The Complete Guide to Finances for College Students

For many people, college is one of the most exciting times of their life. From learning new things to making new friends, the opportunities you experience will enrich your life in exciting new ways and shape you into the person you’re meant to be. In addition to these new experiences, you’re likely thinking about your finances more than ever. It’s important to remember that the financial decisions you make in college can impact your life for decades to come.

From borrowing money for tuition to taking advantage of savings programs, make sure you’re prepared to take on everything college has to offer. We’ve put together a comprehensive guide to introduce some big financial concepts, such as budgeting, saving money, building good credit, and more.

Table of Contents
Use a Budget to Manage Your Current Expenses
Saving for the Future
Building Credit
Covering All Your Bases
Other Helpful Resources

Use a Budget to Manage Your Current Expenses

While you’re balancing a full course load and possibly a job, you’ll likely get more out of using a budget effectively than trying to increase your income. Don’t be like the almost two-thirds of Americans who don’t use a budget to manage their money. By learning to plan and manage your money you may even find you have extra cash to spend on textbooks, late night pizza, or a spring break vacation.

Introduction to Budgeting

Very simply, a budget is a way of tracking money you receive — like income from a job — and the money that you spend, then organizing everything by category. We’ve created a budget excluding tuition and room and board to give you a sense of what a day-to-day budget can look like:

After tracking and analyzing your spending over time, it becomes easy to see where all of your money is going. With this data, you can evaluate whether you need to make some changes.

The advice of most trusted financial advisors and institutions is that budgets are necessary and that they work. Think of it like driving in a new city and not using Google Maps: it’s easier to arrive at your destination when you use tools designed to help you get there. A budget is like a map of your spending to help you get to where you want to go financially.

Five Easy Steps to Get Started With Budgeting

There are a lot of really great free tools you can use to keep a budget, but it doesn’t have to be complicated. You can even go old-school with a notebook and just write down income and  expenses, then review often to see where your money goes.

Here are the basic steps you need to create a budget:

  1. Write down your monthly income from all sources (job, leftover financial aid after tuition, side hustles, etc.).
  2. List out all your purchases from the previous month, such as school supplies, books, and eating out.
  3. Categorize your purchases so it’s easy to see an overview of where you’re spending money. For example: going to a concert, Netflix subscription, and a night out singing karaoke can all be categorized as “entertainment.”
  4. Figure out how much you want to spend on these categories next month. Take into account things like upcoming holiday breaks, the start of a new semester, and similar events where you may need to spend more than usual or have to deal with big one-time purchases.
  5. Track your purchases over time and review your spending regularly. It’s best to give yourself the clearest picture of your finances possible.

Boom, there’s your budget.

But this is the future, so no need to use a notebook and pen to create your budget. There are a lot of apps that will help you collect, organize, and analyze your spending so you can become a budget champion. Here are a few of the best:

Wally (iOS, Android only) – Wally is a super simple app that’s perfect for keeping track of expenses. You can track your purchases by assigning pre-made categories to your purchases and see an overview at any time of your spending breakdown. You can even scan your receipts to enter new purchases. Wally is the simplest and least feature-rich of all options listed here.

Mint.com – You can connect your bank account to this free web app and Mint will pull all your purchases, categorize them, and give you an easy-to-understand breakdown of how your money is spent. Then you can set some budgeting goals and Mint will help you stay on track. Perfect for beginners and light use.

YNAB (You Need a Budget) – Paid, but 12 months free for students if you send in a copy of your transcript, student ID, or tuition statement. This app is much more powerful and has more features than Mint. It’s not for everyone, but if you are detail-oriented and like to jump in to new things with both feet, this is the app for you.

Saving for the Future


You’re probably not bringing in the big bucks while balancing all your academic work, but it’s still essential to start focusing on your savings now. The habits you start while in school will stick with you for life, so it’s key to start making smart financial choices.

Getting into the habit of saving money now — even if it’s only a small amount each month — will set you up for some pretty big successes when you graduate and start earning a salary. Beyond building an important habit, saving money will help you get used to an important idea: prioritizing a greater reward in the future over a lesser immediate reward will help you save more money and be more financially successful over time.

This sums up the concept of delay discounting (and the overall idea of delayed gratification).

Delayed discounting simply means that rather than choosing the more logical greater reward in the future, one would rationalize why it’d be better to choose the lesser reward now by discounting the value of the greater future reward.

A recent Temple University study showed that delay discounting is a better predictor of future income than age, ethnicity, or height. It’s a good idea to start getting acquainted with the idea that it’s better to forgo something now (say, your third fast food meal this week) in preference for saving even a small amount for the future.

Build an Emergency Fund

Emergencies that require financial intervention range from catching whatever bug is making its way around campus and car trouble on a visit home to unexpected travel (like fleeing wildfires or evacuating from hurricanes) and more. Accidents and disasters happen, but the majority of Americans don’t have enough in their savings to cover these unexpected costs.

According to a Bankrate survey, only 40% of Americans would pay for an unexpected $1,000 expense with money from their savings account. The rest said they’d do something like borrow from friends/family or take out a personal loan. Ten percent said they flat-out didn’t know how they’d cover an emergency expense.

If you got hit with a bill you didn’t expect, would you be able to pay it? Something as small as an overdraft fee can knock a budget out of balance. Consequences of this can range from having to take on some additional debt to not being able to pay the next semester’s tuition. Building up an emergency fund can help you manage the curveballs life will throw your way.

Take Advantage of Compound Interest (And Start Saving Money Now)

Many financial experts suggest the best way to save is to use a high-yield online savings account that takes a few business days to withdraw from. This is both so your money will earn more interest over time and it will help prevent you from withdrawing money for impulse purchases.

The earlier you start saving, the more you’ll earn over time. If you’re not familiar with the concept of compound interest, it’s a simple but powerful phenomenon where you can increase the amount of money you have in a savings account by leaving it alone and letting it accrue interest.

Quick example:

Say you deposit $1,000 into a high-yield online savings account (as mentioned above) on your first day of college and don’t add or withdraw money the entire four years you’re in college. Assuming a 2.1% APY, at the end of those four years you will have $1,088 in your account.

How?

In the first year, you’ll earn $21 of interest. For the second year, instead of just $1,000 accruing interest, $1,021 is the amount that accrues interest. So your total at the end of year two is $1,043. Each year the amount of money in your account increases because the previous year’s total is taken into account when calculating interest.

Fun Fact:

In 1790 Ben Franklin left the city of Boston and the city of Philadelphia a total of £2,000 (GBP) with the stipulation that the money couldn’t be touched for 200 years. Today, due to compound interest (and some other investments), that initial investment is worth a total of $6.5 million.

How to Reduce Your Expenses While In College

The easiest way to save money is to cut down on spending. Once you have a few month’s of historical data in your budget to look at, finding ways to reduce expenses is one of the best things you can do.

To help get you started, here’s a list of 10 ways you can save some money:

  • Use (and stick to) a grocery shopping list
  • Always search for a coupon code when buying a product online
  • Take advantage of local grocery store flyers and coupons
  • Purchase generic prescriptions and over-the-counter meds
  • Buy used textbooks whenever possible
  • Walk/take public transportation whenever possible
  • Save eating out at restaurants for special occasions
  • Take advantage of local “show your student I.D.” discounts
  • Always check if a tech product or software has a student discount
  • Take advantage of college campus amenities (like gyms)

Building Credit


Having a good credit score will allow you to make the big purchases you’ll be eyeing once you’re out of college, such as a house or a car. Good credit also extends beyond major purchases. According to a Career Builder survey, 29% of employers look at a job candidate’s credit history during the hiring process — though they are mostly looking to identify serious credit problems and not your overall credit score. So starting to focus on building credit now can help you when it comes time to look for a job after you graduate.

One thing you should keep in mind about your credit score: there’s nothing you can do to not have a credit score. Whether you’re paying attention to it or not, a credit score based on your financial decisions will be tied to your social security number no matter what, so you may as well try and make it a good one!

How a Credit Score is Determined

The real purpose of a credit score is to help financial institutions like banks easily assess the level of risk present in loaning you money. If you have a history of borrowing money and paying it back, or paying all your bills on time, they will assume it’s a relatively safe bet to lend you money for something like a car or a house.

Think of it like this: say you have a roommate, Dave, that always pays his share of the rent late. One day Dave asks to borrow fifty bucks because his friend from back home is in town and he wants to take them out. You want to help Dave out, but you know given his history of not paying rent on time that it’s unlikely he’ll pay you back anytime soon — if ever.

That’s how a credit score works. If you knew that Dave paid his rent on time every month, you may feel it’s less of a risk to loan him some money.

Here are the components involved in the equation that comprises your credit score:

  • Age of credit accounts
  • Presence of debt
  • Total amount of debt
  • Ratio of credit available vs. credit used
  • Credit score inquiries
  • Payment history

Knowing this, there are a few things you can start doing in college that will get you on the path to building good credit.

Six Things College Students Can Do Build Good Credit

Get a college-specific credit card.

Banks and credit card companies have credit cards tailored specifically for college students. College credit cards will typically have an annual fee to use, offer no rewards or “cash back” type deals, and have an overall lower credit limit than “regular” credit cards.

Become an authorized user on your parents’ card.

If this is an option for you, becoming an authorized user on your parent or guardian’s credit card can help send some positive signals to your credit score. By showing a higher credit limit than you could get on your own and by making payments on the account, you’ll start to build your credit over time.

Get a secured credit card.

This type of credit card requires a refundable deposit in exchange for a credit limit. Using a secured credit card can help you build your credit history, improve your credit health, and help you upgrade to an unsecured card down the road.

Get a credit builder loan.

Credit builder loans aim to help those with poor or no credit history begin to build credit. This type of loan holds the borrowed amount in a bank account for a period of time while you make payments. Once you’re done making payments, you’ll likely have raised your credit score.

Reach out to your credit union for credit building accounts and products.

It can also help to reach out to a trusted financial advisor for additional information on the best way to build your credit. An industry expert can talk you through the products that make most sense for your individual situation.

Pay things off as soon as you can.

One thing credit scores take into account is how much credit card debt you have compared to how much credit you have access to. For instance, if you have three different credit cards with a $1,000 limit, and you have a balance of $950 on each of them, the ratio between the amount of credit you have access to ($3,000) and the amount of credit you have used ($2,850) is not ideal.

Covering All Your Bases


So far we’ve covered budgeting, saving for the future, and building good credit, but there’s another side to planning for emergencies and unexpected expenses that you should consider as well. There are specific kinds of insurance that make sense to pick up in college because they can help protect some of the biggest expenses in your life.

Renters Insurance

Room and board will most likely comprise your biggest non-tuition-related expense. This is an especially important consideration for those living off-campus and renting a house or apartment. Your parents’ insurance may not extend to your living arrangements. In this case, it’s wise to consider insurance that will help guard against expenses you may be on the hook for, including burglary, fire/water damage, or injuries a visitor sustains while at your residence.

Renters’ insurance also can protect you from incidents that extend beyond your home, such as if your car is broken into. To make sure you’re prepared for whatever life throws at you, consider creating an inventory of all your items — listing out everything from pots and pans to your shoe collection. It can also be helpful to keep all your receipts, just in case you need to file a claim and replace the lost items. By being proactive, you can save yourself from a potential headache down the road.

Auto Insurance

As a car owner, you are legally required to keep up-to-date auto insurance on a registered vehicle. Car insurance provides coverage for auto accidents and theft, and can pay for repairs and medical bills that result from a car accident. Depending on the level of insurance you have, you can even have towing and rental coverage. This is an especially good option for students to consider — whether you want to protect yourself from an unexpected towing or on your next road trip.

If your parents are footing the bill for your car insurance, make sure that you’re listed as a driver and your address on file is current. Auto insurance varies by state, so make sure you have the correct amount of coverage required by the state that you’re currently living in. The last thing you want is an expensive ticket or worse — left to pay for costly repairs out of your own pocket.

Life Insurance

When college students take on student loans, they are making a bet that they’ll be able to leverage what they learn and turn it into a career that will allow them to pay off their student debt over time. Since 71% of students graduate with student loan debt, this is an issue that impacts many for years to come.

If your parents co-signed for your student loans, they are on the hook to repay the loans no matter what. Student loans cannot be dismissed through bankruptcy and do not die with you if you have co-signers. Should you pass away unexpectedly, having a life insurance policy will help your parents or guardians with the student loan debt that will remain.

Other Helpful Resources


When it comes to getting solid on your finances, the earlier the better. From taking advantage of compound interest to learning how to reduce expenses and save money, there’s nothing about becoming money-smart that gets better by waiting or doing nothing. Hopefully this guide gave  you a clear roadmap to getting started.

If this is a topic you’re interested in, we’ve put together some great resources so you can continue exploring:

How to Build a Budget

Forty Ways to Reduce Your Monthly Required Spending

100 Real and Honest Ways to Make Money in College

The Secret to Saving Money

How to Get Out of Debt Fast

Best Credit Cards for Students

How to Save Money in College

Sources: NY Times | The Simple Dollar | Money Under 30 | Smart Asset | US News | CreditCards.com | Gallup 

 

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