Many of our clients currently have kids in college or heading there. While we can’t control the cost of tuition or books, we can give some tips to parents and students alike to start building a better financial future.
- Start building credit – Having a solid credit history won’t matter to a student in college, but it makes a big difference later in life. Every college student should consider getting a student credit card to begin building a history. However, make sure that they are using the card responsibly and paying off the balance every month.
- Learn to budget – If a student has a job/income, then they should be learning to budget immediately. It could even be as simple as money in/money out but taking the time to write (or spreadsheet) your monthly income vs. your monthly expenses is a great way to build strong financial habits into the future.
- Put things in perspective – While a night out with friends is great, it doesn’t have to be every night or every weekend. If you have a budget and stick to it, you’ll have a much better plan to decide whether to head to the club or stay back and watch a movie at a friend’s house.
- Sign up for retailers’ emails – When you’re working on a budget, but still need to buy clothes/shoes/whatever, coupons are a great way to save a few bucks. Not only that but hundreds of retailers have student discounts as well. So, if you’re at a store it takes about five seconds to ask if they have a student discount.
- Pay yourself first – If you do have an income and are willing to make the sacrifice, opening a Roth IRA and investing (even a little each month) can be a huge windfall when you retire 40-50 years later. Compounding returns means that the earlier you start investing and put your money to work (as you can see in the chart below), the bigger the nest egg you’ll have down the road. For the most diligent of savers/budgeters, this is the best piece of advice we can offer.
Chart 1: Sources – J.P. Morgan Asset Management, Long-Term Capital Market Assumptions. Compounding is the increasing value of assets due to investment return earned on both principal and prior investment gains.
This year brings with it the challenges of COVID-19 and whether students will be on campus. Students are less likely to have the burden of deciding between going out for happy hour or staying in and studying. So, take this opportunity to start building credit, budgeting, and most importantly saving. The difference between saving a little when you are young or starting only once you’ve established a career can be mind-blowing. Depending on your rate of return, it could be the difference between working until you’re 60 and working until you’re 70 or beyond. Also, the sooner “paying yourself first” becomes an ingrained habit with your income, the easier it will be later in life to save more and watch your nest egg grow faster. I think that now, with the temptations of college life at a minimum, is a great time to start building your financial future.
~ Steve Gormley