Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect the opinions or evaluations of our editors.
If you are reading this, you are probably a new college student whose parents sent you this article.
But before you roll your eyes and scroll through Instagram again, consider this: What if you could do a few things now to make your financial life easier for years to come?
Your college years are one of the most crucial times in your financial journey. Most of the time, he has a clean slate: few financial obligations, little to no debt, and a chance to start off on the right foot.
I didn’t make the most of it. But right now, you have your chance.
Why should you worry about money while you’re in college?
Before you write me off as another keyboard warrior in the personal finance sphere, let me let you in on a secret: I was in your position a few years ago and have made (almost) every financial faux pas imaginable.
I’ve maxed out credit cards, overdrawn bank accounts, absolutely ruined my credit score, signed apartment leases I could barely afford, and at one point worked three jobs but had no emergency savings. I think the only mistake I haven’t made is withdrawing from my 401(k) early.
Here are some things you wish you knew about money when you were a college student. (I promise you, none of these tips involve cutting lattes out of your routine.)
Be smart about your student loan repayment
Student loans are becoming necessary to finance your higher education; More than 43 million borrowers collectively have $1.73 trillion in student loan debt. If you’re joining that crowd, you could be banking on getting a refund check for the amount left over after your school pays your tuition and fees.
before saying, “A free check for $3,000? Sign me up!” Two things: that’s not free money, and you need to think long and hard about what you’re going to do with it.
I spent my first student loan refund check on clothes and a plane ticket to Africa. Don’t be like me.
Traditional personal finance advice will tell you to send the refund to your loan servicer so you’re not borrowing more than you need. If your parents support you financially while you’re in school, it’s true that you’d be wise to put that amount toward your overall balance now to pay off your loans faster and save money on interest.
But if you’re supporting yourself while you attend college, you may want to put that money away in a savings account where it’s easily accessible. Having a little security can be beneficial during the school year, especially if things don’t go as planned with your part-time or side job.
Subsidized and unsubsidized federal direct student loans (usually what college students take) currently carry an interest rate of 3.73%. That’s far less than what you’d pay if you lived on credit each month, considering some credit card interest rates can be as high as 25%.
That student loan money isn’t technically yours, but in an emergency, it’ll cost less to use than swiping a credit card.
If you’re relying on your loan repayment to fully cover your living expenses, you need to realistically budget how much you’ll spend each month. Trust me, you can’t just “keep track” of everything in your head.
A simple spreadsheet detailing your expenses, from rent and utilities to “fun” money for social events, is adequate enough. If you’re anti-spreadsheet, check out our picks for the best budget apps.
Get a credit card, but use it wisely
Now that you’re transitioning into adulthood, you need a credit card. Not because you need something for dinner with friends (leave it at home!), but because you need to start building your credit history and score.
If you’re new to credit scores, here’s a quick synopsis: Your score is a number between 300 and 850 that lenders look at to determine how risky or responsible you are as a borrower when applying for a credit card or loan. Multiple factors go into a credit score, including payment history, amounts owed, length of credit history, new credit, and credit mix.
Having a good credit history — and a healthy score — can increase your eligibility for credit cards, car loans, a mortgage, and even a job.
“Several graduates told me about the job they had been offered, only to have the offer withdrawn once the employer verified their credit score,” says Sonya Lutter, certified financial planner and director of institutional research and education at Herbers & Company. “In each case it wasn’t that the student had bad credit; rather, they had no credit history.”
Opening a credit card is the first step in building your credit. But using it responsibly is how you’ll avoid racking up debt and causing your credit score to plummet in the first place.
Lutter recommends putting normal expenses, like gas or textbooks, on the card and paying the balance in full right away. Doing so will allow you to start building credit with an expense you were already going to have, rather than running up a balance on food or entertainment expenses during the month and struggling to pay it off later.
There are many card options for college students. Try opening one with no annual fees, but one that offers a rewards feature, like cash back on purchases. You can find our best options for student credit cards here.
Stay away from Memestocks
Fintech apps have made daily stock trading easier than ever. But just because it’s easy and you may know people your age who participate doesn’t mean you should start chasing memestocks in apps like Robinhood (remember the GameStop Saga?).
You don’t want to invest your financial aid reimbursement check, or rent money, or savings, in memestocks, or even long-term investments. Before you even think about dipping your toes in the stock market, you should be prepared to pay your living expenses, have a emergency fund and a plan for debt paymentLutter says.
If you have those bases covered, it might make sense to start investing, but usually not in short-term assignments.
“College students have a long-term horizon, and I think it’s critical that they use that to their advantage,” says Nick Rostykus, certified financial planner and private wealth advisor at WealthSource. “It’s hard to stay invested when everyone else is trading in today’s news headlines, but that’s when you get rewarded the most.”
Long-term investing means that you have devised a solid investment plan and selected a variety of asset allocations. You have no idea what that means? read this guide and then contact a financial advisor before you start investing money in an index fund.
All investing carries risk: If you’re not comfortable with losing your entire investment, that’s a good sign that you’re not ready to dive into the stock market yet.
Beware of school-sponsored bank accounts
If your college has a bank on campus, you might be considering signing up. But you may want to think twice before doing so. University-sponsored bank accounts have drawn attention in recent years due to their high fees.
in 2016, the Consumer Financial Protection Bureau (CFPB) found that many of these institutions had characteristics that “lead students to rack up hundreds of dollars in fees per year.” One of the biggest was the overdraft fee, which is an extra payment fee that occurs when you spend more money than you have available in your account.
The analysis also found that these accounts offered few financial benefits for students, but produced large profits for banks. There have been some improvements since then, but some banks still prey on college students.
Instead, look for a banking institution that has no fees. The best student checking accounts (not associated with a school, but offered to students through a bank or credit union) often have little or no minimum deposit. Some even offer cash back or the opportunity to earn interest on your balance.
This is the beginning of your financial journey – it’s not a race
The tips above will make you look good on paper. But I think the best-kept secret about personal finance that a lot of people don’t know is this: Building a strong financial life is a marathon, not a race.
That means you won’t stay within budget every month. You’re not going to become a millionaire overnight (sorry). And you’re going to have setbacks. Lots of mishaps.
The best thing you can do is continue to arm yourself with knowledge to adapt to any financial situation you find yourself in. The solid foundation you build now will give you the stability you need to deal with your finances for the rest of your life.