Life Events Guides - Preparing for College

Starting college will be one of the biggest changes in your life. It may be the first time you live on your own or with a roommate, handle your own finances, do your own laundry, and cook your own meals. Some of the most valuable lessons you learn won't come from a book. Life skills are learned from experience. As long as you plan ahead and take charge of your money, the financial skills you learn will benefit you for the rest of your life.

Personal Finances
Personal finances are just that - personal (you) finances (money) = your money. It includes everything from spending to investing and retirement. When you're heading off to college, your most immediate need is understanding day-to-day personal finance. This means figuring out checking accounts, budgeting, and earning income. You cannot avoid day-to-day finance. Learning how to responsibly manage your personal finances now will help you avoid costly mistakes later.

The first step is to open a bank account to use for paying bills and depositing income. Without a bank account you have nowhere to safely obtain or store your money. Bank accounts also help you track how much money you have. The type of account you need depends on your situation, but we recommend starting with a basic checking and savings accounts.

Savings account A savings account isn't the only account you need, but is an essential part of short and long-term financial planning. A savings account is an easy way to start accumulating some financial reserves. You won't earn much interest, but the money is readily available in case of a financial crisis. And it's safer than your mattress.

When selecting your savings account, check the minimum balance and monthly fees. Paying large monthly fees is the opposite of saving money.

Checking accounts
Your checking account is your workhorse. This is where you deposit any money you receive. You will typically be able to write checks, withdraw money from an ATM, use a debit card and have these transactions deducted from your account balance.

Keep a record of all your transactions so you know exactly how much money you have in your account. When you open your account, you should receive what's called a register to use for entering and tracking your transactions and account balance. Banks can charge $30 or more if you bounce a check. You will receive a monthly statement from the bank that lists all your transactions as well as your ending balance. Make sure this monthly statement matches your own list of transactions. You may catch mistakes you made in your own records, or even a bank mistake.

ATM
You'll find an Automated Teller Machine nearly everywhere there are people. ATM's offer access to cash from your checking or savings account at any time. Be aware, this easy access can be dangerous. ATM withdrawals deduct money immediately from your account balance. Make sure you record all of your withdrawals, just like you record the checks you write, or you could find yourself broke before you can say "ATM."

If the ATM belongs to your bank, your ATM withdrawal will usually be free. If the ATM belongs to another bank, you'll be charged anywhere from $1 to $3 per transaction. This is in addition to the sum of money you withdraw. If you find yourself being charged frequently, try to anticipate your spending by taking out enough cash to cover all your expenses at one time. Or better yet, plan a weekly trip to your bank's own ATM to withdraw the money you will need for the week.

Debit cards
A debit card offers the convenience of using a credit card while allowing you to spend only what you have in your account. It's a great way to avoid racking up credit card debt. But, like your ATM transactions, record these transactions and be sure you have the money available in your account before you make a purchase. Keep in mind that a debit card IS NOT a credit card. If you spend more than you have in your account, it's the same as bouncing a check. And since you are only spending what you have and not using credit, a debit card will not help you build a credit history.

Credit Unions
A credit union is owned and controlled by the people who use its services. So if you use a credit union, you are a part owner of it and will be treated to lower than average service fees and minimum account balances. However, not everyone can join a credit union. Credit unions are formed by members with a common bond. For example, some credit unions are formed by students attending a particular university. If you happen to be attending that university, you are eligible to join that credit union.

Don't immediately join any credit union where you are eligible. While most are quality financial institutions, some are not and may not have the organization and efficiency to offer good customer service and favorable interest rates. Conduct some comparative research into interest rates, fees, and customer service ratings before you join a credit union.

Online Banking
It seems that the Internet can be used for everything these days - including banking. If you have convenient Internet access, online banks are an easy, convenient way to manage your finances. You can check your transactions and balances online as well as pay bills - all without even having to get dressed. The downside to online banks is the lack of personal customer service. If you find a traditional bank in your area that also offers online banking, you've got the best of both worlds. Just be aware of extra fees a bank may charge to let you complete transactions online.

Financial Aid
College is expensive. Many people cannot afford to pay the costs of college all at once and need help. Fortunately there is financial aid. The best sources of financial aid are scholarships and other grants that you do not have to pay back. But loans are also a good option, especially with the low interest programs available.

Scholarships and merit-based aid
The diversity and number of scholarships, grants and other programs available are staggering. If your high school grades are very high and you did well on your college entrance exams, your chance of snagging some merit-based assistance is high. Even if you don't have the best grades and highest test scores, do some research and you may find some surprisingly obscure requirements for scholarships. There is aid available for certain surnames, cities of birth and various other qualities and characteristics. There is even a scholarship funded by David Letterman that is restricted to those with a C average in high school!

Student loans and need-based aid
There are many programs providing financial assistance to those who cannot otherwise afford college. Federal need-based programs use a standard equation to determine what a family can be expected to contribute toward a child's education. Unfortunately, your family is not required to actually make this contribution.

This equation takes into account all the family's assets such as income and investments, and subtracts expenses the family cannot control. These include taxes, basic needs and employment expenses. There is also an allowance for retirement savings. The rest of the assets are considered discretionary resources. This is the amount on which your financial need is based.

There also are institutions other than the federal government that offer financial assistance. These institutions have their own formulas for determining need, which may differ widely from the federal standards.

Be sure you know what type of program is providing your college money. Grant programs provide money that you do not have to pay back. Loan programs provide loans that you will have to pay back in full - with interest - once you graduate or leave school. So, if you don't need the money, don't take it.

Budgeting
How much can you afford to spend on groceries in a week? Will you need to work extra hours to pay for all your books? A budget will help you answer these questions and is absolutely essential in managing your personal finances. Do you need a budget? Yes. Does everyone need a budget? Yes. What's the message here? You need a budget!

Create a budget by writing down your expenses to find out where your money is going. Pull out your credit card bills and bank statements from past years as guides to your spending habits. Then estimate how much your new bills will be. Be sure to include expenses for entertainment, clothing and other major expense categories. Include some money for savings. It may take several months to fine-tune your budget to match your exact spending habits.

Now estimate your monthly income. Don't include potential income - only income you are sure to receive. For example, don't assume your parents will send you money if they have not agreed to do so. Check your budgeted expenses against your income. Do you have more going out than you have coming in? If so, you need to cut expenses. Entertainment bills are easy to trim; fixed costs such as utilities and housing are harder. Keep trimming until you have enough to cover your expenses. If you get paid hourly at a job, determine whether or not you can work more hours each week. But be careful not to let your grades slip because you're working too much. Remember why you are in college.

Phone Bills
If you're living away from your family and friends for the first time, the telephone may suddenly become one of the most important things you own. It can also become one of the most expensive.

Decide on an amount you can spend on a phone bill and stick to it. You may miss your family and friends, but if you call them long distance too many times, you may be home with them sooner than you want to be. Some simple but devious ways of lowering your phone bill can include calling everyone collect, or calling them when you know they're not home so they have to call you back at their expense. But let's face it, you won't have many friends left to call if you keep that up.

There are more practical ways of cutting your phone bills. If possible, call after 11 p.m. or on the weekend. If you call someone during the day, on most phone plans you're basically paying the higher business rate. Night calls are much cheaper.

Once you decide on your monthly telephone budget, use that money to buy a calling card. When the card runs out, you'll need to wait until the next month to make any calls. It's a great way to stay within your budget, and, if you do some shopping around, you will get more phone time for your money. Don't forget to read the fine print on the card; however, or you could end up calling your friends to tell them how you got ripped off on your phone card.

Research cellular phone plans. Some cellular phones have great calling plans that allow unlimited calling on nights and weekends or a flat rate for all calls to anywhere in the country. If you can find a plan that fits your needs, you may not even need a regular phone line.

Textbooks
When you buy your textbooks, it will seem like they charge by the pound - and they are heavy! Plan to spend at least $100 per class for books. Try not to think about the fact that you're only going to use them for a few months.

If a book is relevant to your career and you plan on using it for reference later in life, it might make sense to buy a new book. For the majority of your books, which you won't need after the last day of class, buy them used to save money.

Buying used books is like buying fruit - each one is different so make your selection carefully. Not everyone knows how to highlight. Sometimes the previous owner has outlined the important parts of the text for you. Other times, it looks like they dipped it in yellow paint. If you're going to shop at a used bookstore, shop early or you might get stuck with a bad copy. Or worse, you might have to buy the book new!

Before you head to the bookstore, check with friends and neighbors to see if they have the book you need. You might work out a better deal for both of you if you buy it directly from them. Plus, they may even be willing to throw in their class notes for free. Make sure the book is the exact book you need - the same title and the same edition.

Buying books online is another option. But consider the shipping cost of the book as well as the timing of the delivery. You don't want to go to your first few classes bookless.

Working in School
If you don't have to work your way through school, thank your lucky stars every day of your educational career. Otherwise, you've got some decisions to make.

Amount of work
First you need to consider how much you can work. Decide how much time you need to go to classes and study, how much time you need to sleep and add in some extra time to relax. Many colleges recommend 1 hour of study for every hour you are in class. If you're taking 15 credit hours, that equates to 30 hours per week already assigned for school and study. What's left over is what you can work.

If you can't seem to balance all that you need to do - working enough to pay for school while finding the time to study - consider alternating semesters. Work for a semester to save for school then go to school the next semester and so on. It will obviously increase the length of time you're in school, but it will benefit you in the long run with better grades and less debt.

The hours
You'll need to make your work and class schedule fit together. If you find a job during the day, make sure the classes you need to take are available in the evening. You may need a job with flexible hours to allow you to attend class and study for large chunks of time.

Pay
Better paying jobs usually come with sacrifice. You may need to work late or early morning hours or possibly give up your weekends. However, never sacrifice study time in favor of a higher paying job. What good is working to pay your tuition and then flunking out?

Interests
No one expects you to stay at one job all through college. College is a great time to explore different career interests you have. Think of all the things that interest you and see if you can find a job related to those interests.

How to find a job
The best referral source to find a job can be your friends or family. To get some experience in your field of study, ask your professors and faculty for ideas. Stop by your favorite stores and ask if they're hiring. Campus bulletins and career centers often are good outlets for job leads. Try a temp agency and let someone else find you a job. And, of course, there's the classifieds section of the newspapers. If your school has its own newspaper, the advertised job listings may be more suited to the life of a college student.

Selecting a Credit Card
A credit card can be a valuable financial tool if you use it right. These tips should help you choose the right credit card for you.

Build good credit
You build a good credit history by using a credit card wisely. Make purchases and then pay your credit card bill in full every month. Look for a card with no annual fee. High interest rates won't matter since you won't be paying interest anyway. Your card should have a 20- to 30-day grace period so interest won't be charged if you pay the balance in full every month.

For convenience
Having a credit card is much easier and safer than carrying large amounts of cash with you. If you plan to pay the balance in full every month, again, look for a card with no annual fee and a 20- to 30-day grace period. You might, however, opt to get a debit card attached to your checking account. It won't allow you to build credit, but it won't allow you to build debt either.

For the freebies
Some cards allow you to build points with every purchase towards free merchandise or airline miles. Be aware that these cards usually have a large annual fee and a high interest rate. You might be better off buying whatever freebie you're trying to earn.

To carry a balance
It's not a good idea to carry a balance on a credit card. But if it's too late and you're already carrying one, seek out a card with a low interest rate. If you find a card with a low interest rate, find out how much they will charge for balance transfers and an annual fee. If you can save more in interest than you pay in fees, it's a good deal. If not, keep looking. Whatever you find, the most important thing is to pay off that card as soon as you can - even if you have to eat nothing but macaroni and cheese for months.