Students need to manage finances wisely now to prepare for life after college

After four years of college pass and students find themselves in caps and gowns, many have no idea how to begin financially supporting themselves in their first job.

“If you say the word ‘finance,’ even to business majors, most students are like, ‘ahhh!'” said Ron Stolle, assistant professor of finance. “In the U.S., financial literacy is horrible. Many students are totally ill-prepared for the world outside of college.”

Hard questions arise about money after college, and knowing financial options now can provide benefits later.

“Being financially literate is having a choice and understanding that choice,” Stolle said.

Is it worth it to plan a budget?

“A budget will tell you what funds you have available and when you have obligations that are due,” Stolle said. “It will help develop the discipline to live within your means.”

A budget can help students understand where their money goes. Stolle said this may help to free up cash, too, for important financial goals, like saving for loan payback or retirement.

The Web site www.aie.org provides an electronic worksheet specifically for in-school students and recent college graduates. It allows students to make a monthly budget for their expenses each semester, including rent, textbooks and groceries.

After figuring out a budget and the amount of money remaining, most college students find their leftover money is minimal, Stolle said. Adding that students should control how they use their extra money. Occasionally using credit is acceptable, as long as the fees are paid back as soon as possible.

“I don’t have a budget now, but when I graduate, I will have to take more time to consider where my money goes because I can easily end up wasting it,” said Will Robinson, senior general studies major.

Stolle said, in his classes, he often asks the students if they keep a budget. Usually, only a handful raise their hands, he said.

“Even though I pay for everything, I don’t have a budget,” said Krystal Reno, freshman education major. “Scholarships help a lot and I have the premium food plan, so I don’t have to worry about that.”

Is it important to pay credit card bills on time?

Often, students don’t think about interest rates, which can be very high with some credit card companies.

“When you don’t pay your credit card bills on time, you negatively affect your credit, which creates a vicious cycle,” Stolle said.

Students shouldn’t have more than two credit cards, Stolle said. They should have one main card and a second for emergency backup. Students also don’t need large spending limits as long as they promptly pay their credit card bills.

But he said students should try to pay back more than the minimum amount required each month. For example, if a students pays only the minimum, they could end up paying three times more than the actual amount they spent.

“I probably won’t get a credit card until after college because I know I would end up spending too much,” Reno said.

Can debit cards be as harmful as credit cards?

Debit cards have the reputation of being less risky compared with credit cards; however, students can easily get into trouble with debit cards if they aren’t careful.

Stolle recommended that when students want a debit card, they should set up an account at a bank that doesn’t charge a fee when they withdraw cash.

Some banks charge a few dollars every time you withdraw cash from an ATM, no matter if a student withdraws from a bank they belong to or a different one.

“I have a debit card from home, so if I withdraw from a bank here, I’ll get charged,” Reno said. “I’m going to try to avoid taking money out.”

Stolle said to pay attention to debit card spending.

“Don’t turn a blind eye; all of those fees add up,” Stolle said.

What exactly is a 401(k) plan?

A 401(k) is an employer-sponsored savings plan that allows employees to begin putting money aside for retirement, Stolle said.

Usually, when an employer offers a 401(k) plan, the employee puts aside money from each paycheck and the employer will match the amount of money put aside for retirement.

Another asset of a 401(k) is a tax advantage plan, which means the money is not taxed until it is withdrawn. Employees can also move from job to job and the plan can be transferable.

Many students in college are concerned with Social Security because they don’t believe the money will still be there when they retire, Stolle said.

Instead of depending on Social Security in retirement, Stolle said to “take responsibility for your own future and use this tax advantage methodology.”

Contact student finance reporter Kristina Deckert at [email protected].