MANaging your money
 |
|
 |
what you don’t know can hurt you
We all know college is expensive. You’re paying for your housing, your food, and your education, and you have a full-time, non-paying job: being a student.
Putting in all this time and money can make it hard to manage your finances wisely. Want to learn how to properly use credit cards to establish your credit? What about how to save more by tossing your budget out the window? Read on for our hot tips to financial success.
Hot tip: budgeting
Let's be honest: budgets don’t work. We write them unrealistically (what does $200 for entertainment really mean?), and they don’t account for the little stuff that comes up, like getting coffee after a friend’s bad day.
Don’t believe it yet? Think about this: if that hottie in your math class agrees to a Friday date, are you really going to say, “Sorry, but I only have $10 left for entertainment this month, so we’re going to McDonald’s.”?
Instead of divvying your monthly funds into categories that restrict you, try writing three lists:
1. What you want
2. What you don’t care about
3. Things that are important (right now).
Put whatever you’re saving up for in list one, whether it’s an iPOD, a new car, or even a grand piano.
Use list two to prioritize things you buy, such as buying off-brands over name brands of grocery-type items. If you don’t care about name-brand tissues, food, or laundry detergent, save yourself some money. It can be anything you think of: eating out, cars, clothing, or haircuts. Just think of ways you can cut corners.
List three is for things you have to pay every month like your phone bill, gas, rent payments, and so on.
The trick with using these lists is to rearrange items so you can afford what you want, and avoid spending money on things you don’t care about. If the high-dollar toothpaste in the jazzy tube really isn’t that important to you, put it in list two. And if you must have Oreo cookies after a bad day, keep them in list three.
It takes some adjusting, but with a serious commitment, these lists can be the most effective tools to manage your finances.
Hot tip: credit
Credit is often viewed as a necessary evil or something to be avoided. But like it or not, your credit score will affect your life in many ways: your ability to buy a car or home down the road, for instance. It determines the interest rate you’ll pay on purchases and can even affect whether or not you’re hired for a job.
So what is credit, really? And if you don’t have any credit cards, do you still have a credit score?
The term ”credit” refers to a report that shows your credit score, which is based on your credit use from things like credit cards or car payments.
You credit score, also called your FICO score, is determined and collected by the major credit-reporting bureaus. Your score falls somewhere in the range of 300 to 850. A good score is 700 or above.
A credit report is opened on you when you turn 18, and it is basically a series of pluses and minuses based on your credit activity. Signing up for a new credit card automatically lowers your score on that report. So does carrying a balance for several months. But paying that debt off will help to increase your score—down the road. Remember, it’s much easier to lower your credit score than to raise it.
How do you use credit wisely?
Many college students get into trouble when they do things that negatively affect their credit score, such as racking up huge debts from signing up for too many cards or from unwise spending.
To establish a good payment history, you need constant activity on your credit card. But don’t carry a balance of money you have to pay off. Your best bet is to get one card and charge less than $25 a month on it. Then pay it back each month.
Another problem with credit is mistakes. Seventy percent of Americans have a mistake on their credit score and don’t know about it. If you have a common name like Smith or Johnson, the probability of someone else’s bad credit getting tacked on to your score rises to about 90 percent.
How do you raise a credit score?
There are five ways:
• Fix mistakes that are not your fault.
• Pay off credit-card debt.
• Establish a payment history.
• Stop applying for more credit cards (your score drops 5 to 15 points every time you apply for a new card). In the first few weeks of college, lots of credit card companies will try to sign you up with offers of free stuff.
• Become an authorized user on your parents’ account (if this is okay with them). After using their score to boost yours some, you can get your own card.
What are some other ways to build credit?
Loans, leases, utility bills (not all —check locally), and some cell-phone bills can all build credit. Checking accounts and debit cards do not affect credit. But there’s a separate report for overdrawing your bank account, so don’t think bouncing checks has no consequence.
Overall, credit can be a convenient and useful tool as long as you have the money to pay off the bill. Credit is like many other things in life: used incorrectly, it can hurt you.