I talk a lot on The Empowered Dollar about how to manage your student debt if you’re a twenty-something with outstanding loans or you’re a parent who wants to raise money-savvy teens.
But recently I received an email from one of my teenage readers asking what she can do to financially prepare for college.
And that got me thinking… and writing a lot of advice 🙂
How Teens Can Get Their Finances In Order Before Going to College
First of all, the fact that she’s asking what she should be doing to get her money in order is a pretty good indication that’s she’s already on the right track – at least mentally.
Regardless, I’ve put together a checklist of the 32 most essential money “to-dos” for teenagers before they head off to college. The checklist is meant to cover the basics of earning, spending, saving and paying for college. If you’re a teenager, let me know how many of these tips you’ve already checked off this list (and which one of them are surprising to you). If you’re a parent, use this to start a conversation with your son or daughter before they head off to college.
Step 1) Work for Your Money and Make it Work for You
1. Get a job. The first step to learning about money is earning some money. It’s hard to spend or save money for the things you want if you don’t have any! So before you head to school, try earning a paycheck so you have something to work with. You can find local job openings in your area on indeed.com.
2. Create your own job. More and more millennials are starting their own businesses – and understanding how to create and sell something of value to is a skill that will serve you in any career. There’s no better way to learn critical business skills than starting your own (and it beats scooping ice cream in the summer).
3. Fail at creating a job. Learn from your mistakes and try again. Convinced that your lawn mowing business idea would be a smashing success, you’re shocked to discover that your only paying clients are your parents. If your business fails the first time (which it probably will), reassess, adjust and pick a new strategy. Not everything will go according to plan when you venture out to earn money on your own. So plan on some failure early on, but also plan on trying again.
4. Master one, in-demand skill. There’s nothing worse than a jobless, college graduate with a degree in 18th century literature and no valuable, technical skills. So before you head off to school, pick a skill you’d like to master – something that you’re naturally good at and something that’s in demand. If you start early mastering something like Microsoft Excel or website coding, you’ll augment your college experience and graduate with something valuable and attractive to employers.
5. Open a Roth IRA. Roth IRAs are a type of investment vehicle. They’re a great place to test out investing for the first time and they’re especially good for younger investors. I love Roth IRAs, and my only regret is that I didn’t open a Roth IRA when I was a teenager. If you’re earning any money, you can open a Roth IRA (with the help of your parents) and the money will grow tax free. And remember, the earlier you start investing, the more time your money has to grow.
Step 2) Manage Your Money (Before it Manages You)
6. Open a checking and savings account. These two accounts are the two fundamental tools in any money toolkit. If you don’t already have either account, ask your parents for bank recommendations (or do your own research). Many banks offer student checking accounts with special discounts or benefits.
7. Use a debit card. Like a checking account, you’ll probably need a debit card when you head off to college. When you open up a checking account, be sure to ask if it comes with a debit card.
8. Understand your bank’s terms and fees. Oh, and while you’re at the bank opening up new accounts and debit cards? Read the terms of your account, especially any minimum balance you’re required to keep in your account. The fine print is tiny and tedious, but it can save you a lot of money in the long-run.
9. Understand how to write a check. If you’re checking account comes with checks, learn how to write a check and balance your checkbook. When you balance a checkbook, you’re essentially keeping track of the amounts of all the checks that you’ve written, before someone cashes them. This will help make sure you don’t get hit with an overdraft on your account.
10. Understand how overdraft works. Did you buy a $5 smoothie with your debit card, only to find out you had $4.67 in the bank when you bought it? If you withdraw more money from your checking account than you have available, you may be hit with an overdraft fee. Monitor your account balance regularly; otherwise that $5 smoothie could end up costing you almost $20 after the fee is applied.
11. Understand how writing checks can lead to overdraft. Follow the two tips before this, and you should have no problem 🙂
12. Talk to your parents about credit cards. Thanks to the Credit Card Act, you won’t be able to open up a credit card without an adult co-signer until you’re 21. Talk to your parents now about credit cards, and decide whether or not it’s appropriate for you to open a credit card before you go to school. It might be useful to have in case of an emergency, but don’t rely on it for your everyday spending.
13. Build credit early and responsibly. If you do decide to open a credit card, know that every action you take could harm or help your credit score. For more information on how your credit score is calculated, check out MyFICO.com.
14. Know the difference between your needs and wants. There’s a big difference between needing a new pair of jeans (because you’ve outgrown nearly all of your other pairs) and wanting a new pair of jeans (because even though you already have 6 pairs, you’re dying to have a lighter wash for summer). Allow yourself to spend on the things you want, but only after you pay for things you need and set aside some money for savings.
15. Identify your spending weaknesses. Are you a vending machine junkie? Do you end up strolling the isles at Target and end up buying things you didn’t even think you needed? Do you find yourself stopping at the drive-thru 3-4 times a week after school, just because it’s convenient? Think about where do you spend most of your dough and when you tend to spend impulsively. If you know your weaknesses, you can avoid those situations later on and save money in the long-run.
16. Plan your budget for when you get to college. Now is a good time to talk to your parents about how you’ll pay for everyday expenses. Your parents may decide to give you a stipend of a few hundred dollars each month. Or they may tell you that you need to get a part time job. Get the facts straight before heading to campus.
17. Learn how to cook. You can save yourself tons of money by cooking in instead of eating out all the time. Plus, you’ll impress your friends (and any potential boyfriends/girlfriends). Oh, and master the art of microwave gourmet. You may not have access to a stove if you’re living in a dorm.
18. Learn how to use spreadsheets. Ah, Microsoft Excel – it can either be your worst enemy or you best friend, if you know how to use it. Spreadsheets are a great way to keep track of your budget, and mastering the Art of Excel is a great resume booster. See checklist item #4 🙂
19. Spend one month not spending. Think you can go an entire month only spending money on necessities? You’d be surprised at how many free and fun activities you can come up. Not everything fun in life requires cash!
20. Challenge your friends to do the same. It’s easier to avoid spending money if your friends are up for the challenge, too.
21. Pick at least one financial goal for yourself. I’m sure your parents have nagged you about saving your allowance or birthday money for the future. Parents have their own reasons for wanting you to save, but why do you think saving money is important? What’s one reason why having $1,000 in the next few years would be important to you? Pick one goal to help motivate you to save for the future (like not moving back home with your parents after you graduate).
Step 3) Make Smart Choices Around Career and College
22. Decide what you want to get out of college. College probably seems like the natural next step in your life. But if you don’t have a reason for why you want to go, it’s hard to justify the cost of $40,000 yearly tuition at a private institution. Be sure you know what you want to get out of going to college before you go and before you shop around.
23. Research college prices as you research college choices. You probably have a checklist of things you’re looking for in a school: close to home (or as far away as possible), majors, campus life, extracurricular activities…but what about cost? Be sure net price is on your list as you’re considering schools. If the school of your dreams will cost you $50,000 in debt by the time you graduate, a school lower on your list that offers you a better financial aid package might be a better choice.
24. Talk to your parents about how they will help you pay for college. Will your parents be paying for your tuition or will you have to borrow and pay for your education yourself? Understand the expectations your parents have for you to pay for your education, so you’re not surprised your senior year of high school when they tell you that you have to foot the bill.
25. Understand the difference between federal and private loans. Not all loans are created equally. Federal loans offer several perks that many private loans don’t, like fixed interest rate, income-based repayment plans and loan forgiveness and deferment. If you have the open, federal loans are usually the safest choice.
26. Apply for scholarships your junior year. Don’t wait until the last semester of your senior year to apply for scholarships. With a little bit of extra time, you could land some extra money and save yourself the hassle of borrowing more to pay for school.
27. Research the average salary in the field you’re interested in. Even if you don’t know what career you want yet, the average salary for a college graduate these days is around $45,000. While that mau seem like an infinite amount of money now, you’ll quickly spend your paycheck on things like rent, utilities, groceries and student loan payments.
28. Calculate your hypothetical monthly loan payments. If you borrow money to pay for college, you’ll have to repay it after graduation. And your monthly repayment could be hundreds or thousands of dollars, if you’re not careful with how much you borrow today. Use this student loan repayment calculator to see what your monthly payments could look like after your degree. Just think – how many iPads you could buy with this money each month?
29. Apply for FAFSA, whether you think you qualify or not. Applying for federal student aid is easy and free. And it’s better to apply and find out you do qualify for federal financial aid than to miss out on free money. You can learn more about applying for federal financial aid at www.FAFSA.gov.
30. Talk to your parents about their income and credit history. Awkward, I know. But if you’re applying for FAFSA or your parents are applying for loans on your behalf, you’ll need to know your parent’s income and credit history. Better to have this open conversation now than later when you realize your parent’s credit score is preventing them from co-signing or taking out loans to pay for your education.
31. Think twice before you take out a loan. Before signing on the dotted line, be sure you understand the terms and commitment of what you’re borrowing – and whether or not you actually need that money. Do you know the interest rate and repayment terms of the loan you’re applying for? Do you really need every last penny of that loan for school or can you apply for more scholarships or ask your family to help contribute? For more information on applying for and choosing a loan, visit the CFPB Choose a Loan Website.
32. Know that college is the next step to making you money. Prepare accordingly. Heading off to college is an exciting time, but the main focus of college is getting a degree to help you start your career (and your future salary) on the right foot. So treat your college experience like the first step to earning a real income and start making smart financial decisions now.
Original Image: The Ten Commandments
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