Periodically we have a student who wants to write a Financial Tip of the Week. This week’s tip was written by Esebia Mantey, of our department, with a little editorial help from yours truly.
– R. Weagley
- Open a Checking & Savings Account. First, know the difference between the two. A savings account is an account that accrues interest over time from the money you deposit into the account. However, you can only make withdrawals a limited number of times per month. A checking account is an account where you receive a debit card and, perhaps, checks which allow you to withdraw at any place that accepts debit cards or checks. Many consider this to be a better option than carrying cash but you need to consider the risks. If you lose your debit card, cancel the card as soon as you know it is lost. If you notify the bank within two business days, your potential loss is limited to $50. If you do not notify them within two days, your loss is limited to $500 and, if you don’t notify them for 60 business days, you face unlimited loss. This is a much greater liability than for credit cards. If you carry cash and you lose your cash, your loss is limited to what you lost.
- Save. Saving money is activity that is much easier to say than it is to do. Saving is crucially important and you need to be disciplined about savings while you are young. The savings account (or money market account) is useful for creating your emergency fund. Making periodic deposits to the account allow you to save for things that would bust your budget, if you didn’t have the savings. You should have three to six months living expenses in your emergency fund.
- Budget, Budget, Budget! Why is budgeting important? It is crucial for you to keep track of what you are purchasing and how much you are spending in each category. Only then can you ask yourself if these are necessary purchases. Once you know where your money is going, decide where you want it to go, while making sure that savings is your primary category! Seeing your savings grow and that your purchases are meaningful and planned will help you feel like you are a success which, generally, makes you want to be even more successful!
- Limit yourself to one credit card. First, the more credit cards you have, the more difficult it is to manage them. Having access to excess credit may make it easier for you to spend more than you budget. Often, those in financial stress will be at the credit limit on one card and they get a second, third, and fourth, so they can keep buying. This is the road to financial failure. There is really no reason to have more than one or two credit cards, especially when you’re in college. Besides, each credit card has a limit and these individual limits are summed to determine the risk a lender might face if they lend you money. Thus, a greater number of cards can lower your credit score, making it hard to borrow for items that might make sense to borrow money to purchase – like a home. Similarly, don’t get store credit cards. We can’t tell you that getting a store credit card will ruin your financial life. Store credit cards, however, are the worst credit cards to have. Why? Store credit cards have the highest interest rates and their limit adds to the limit of other cards, lowering your credit rating. Most importantly, when you use your credit card, pay the balance off each and every month. If you cannot pay the balance off, stop using the credit card until you get the balance repaid.
- Limit how much you go out. Everyone loves to go out for entertainment and everyone likes to eat. Going out often is very expensive, especially when you don’t have much of an income. Try and find things to do that are free. Most colleges have films, talks, art exhibits, concerts, or cooking classes that are free. Or, stay at home and host a movie night with your friends! Importantly, you need to learn to cook. Preparing your own food is much less expensive and better for your diet than fast food. So, you choose. You can be like the herd of college students and flock to food that is readily available. Or, you can be a leader and save money by making a meal that could provide several nights of food. Yes, this takes some time but, in the end, you will save money and you just might enhance your social life. Remember that a good cook dispenses happiness and a good roommate washes the dishes!