Chapter 3: Managing Time, Energy, and Money

3.3 MANAGING YOUR MONEY

MANAGING YOUR MONEY

3.3

Lack of money—just like lack of time—can lead to stress, which will use up energy you need for studying and other commitments. Because college is expensive, and most students have limited financial resources, a budget for college is a must. As with time and energy, you have control over how you spend money. By using the tools and strategies in this section, your level of control over money will increase.

Let’s begin by learning how to budget. A budget is a spending plan that tracks all sources of income (financial aid, wages, money from parents, etc.) and expenses (rent, tuition, books, etc.) during a set period of time (weekly, monthly, etc.). Creating and following a budget will allow you to pay bills on time, cut costs, put some money away for emergencies, and finish college with as little debt as possible.

Budgeting

A budget will help you to live within your means, put money into savings, and possibly invest down the road. Here are a few tips to help you get started:

Gather basic information. First, determine how much money is coming in (from a job, your savings, gifts from relatives, student loans, scholarship dollars, or grants) and when. List all your income sources, making note of how often you receive each type of income (weekly paychecks, quarterly loan payments, one-time gifts) and how much money you can expect each time.

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Determine where your money is going and when. Track your spending for a week or two (or, even better, a full month) by recording every bill you pay and every purchase you make. The kinds of expenses you should consider, like rent/mortgage, utilities, gas, food, or child care, will vary depending on your situation. If you are a returning student with a job and a family of your own to support, you will calculate your expenses differently than if you are a full-time college student fresh out of high school. Whatever your situation, keeping track of your expenses and learning about your spending behaviors are important habits to develop.
Build a plan. Knowing when your money is coming in will help you decide how to structure your budget. For example, if most of your income comes in monthly, you’ll want to create a monthly budget. If you are paid every other week, a biweekly budget might work better. Several tools are available online to help you create a budget, such as easy-to-use spreadsheets or budget wizards that you can download for free. To sample what’s available, visit CashCourse (cashcourse.org). You can also use apps such as Pocket Expense Personal Finance, Goodbudget Budget Planner, Best Budget, or Money Monitor.
Identify fixed and variable expenses. A fixed expense is one that will cost you the same amount every time you pay it (like your rent). A variable expense is one that may change (like textbooks, because the number and cost of them will be different each term). Although you will know, more or less, how much your fixed expenses will be during each budget period, you might need to estimate your variable expenses with expected costs. Use past bills, credit card statements, and previous receipts to make informed guesses. When you are in doubt, it is always better to overestimate your expenses to avoid shortfalls at the end of your budget period.
Do a test run and make adjustments. Use your budget plan for a few weeks and see how things go, recording your actual costs as you pay them. Whatever you do, don’t give up if your bottom line is less than you expected. Budgeting is a lot like dieting; you might slip up and eat a pizza (or spend too much buying one), but all is not lost. If you stay focused and flexible, your budget can lead you to financial stability and independence.

Cutting Costs

Once you have put together a working budget, tried it out, and adjusted it, you’re likely to discover that your expenses may be more than your income. Don’t panic. Simply begin to look for ways to reduce those expenses. Here are some tips for saving money in college:

Recognize the difference between your needs and your wants. A need is something you must have (like tuition and textbooks). On the other hand, your wants are goods and services that you wish to purchase but could live without (like concert tickets and $8 lattes). Your budget should always provide for your needs before your wants.

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Use low-cost transportation. If owning a car takes up too much of your budget, consider lower-cost options such as taking public transportation, biking to college, carpooling with other students, or participating in a ride-sharing program.
Seek out discount entertainment options. Take advantage of discounted or free tickets to concerts, movie theaters, sporting events, or other special events through your college.
Buy secondhand goods. Use online resources such as Craigslist or thrift stores such as Goodwill to save a lot of money.

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Avoid unnecessary fees. Making late payments on your bills can lead to expensive fees and can lower your credit score (which in turn will raise your interest rates). You might want to set up automatic online payments to avoid making this costly mistake. Two of the most common and unnecessary fees many college students end up with are parking and library fines. You need to be aware that if you owe these, many colleges will not issue your transcripts or your degree or even let you register for the next term.

YOUR TURN > TRY IT

Use the following chart to begin planning your budget. Add additional rows for other expense categories that apply to you. Then find a good online budget calculator, plug in your numbers, and build your budget from there.

Monthly Budget Worksheet
Cost Category	Fixed or Variable Expense	Expected Cost	Actual Cost
Rent/Mortgage
Electricity
Heat
Water
Cable/Internet
Cell phone
Transportation (bus/train fare)
Car payment
Auto insurance
Medical expenses
Food (groceries, meals at school, snacks, eating out)
Tuition
Books
Child care
Miscellaneous
Total expenses
Income
− Total expenses
= Amount of Savings

Understanding Financial Aid

Very few students can pay the costs of attending college without some kind of help. Luckily, several sources of financial aid—sources of money that support your education—are available, such as the following:

Student loans are a form of financial aid that must be paid back with interest.
Grants are funds provided by the government or private organizations to help students pay for college. Grants do not need to be repaid, but most of them are given to students based on their financial needs. Some grants are specific to certain areas of study.
Scholarships are funds that are given to students based on their academic performance but may also be based on need.
Work-study means that students who are enrolled in college and are receiving financial aid can also have part-time jobs to help cover their education expenses not covered by their aid amount.

Many students manage to enroll and succeed in college with little or no financial support from their families or employers because of the financial aid they receive. Most financial assistance requires some form of application. To receive federal aid, students must complete the U.S. Department of Education’s Free Application for Federal Student Aid (FAFSA) every year. The financial aid staff at your college can help you find the way to get the largest amount of grant and scholarship money, the lowest interest rate on loans, and work-study possibilities that fit your academic program.

Show Me the Money Don’t let the paperwork scare you away. If you’re not already receiving financial aid, be sure to consider all the available options. And remember that your college may also offer scholarships or grants, which you don’t have to repay. Talk to an adviser in your college’s financial aid office to find out if you qualify for any type of aid.

While scholarships and grants are the best forms of aid because they do not have to be repaid, the federal government, states, and colleges offer many other forms of assistance, such as loans and work-study opportunities. You might also be able to obtain funds from your employer, a local or national organization, or a private foundation. In your search for support, however, beware of scams; there may be people in your area or online who use false advertising and do not tell you about the high interest rates you may be charged when you borrow money from them. Your college’s financial aid office is the best place to explore sources of college funding.

Keeping Your Funding

Once you receive financial aid, make sure that you remain qualified. If you earn at least average grades, complete your courses each term, and finish your program or degree on time, you should have no trouble maintaining your financial aid. Make the grade to save your aid.

Dropping or failing a class might put all or part of your financial aid at risk. Talk with a financial aid counselor before dropping a course to be sure you meet the minimum requirements for credit hours with your other courses. If you do decide to drop a course, do so officially. Some students think that if they just stop attending a class, they have dropped it. Without the proper paperwork, however, you are still enrolled in the course and will receive a failing grade and a bill even if you have not been attending.

Achieving a Balance between Working and Borrowing

After developing your budget, deciding what you can pay from savings (if anything), and taking scholarships and grants into consideration, you might still need more income. Each academic term or year, you should decide how much you can work while maintaining good grades and how much you should borrow in the form of student loans.

Paid employment while you are in college can be important for reasons other than money. Having a job in a field related to your major can help make you more employable later because it shows you have the capability to manage several priorities at the same time.

Understanding and Managing Credit Wisely

Your credit score is a single number that comes from a report that has information about accounts in your name such as credit cards, student loans, utility bills, cell phones, car loans, and so on. This score can determine whether or not you will qualify for a loan (car, home, student, etc.), what interest rates you will pay, how much your car insurance will cost, and your chances of being hired by some organizations as some employers may check your credit information before they decide to offer you a job.

While using credit cards responsibly is a good way to build credit, acquiring a credit card has become much more difficult for college students. Since May 2009, college students under the age of 21 cannot get a credit card unless they can prove they are able to make the payments or unless the credit card application is cosigned by a parent or guardian.

Even if you prove you can repay credit card debt, it is important for you to fully understand how credit cards work and how they can both help and hurt you. (Table 3.2 lists credit card dos and don’ts). A credit card allows you to buy something now and pay for it later. Each month you will receive a statement listing all purchases you made using your credit card during the previous 30 days. The statement will request a payment toward your balance and will set a payment due date. Your payment options will vary: You can pay your entire balance, pay a specified amount of the balance, or pay only a minimum payment, which may be as low as $10.

Dos	Don’ts
Do have a credit card for emergencies if possible, even if a family member cosigns for it. And remember: Spring break is not an emergency! creditkarma.com	Don’t use your credit card to bridge the gap between the lifestyle you would like to have and the one you can actually afford.
Do use your credit card to build credit by making small charges and paying them off each month.	Don’t use your credit card to make unnecessary purchases.
Do set up automatic online payments to avoid expensive late fees. Remember that the payment due date is the date the payment should be received by the credit card lender, not the date you send it.	Don’t make late payments. Paying your bill even one day late can result in a finance charge and raise the interest rate on that card and your other credit accounts.
Do keep an eye on your credit report by visiting a free website such as AnnualCreditReport.com or creditkarma.com at least once a year.	Don’t share your credit card number and information with anyone.

Table 3.5: TABLE 3.2 > Credit Card Dos and Don’ts

Be careful. If you make only a minimum payment, the remaining balance on your card will be charged a finance fee, or interest charge, causing your balance to increase before your next bill arrives even if you don’t make any more purchases. Paying the minimum payment is almost never a good strategy and can add years to your repayment time. In fact, if you have a 13 percent interest rate and you continue to pay only $10 per month toward a $500 credit card balance, it will take you more than five years to pay it off! You’ll pay more than $200 in interest—increasing the amount you’ll pay for your original purchase by nearly 50 percent.

If you decide to apply for a credit card while you’re in college, remember that credit cards should be used to build credit and to handle emergencies. They should not be used to buy things that you want but do not need. However, if you use your credit card just once a month and pay the balance as soon as the bill arrives, you will be on your way to a strong credit score in just a few years.

YOUR TURN > DISCUSS IT

Do you have your own credit card or one that you own jointly with your parents or spouse? If not, what are your reasons for not getting one? If you do have a card, do you feel you’re in control of the way you use it? Why or why not? If you don’t have a card, do you think you are ready for one? Why or why not?

Managing Debit Cards

Although you might wish to use a credit card for emergencies and to establish a good credit rating, you might also look into the possibility of applying for a debit card. The big advantage of a debit card is that you don’t always have to carry cash and thus don’t run the risk of losing it or having it stolen. A disadvantage is that a debit card provides direct access to your checking account, so it’s important that you keep your card in a safe place and away from your personal identification number (PIN). The safest way to protect your account is to commit your PIN to memory. If you lose your debit card or credit card, notify your bank immediately.

Another advantage of a debit card is that if you choose not to participate in your bank’s overdraft protection program, the amount of your purchases will be limited to the funds in your bank account. (Overdraft protection links your checking account to a savings account, credit card, or line of credit and uses that account to pay transactions that would have otherwise triggered an overdraft fee or been declined for insufficient funds available.) In this case, using a debit card versus a credit card can help you limit your spending. Although the term overdraft protection may sound appealing, keep in mind that if you choose to enroll in such a program, your bank may charge a hefty fee if you spend even just a little more than what you have in your account. And speaking of fees, be aware that if you use your debit card to withdraw cash from an ATM outside your bank’s network, you will likely be charged a transaction fee.

Debit or Credit? Credit card use is hugely tempting. And credit card debt has now become a major cause of college students dropping out. Don’t fall into this trap.

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Avoiding Identity Theft

If you have a credit or debit card, you should protect your personal information against identity theft, which is a crime that occurs when someone uses another person’s personal information. Carefully guard your social security number, credit or debit card numbers and PINs, bank account numbers, passwords, and any other identifying information that might enable someone to pretend to be you.

Identity theft can result in financial loss, ruined credit, or a harmful reputation. In some cases, the person who takes over the victim’s identity may use funds in his or her accounts, apply for a credit card and use it, get loans, and even commit a crime. It is very costly for a victim to get the money back and rebuild his or her reputation. Here are a few tips to avoid identity theft:

Shred documents that contain personal information when discarding them.
Change your passwords frequently, and do not use your date of birth, mother’s maiden name, or the last four digits of your social security number as a password.
Review your bank, debit, and credit card statements closely, and immediately report any charges you do not recognize to your bank or your credit card company.
When viewing personal information online, make sure your Internet connection is secure. When checking your bank account, paying bills, or shopping online with a credit card, avoid open networks such as those often available at airports and coffee shops. Only secure networks are appropriate for tasks such as these.
You should only enter your personal and financial information on secure websites. Before doing that, you need to check the URL of the website to make sure that it starts with “https://” which indicates that there is a layer of security added.
Use a computer virus protection software program, and update it regularly.