Our oldest ‘child’ is leaving soon for college. He’ll be handling his own finances for the first time and, frankly, we’re a little worried. Can you help?
[missy brown, director of advisory services, mosaic family wealth]
First, congratulations! This is a very exciting time, but being away from home while trying to balance a full class load and finances can be a difficult proposition for any college freshman. The key to a financially fit first year comes down to two words: planning and tracking. Sit down with your son and discuss the types and amounts of monthly expenses he will incur. Depending on the school and your son’s needs, agree upon a monthly spending target. By planning ahead and establishing a spending target, your son will have a better understanding of how to manage his ongoing expenses.
The next key is tracking. A monthly spending target is useless without a way to track his actual expenses. Charging small expenses on a debit card can add up quickly. Make sure your son is set up for online banking, where he can view his account balance and any ongoing activity. Finally, instead of just one main account that houses all of his funds, consider opening a second checking account in your son’s name. The original account will serve as the holding account for the larger balance. The second account will serve as his operating account. Instead of drawing from the full balance, set up a monthly transfer from the holding account to the operating account to cover the monthly spending target you agreed upon. Through planning ahead and tracking his spending, your son will build a solid financial foundation for the future.
[aaron vickar, wealth adviser/director of risk management, buckingham]
The words ‘college student’ and ‘financially responsible’ usually don’t go together. Fortunately, good financial habits formed during one’s university years can pay dividends for life. So here are a few tips to get started. First, start saving early. Albert Einstein called compounding the eighth wonder of the world, and for good reason. If you save $3,500 per year for 10 years beginning at age 18 and allow it to grow without additions or withdrawals until age 65, your savings could reach $1.9 million. Now, how can a full-time student possibly come up with extra money to save each month? Well, skipping that $5 coffee drink once a week or not ordering that $20 pizza more than once a month can really add up. Look for the little ways.
Create a budget. It’s never too soon to get into the habit. You don’t need to have a job to follow a budget. It’s important to know what your financial priorities are and where your disposable income is going. Keep track of how much you spend at the dining hall or going out each weekend. Try setting a monthly target for various spending categories, and then pay attention to where you fall.
Have a conversation with your parents before you leave home. How much do they expect you to spend? What are the pros and cons of a credit card, debit card or pre-paid card? If there’s money left over, what are the options for saving it? If you exceed your spending limit, what are the consequences?
