The CORE of Financial Wellness

I’m teaching CORE 103, a first-year life-skills class at Drury University, and post my weekly blog focused on the class content.  Our CORE financial expert and and more importantly my husband, Matt Battaglia was the guest blogger for this post.

As a college student, sound financial know-how is one of the most important things to learn.  Developing good financial habits now will pay great dividends in the future.   Don’t wait until you think you “have money” to begin to learn how to manage it.  Personal finance means a lot of different things to different people, but it’s usually not about being rich.  Personal finance is about having the freedom to follow your passions and dreams, doing what makes you happy, and controlling your own destiny without worry or regrets about money.  Here are 7 tips related to Personal Finance that every college student should know:

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Make a decision to invest in your financial education. The number one financial mistake a college student can make is to do nothing.  Decide to invest some time and resources in your financial education.  Begin to read about personal finance on blogs, websites, and in financial magazines and books.  Because of the complexity of the subject, it is important to get a diverse range of advice! Talk to parents, friends, and peers.  Find others that are also interested in discussing personal finance issues. Read financial blogs like DailyFinance.com or TheSimpleDollar.com.  Subscribe to Money Magazine or check out books from your local library.  Find a mentor who can share his or her financial experience with you.  Be careful to not overwhelm yourself or think of your financial education as a “chore.”  Simply make a decision to educate yourself.

Know the importance of having good credit. Good credit is an important, and nearly essential, tool in today’s economy.  A bad credit score can lead to:  higher fees and rates on loans, being declined for accounts, no credit line increases, or being rejected for jobs, apartments, or insurance.  Good credit can give you access to these things, as well as save you hundreds of thousands of dollars in interest!  In fact, your credit score may be the single most important number in your financial life!  The most common credit score used is called a FICO score which ranges from 350 (lowest) to 800 (highest).  To get the best rates, you need a credit score of at least 720.  FICO scores are calculated using a complicated formula.  The graph below shows the major factors and how much they weigh in calculating your score:

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Get a credit card and learn how to use it wisely. So how does a college student begin to establish credit?  By the (smart!) use of credit cards.  For most college students, a student loan and a credit card is enough to begin to establish a solid credit score.  There is some that think you should not use credit cards at all….and there certainly are risks if you misuse or mismanage your credit spending!  However, the smart use of credit cards is very helpful and sometimes necessary for building good credit.  Be sure to research your credit card options by using a reputable website like Bankrate.com.  Make sure you understand all the terms, rates, and fees.  Sign up for a low-rate, no-fee card.  Don’t go crazy! Two cards are enough – one Visa and one Mastercard.  Arrange a limit that won’t tempt you to get into trouble, and set up automatic payment from your checking account each month!  Keep using your card(s) a little each month and pay them off each month to build a payment history.  Retail cards may be easily accessible and offer points, but they often come with higher rates and fees!  If you have a joint account with your parents, be aware that your actions can hurt their credit and vice-a-versa!  Despite the need for establishing good credit, don’t let a credit card be an excuse to spend money!  Credit can easily be wrecked by overspending and take years to repair.

Optimize and automate your financial management with technology. No one wants to spend a lot of time pouring through statements and receipts.  With technology, it’s easier to manage your money today more than ever!  Every college student should have a free checking account, linked to a free savings account.  Use Bankrate.com to research banks and credit unions.  Look for a free account for students or with direct deposit.  Make sure your bank’s website is user-friendly and offers free online bill pay.  Have any paychecks directly deposited into your account so your money is always there when it needs to be. Set up an online savings account – these accounts offer higher rates and can be linked to any checking account.  Set up automatic transfers to your savings account based on specific savings goals. Pay as many bills as you can online and set up automatic payments.  Watch out for “overdraft protection.” Banks offer this as a way for your check or debit card charge to clear even if you don’t have the money in your account, but the problem is that they will then charge you $30 or more per occurrence.  I would rather deny overdraft protection and save the fees!

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Create a conscious spending plan. There’s a dirty “B” word in financial planning and that is Budgeting.  No one wants to budget and rarely do people stick with a budget long-term.  So rather than budget – choose to take control of your finances rather than let your spending take control of you.  Choose how you spend your money by making a conscious spending plan.  The “pay yourself first” concept says to first put money into savings and retirement (paying for your future), then pay your fixed costs (must-haves), and then pay your discretionary spending last.  Too often, we fall into the bad habit of reversing that order!  Take control of your spending plan by resolving to spend 1 hour per week optimizing your spending.  Link your bank and credit accounts to a financial tracking program like Mint.com or Quicken.com.  Both are secure and available as an app for your phone.  Spend a few hours setting up your accounts and spending categories and let technology do the rest!  Strive to put 10% of your take-home pay into retirement or investments, 10% into savings for a specific goal, 50-60% into your fixed monthly costs, and the rest 20-35% you can spend with no worries and no regrets!

Start saving and investing now. The most powerful factor on your future financial situation is time.  Once time is gone, there’s nothing we can do to get it back.  Time coupled with a decent interest rate can make for some powerful savings!  Did you know that if someone age 20 would invest $500 per month for 40 years, by the time they’re age 60, they would have invested $240,000?  Even better, factoring in an interest rate of 6%, that person would have just over $1,000,000 in their account?  However, if that same person waited until age 30 to start investing, their account would be just over $500,000 at age 60.  That is a difference of about $500,000 that you can’t make up because those 10 years are gone!

You don’t need to be an expert stock-picker to start investing.  Investing is more about setting goals and having the discipline to stick with your plan to achieve your goals.  Investing is not only for rich people either.  You can open an investing account with as little as $50 per month.  Index funds are low risk, low-cost mutual funds that offer a nice stress-free way of investing your money.  You can also ask your employer what retirement or employee investment programs they offer and begin investing immediately.  Many employers offer a retirement “match” – which is like getting free money deposited into your account.  Other employers offer a stock discount to their employees, even part-time employees.  Talk to your HR department and do some research on investopedia.com or other fool.com to learn more about investing for your future.

Have a plan for your student loans. Student loans are often the first significant debt incurred by college students:

  • Subsidized Stafford loans – low interest loans awarded to need-based students.  Government pays the interest for you as long as you are in school.
  • Unsubsidized Stafford loans – low interest loans available regardless of financial need.  You are responsible for the interest that accrues during the loan.
  • PLUS loans – Low interest loans for parents to pay for a dependent student.
  • Perkins Loans – For students with exceptional financial need, loans are repaid through the school.
  • Private student loans – Offered through banks or other private lenders. Terms and rates vary.
  • Consolidation loans – Allows borrowers to combine multiple federal student loans into one loan.  Usually done after graduation.  Can also consolidate with a spouse.

It is important for you to learn all you can about your financial aid and have a payback plan for when you leave college.  Go to http://studentaid.edu.gov and http://loanconsolidation.edu.gov to learn more about your financial aid and how you will most likely need to consolidate your loans upon graduation.  Meet with your financial aid office at least once per year to make sure that you are optimizing your financial aid, but also not taking more money than you need.  Even if you aren’t required to make payments until after graduation, most loans start incurring interest charges as soon as you receive the funds, so if you’re taking extra money just to have for spending, it is costing you more in the long run!

Personal Finance - The Big Picture - Handout #1

Your financial future: College students often get caught up in experiencing the here and now, but most realize they are in college to build a better future.  As you focus on your academics and cocurricular activities, don’t make the mistake of inaction when it comes to your financial future.  Part of that is envisioning your financial future. Consider the following:

  • Where do you envision yourself getting a job or going to grad school? How much do you think it will cost?
  • If you want to have a family, what does that look like? What costs are associated with that (wedding, house, raising kids, etc)?
  • What role do you see travel playing in your future and how can you make that possible?
  • Does your career path include charity work or work that is meaningful, but otherwise not profitable? Peace Corps? Teaching? Non-profit work?  How do you plan on meeting your financial obligations?
  • Each semester, calculate your projected monthly student loan repayment upon graduation.  Is the payment realistic with your other plans?

Decide now to take control of your financial future!

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