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When you’re in college, you’re probably focused on classes, your social life, and figuring out what you’re doing with your career. Financial planning is probably one of the last things on your mind.
However, financial decisions you make now can help shape your situation for years to come. From accumulating student loans and other debt to contributing to savings or a 401(k), there are a number of choices you can make today that will contribute to your financial future.
Here are a few important reasons college students should care about personal finances.
The longer you save, the more money you’ll have
When you start saving at a young age, compound interest and small investments can grow significantly.
For example, say you put away $100 per month and get a 5% return every year. If you start saving at 18, you’ll have saved more than $47,000 by the time you turn 40. If you start putting away the same amount starting at 30, you’ll only have saved around $15,500.
Even though saving may be difficult, especially if you don’t have a consistent income, that doesn’t mean you shouldn’t have a plan for saving what you can. Trying to save a little bit every month can add up quickly, and anything is better than nothing.
Consumer debt can add up quickly
Student loans are not free money (if only), and yet the average college graduate owes more than $30,000. While borrowing money is the only way to pay for college for many students, it’s important to remember you’ll have to pay this money back — plus interest — which can put a significant dent in future savings goals.
Other types of consumer debt, such as credit card debt and auto loans, also can make saving difficult. Paying attention to how much you owe, and paying off your loans as soon as possible, can help keep more money in your pocket in the long-term.
A good credit score is critical
Interest rates on credit cards are high, and it’s easy to get trapped in a spiral of credit card debt. However, using credit cards properly can be great for building your credit score.
Credit scores determine whether you’re approved for loans and the rates you pay. A high credit score can help you secure financing, often at lower interest rates, for a house, car, personal loans, and more. A good credit score also can help you quote a lower insurance rate, get approved for higher credit limits, and make purchases without paying a security deposit or high down payment.
By knowing your finances, spending wisely, and monitoring your credit, you’ll be setting yourself up for greater financial success.
You’ll begin to learn financial independence … and discipline
When you’re in college, you may find you have more financial independence. You can go where you want, when you want, and spend your money however you want.
But, you’ll also find you have to be more financially disciplined — you could rack up a tab full of Jäger bombs at the bar, but you probably shouldn’t. You’ll have student loan payments to make, other bills and/or rent, tuition or books to purchase, food, gas, and other expenses each month that you have to stay on top of. Just because you can spend on anything doesn’t mean you should.
The good news is many college students have fewer financial responsibilities because they are still in school, or the costs are lower. This provides a great opportunity to start learning how to balance financial independence and discipline, preparing you for life once you graduate.
Caitlyn Callahan
Caitlyn is a freelance writer from the Cincinnati area with clients ranging from digital marketing agencies, insurance/finance companies, and healthcare organizations to travel and technology blogs. She loves reading, traveling, and camping—and hanging with her dogs Coco and Hamilton.
