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This year will see 19 million bright-eyed, ambitious students head to college for the first time, with the majority of this group never having lived away from home or faced the responsibility of keeping tabs on their spending habits without parental oversight.

Even seasoned students can still slip up when it comes to making money work for them, rather than being frivolous with what little they’ve got in their accounts. So whichever camp you fall into, it’s a good idea to stick around as we explain why financial literacy is a necessary skill to nurture, and how to go about this.

Appreciating the Basics of Personal Finance

A 2022 study found that 73% of students had experienced some form of financial hardship. This explains why anyone who is still in full time education needs to hone their money management skills as a priority.

The problem is that when you’re juggling classes, part-time jobs, and social activities, finding the time and mental space to get to grips with your finances might seem unachievable. To chip away at this, you need a basic grounding in the core concepts.

Personal finance covers:

• Income: Knowing where your money comes from (jobs, scholarships).
• Expenses: Tracking what you spend (rent, food, books).
• Saving: Putting aside money for emergencies or future needs.
• Investing: Growing your money over time through stocks or mutual funds.

Crafting a Student-Friendly Budget

Creating a budget as a college student isn’t rocket science, but it can feel like it without the right approach. And since students today face costs that are 155% higher than their peers 40 years ago, adjusted for inflation, it has never been more important to make every penny count.

Start by identifying all sources of income, including:

• Part-time jobs
• Financial aid
• Scholarships
• Allowances from family

Next, list out your essential expenses, such as:

1. Tuition and fees
2. Rent or dorm costs
3. Groceries and meals
4. Transportation (gas, bus pass)
5. Books and supplies

After essentials, account for non-essential spending, such as social activities, streaming services, and so forth. Then, allocate funds into categories using the 50/30/20 rule:

1. 50% needs (rent, food)
2. 30% wants (dining out)
3. 20% savings/debt repayment

Use budgeting tools like Excel sheets or apps such as PocketGuard to automate tracking. Also aim to adjust monthly based on actual spending, rather than just relying on your projections. That way if you find that necessities like groceries cost more, you can cut back on takeout next month.

All of this will help you with the day-to-day realities of paying for student life, as well as establishing good habits that will last a lifetime. 

So when it is time to make educated financial decisions about growing your wealth, once you’ve graduated and kick started your career, you’ll be faced with the appealing prospect of needing an asset protection strategy rather than living from paycheck to paycheck indefinitely.

Managing Student Loans Effectively

Student loans can feel like a heavy burden, but you can manage them effectively if you’re proactive and motivated. Understanding your loans is step one.

The two main types of student loans are:

• Federal loans: Subsidized and unsubsidized
• Private loans: From banks or credit unions

The key differences between them is that federal loans usually offer lower interest rates and flexible repayment plans.

Regardless of how you fund your tuition, you need to create a repayment plan early. To do this:

1. Check up on your grace period post-graduation. For federal loans this is typically around 6 months. If you can’t afford to pay at this point, it can increase to 12 months.
2. Calculate monthly payments using loan calculators.
3. Explore income-driven repayment options if needed.

You can consider making interest-only payments while in school to prevent ballooning debt upon graduation. And if you get extra funds (like from side gigs or scholarships), you can put them toward paying down the loan principal to reduce overall interest paid.

Also, keep an eye on potential refinancing options down the road to secure lower interest rates when you’re earning more consistently. Once again, information is your best friend, and action is better than letting student loan debt ramp up unchecked.

Building Credit Responsibly While in College

Establishing a good credit history while in college is a good move if you’re thinking about your future. Your credit score impacts everything from renting an apartment to getting loans, and it’s the final aspect of financial literacy to have in your locker while you’re still living in dorms and hitting the books.

Start with a student credit card. To find the right one:

1. Look for cards with low interest rates.
2. Ensure there are no annual fees.
3. Use the card for small, manageable purchases like groceries or gas.

Always pay off your balance in full each month to avoid interest and build a positive payment history. Late payments can hurt your credit score, so set up automatic payments or reminders.

In terms of other ways to build credit, you could:

• Become an authorized user on a parent’s account if they have good credit.
• Consider secured cards if you’re new to borrowing. These require a deposit that acts as your limit.

Also, keep your credit utilization low. As a rule, aim to use only 30% of your available credit at most. For instance, if you have a $1,000 limit, keep spending under $300 per cycle.

It’s all about resisting the temptation to run wild and treat a newly minted credit card as free money, because that’s a route that leads many people to destitution. 

For a balanced approach to managing the stresses of college life, you might find it beneficial to create some lo-fi study playlists. Not only can they help you focus on your studies, but they also provide a soothing backdrop that aids in relaxation.

The Bottom Line

In short, financial literacy is valuable to college students in the short term as well as for securing a future that’s free from money worries. And if you need any more motivation to expand your understanding of what we’ve discussed, consider that instability of this type can hurt your academic performance, so it’s as much about relieving stress as it is using your resources responsibly. You can even pass on what you’ve learned to your friends, and pay it forward.