It’s that time of the year again. Whether you are about to start your first year away from home or your last, one thing is for sure: college is the beginning of your financial independence!
I remember going away to school for the first time. I was 18, nervous, and excited to start a brand new chapter of my life. Most importantly, I was excited about my purchasing power.
Before I left for school, I was armed with two credit cards. One was a Citi MTV U Visa card my friends raved about, and the other was a line of credit through my grandfather with a ridiculously high limit. I also opened a college checking and savings account through a near by bank. I thought I was ready to take on the world financially. I was wrong. Now two years out, here are the three biggest money mistakes I made from my freshman year.
Mistake 1: Two credit cards equals two bills
My grandfather agreed to share his credit if I helped pay the monthly bill. He wanted to teach me a lesson in fiscal responsibility. What I didn’t take into account was that I already had a credit card bill I was paying for. My Citi MTV U Visa card had a low APR, awesome MTV rewards system and no annual fee. My credit limit was $1,000.
In three months, I burned through that card and maxed it out. (I will explain how, later.) I was using my meager student-worker wages to try and cover both cards, but I kept spending on both, which left me with paying the minimum for the MTV U card. Paying the minimum amount is never a good thing.
Once the credit card balance became too high, I started using my other credit card to pay the bill; not a smart move. I was too scared to close the MTV U card because I thought it would negatively affect my credit score. What I didn’t know was that using a card with a high-balance would be more of a negative impact. After I finished my freshman year using one credit card to pay for another, I didn’t really make a dent in my MTV U balance and ran up the balance on my other card that had a higher interest rate.
Lesson Learned: Paying off one credit card with another is never a good idea if you keep spending. You can contact the card provider and arrange a payment plan to pay off the remaining balance and close the card. This will negatively impact your credit score, but it is a one-time event (hopefully). You are young enough to make this mistake and correct it by being wiser with your credit in the future.
Mistake 2: Not deciphering a want from a need
Now here is why I had two credit cards. I got the MTV U card first, but before I left for school, my grandfather placed me on his line of credit for major purchases such as books, plane tickets home, winter clothing, etc. He knew these items were expensive, but necessary purchases that would only happen periodically.
The MTV U card was primarily used for food, small travel around school, and other needs. When you are a freshman in college, the line between needs and wants becomes blurred. I knew I needed books. That was fine. I also knew I needed clothing.
I ended up buying really pricey items because I thought I could. I would wait till the last minute to buy my plane tickets. Even my small purchases became extravagant. I would buy stuff for other people who didn’t have the cash on them. Going to the movies, skiing, bus trips, and always eating out started to add up. I felt like I needed everything! I completely forget that I had to pay this money back (with interest). I was the spending queen who quickly became a pauper.
Lesson Learned: Credit cards were not made for you to go on shopping sprees. It enables you to make purchases you would have made if you had enough cash on you at present. It also enables you to create a story that shows fiscal responsibility. Frivolously spending is not responsible and it is very short lived.
Mistake 3: Not taking my savings account seriously
All of my mistakes weren’t centered on credit card blunders. I also did not understand the importance of a savings account.
Coming from a family that never readily saved, it was a foreign word to me. All I knew was that it came packaged with my checking account and for any dollar I break using my debit card, the change rolls over into my savings. I also knew it incurred minimal interest. Meh, no big deal, right? WRONG!
College is the time to start putting away some of your earned money. Even if you aren’t working, some the money you receive should be placed into your savings periodically. I know what you may be thinking: “I just started school, why should I be saving now?” The answer: It never hurts to plan for the future.
Your life is just beginning and it is going to be amazing, but it doesn’t hurt to start accumulating a nice amount for an after graduation trip, a big move, or in the event something happens, you have extra money as backup.
Lesson Learned: The stock market crashed in 2008. Five years later many are still affected by company downsizing or lost investments. I was still in college at the time, but crash has negatively impacted the job market for 2013. People who graduated in 2008 are still unemployed or underemployed. My graduation class of 2011 found it difficult to find work.
Of course there are a lot more nuances that played into my financial mishaps during freshman year, but these are my three biggest areas of reflection. I don’t beat myself up about it, because I was only 18 and no one gave me the advice I needed.
I was given a car, yet didn’t know how to drive. You are going to make some financial mistakes, but that’s all right. You are young enough to learn from them and place yourself in a solid position after graduation.
Don’t be afraid to ask questions and do independent research. At the end of the day, your money has numerous potential. It’s all about how you handle it. Have a great school year!