In exactly a year, my little sister will be going to college. For those unfamiliar with my situation, I grew up in a very poor foreign country, but was lucky enough to be able to study in the United States and later build a life there. My younger brother followed the same path and my sister is about to start her own journey.
A few months ago, she came to me and asked me if I could teach her the basics of personal finance since she will be living in the US pretty soon. It was a pleasant surprise because I always thought I would have to force her to listen to me preaching, but here she came asking me for advice. It was a pretty proud brother moment.
To put things into context, the country where my family lives in does have all the basic finance infrastructure that we are used to here in the states, but it is very uncommon for minors to have their own bank accounts or any work experience. Basically, you’re not an adult until you’re actually an adult. When my sister came to me I thought some of the tips I had for her could be useful to most new college students that are curious on how to start their financial life the right way.
Open a checking account
This is what everyone should use for daily expenses. It makes it easy to see what goes in and what goes out which is key for creating a realistic budget. In addition, having a checking account provides security and makes keeping more than a few hundred dollars in the wallet just foolish.
One little caveat: be mindful of fees. In 2015, ATM fees averaged $4.52 per transaction according to a study from Bankrate. Many online banks are fairly lenient, so they are always my first choice. But brick-a-mortars can also be fine if you live in a city that has a lot of branches. That way, you get rid of these pesky fees.
Get a credit card if you can learn how to use it properly
A.k.a. rip off the banks instead of the opposite.
Many people use credit cards to buy things they can’t afford or don’t want to pay for in cash. This is what the banks want you to do. I use mine for 2 simple reasons: rewards and credit score building. Every single item put on my credit card could have been paid for with my debit card and is actually part of my monthly budget, so the balance always gets paid in full on the due date.
Any other method is in my opinion dangerous and offsets the benefits of using credit cards, especially in extreme cases of compound interest.
Buy what you can afford, not what seems to be a bargain
In reality, everybody can make this difference. The issue is that some people seem to lose touch of all the basic concepts they learned once they walk to a department store or a car lot. Just because a vehicle costs you $15,000 instead of 20 doesn’t mean you’re saving money. If you’re only making $18,000 while you’re in college, you just tied up most of your take home salary on a car.
I use public transportation and such behavior would be the equivalent of me paying one year’s salary on the train pass. Side note, this advice also applies to professionals who might commit the same mistake on an even bigger scale since lifestyle usually grows when salary does.
Learn how to say no
I know it sounds cliché, but I have struggled with this numerous times. A lot of my college friends were able to spend lots of money without any real repercussions due to the fact that they had parents who were fairly well off and were willing to cover more than their basic necessities.
As a result, I often felt bad about skipping spring break vacations, trips to fancy bars downtown and other fun activities. I had to learn that there was no point trying to keep up with the Joneses. This skill follows me to this day as the pressure to fit in only increases overtime and our friends start buying big houses and nice cars.
Last but not least, know what you’re here for
With all the parties, extracurriculars and football games, it’s easy to lose sight of what college is in the first place. Make sure it’s understood that the goal is to lay the foundation for a lifetime of professional and financial success.
Football and parties may be more fun in college, but they certainly are available everywhere else. As a result, the focus should be on taking advantage of the opportunities that are only available during those 4 years.
In college, I learned how to work with people of different backgrounds. I also got a great feel of what fields of study I like and don’t like.
So I would say don’t be afraid to branch out and try classes that you weren’t originally thinking about. Don’t miss out on career fairs, corporate info sessions and things of that nature. Don’t be afraid to bounce off ideas on a new business with classmates or even yourself. The earlier you figure out what you want, the better.