks will suffice if we are lucky enough to accumulate sufficient deposits to exceed FDIC insurance limits.
You may already know that credit reports are available free of charge once per year from AnnualCreditReport.com. Credit scores, which are the number that lenders typically use when determining credit, are generally only available to you for a fee. Thanks to a new class action settlement, most people are eligible to receive their TransUnion credit score for free.
As I mentioned in my post about class action settlements, large groups of people are often involved. In this case, the class includes “all consumers who had an open credit account or an open line of credit from a credit grantor (including, for instance, automobile loans, bank credit cards, department store credit cards, other retail store credit cards, finance company loans, mortgage loans, and student loans) located in the United States anytime from January 1, 1987 to May 28, 2008.” So if you’ve used nearly any form of credit in the last 20 years, you’re probably eligible.
The settlement stems from a lawsuit filed against TransUnion, one of the big three credit reporting agencies, claiming that TransUnion and Acxiom Corporation improperly sold lists containing personal and financial consumer information to third parties for marketing purposes. While the defendants do not admit to any wrongdoing, the settlement entitles those included in the class to a range of benefits, including credit monitoring, access to credit reports and scores, as well as possible cash payouts.
For more information about this settlement, visit www.ListClassAction.com or call 1-866-416-3470. There you can determine your eligibility, compare your benefit options, and decide whether or not to participate in the class. As with any such matters, we at Lending Club recommend that you review your options carefully (and consult with an attorney, as necessary).
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