Tuesday, 6 March 2018
If you're a college student or recent graduate, Financial Literacy 101 is probably not on your list of graduation requirements—but it should be.
Learning how to manage your money will give you a toolbox of skills that can help you earn an "A" in life. Follow our guidelines for keeping track of your income and expenses, and your financial future will be on solid footing.
1. Start with a budget. This is the must-have tool for sound money management. A budget will help you get your priorities straight on spending: If you struggle to pay the electric bill, but find yourself shoe shopping every weekend on credit, you need a budget!
All budgets should have three basic elements:
2. Consider wants versus needs. Needs are items like food, clothing, shelter, and utilities. You need to have a roof over your head and food to eat. You want nice restaurant meals, or a spring break trip. Wants are nice to have but aren't not necessary for survival. Never sacrifice needs to finance wants.
3. Check your budget and bank account balances regularly. Use online and mobile banking to check your account balances. If you don't know where your money is going, keep track using budgeting tools for every purchase you make during a month: bills, clothes, food, and nonessentials. Set up mobile banking alerts to be notified when purchases are made, or if your account falls below a certain balance. Knowing your balance helps prevent overdraft fees, which occur when you spend more money than you have in a particular account.
4. Protect yourself from fraud. Use your Social Security number only if you absolutely have to, and never use it as a password. Never give out your financial information over the phone unless you are certain you know whom you're dealing with. Most financial institutions won't ask for your Social Security number unless you initiated the call; be wary of anyone who calls you out of the blue asking for it.
5. Create short- and long-term savings goals and start saving now. Savings are essential for unexpected expenses, such as when your car needs a part or you lose your financial calculator and have to buy another one. Start with a short-term goal of $500, and make sure to keep that amount in your savings at all times. Even if you can only put aside $20 a week, do it consistently. A long-term savings goal is to have six months of living expenses on hand. When it comes to savings, the best plan is "just do it!"
6. Shop around for a good credit card. Choose a card with the lowest interest rate you can get and that doesn't charge an annual fee. Smart students use credit cards as a convenience and as a record-keeping tool. Do not use credit cards to accumulate debt. If you can't pay off a purchase in full, you can't afford it. Pay off your credit card bill on time each month. This will avoid unnecessary late fees and keep your credit score in good shape.
7. Budget for disability and health insurance. Just because you're healthy now doesn't mean you can't or won't end up on the disabled list at some point. Just one serious health crisis could end up bankrupting you if you don't have insurance.
8. Don't forget renter's or homeowner's insurance. You need to protect your household goods, even if you're a student or recent grad. It's much cheaper than having to replace everything after a robbery or accident, and you can usually pay for it in small monthly increments.
Money management is a lot to think about, but, if you regularly put these tips into practice, you'll find budgeting becomes second nature. Soon enough, you will graduate with honors from Financial Literacy 101, and when you are ready to buy a car, purchase a home, or plan for retirement, BBVA Compass will be here to help you achieve your financial goals.
The content provided is for informational purposes only. Neither BBVA Compass, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial advisor about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA Compass or any of its affiliates.
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