Personal Finance 101: Basics of Money Management for College Students

College is a space for learning and discovering. As a college student, you are constantly soaking in information and finding your place in your industry. Nevertheless, most college students lack knowledge of personal finance. It is equally important for everyone regardless of your major. Personal finance is essential to all students regardless of what your major is, especially since it is a critical skill to creating the lifestyle you envision for yourself such as achieving financial independence. 

To this extent, we asked college students about their questions about money management and decided to start a short series about personal finance. Here, we will try to tackle some of the key topics to achieving financial independence such as budgeting, savings and credit.

Budgeting

The basis of money management is budgeting, which most people know the importance of, but they are unsure how to approach it. Ensuring every dollar you get is accounted for and where it’s going is a first step in preparing an investment and savings plan. To do this, you can start with free templates such as the ones provided by Microsoft with a subscription or on other websites such as Nerdwallet.com.

Savings

Once you have a budget established, you can begin planning to save some of the money you have. The 50/30/20 rule, where you spend 50% of your income on needs, 30% on wants, and the remaining 20% will be saved, has become a popularized method for managing money. This is not necessarily the only and best approach for everyone. Saving 20% of your income is a good rule of thumb, but it shouldn’t be taken as a hard limit but rather as a minimum suggestion. 

Building the habit and prioritizing saving money first will ultimately allow you to have the capacity to invest, so the goal is to explore different styles and methods and learn what works best for you. Lastly, make sure you are saving your money in a place where you will not be tempted to continuously exhaust it. Having a savings account will not earn you much interest, but continuously having money deposited into the account will allow you to build discipline and understand the value of delayed satisfaction. 

Credit and FICO scores

When understood and used correctly, credit can be used to generate wealth. The basic principle behind credit is that instead of spending your own money, as you would do with a debit card or with cash, you are using money borrowed to you by your bank or other institution at a cost called an interest rate. This means the money you are using is not free and an add on fee or percentage of funds used is created for using this service. 

Because banks and other institutions that lend money make their money by providing money to individuals, they need to identify with ease which customers are most likely to pay back their debt. This is why credit scores were developed and are critical in the United States financial system. The higher the credit score implies that an individual has a high credit-worthiness and is more likely to pay the money owed and, in turn, this usually grants you access to better loan options with lower interest rates. The credit score number can range anywhere between 300 – 850, and not having a credit score in the United States is practically equivalent to having a poor rating. This is why it is essential to have or improve your credit score. 

There are so many more strategies and tips to be credit smart, so research other articles, watch Youtube videos, or even ask your financial professors. 

This article  is not a complete guide of personal finance and money management. It is an opportunity to start having intentional conversations to grow your financial knowledge. If you have more questions about financial literacy that we have not answered, please send them to us at wenevabroke@gmail.com, and we will take them into account!