Though there are a lot of things we wished they taught us in high school, a general finance class, including how taxes work, is on top of that list. Now you are in the thick of college life, which bank should you use? Should you get a credit card? Other than saving, how can you start preparing for the future? The world of money can be very confusing and stressful so here are 5 things every new adult needs to know:
1. The Basics
Though most young adults have their own bank accounts because of their parents or after-school jobs, if you have started your college life without one, that is the required first step. Basic checking and savings accounts are free to open at most banks and do not require a minimum balance. Checking accounts now come with a debit card that can be used everywhere cards are taken. Debit cards pull money straight from your checking account and is as if you are spending cash. As well, you can set up the option to restrict overdrafts, a.k.a. your card would get declined instead of your account going into the negative. For savings accounts, you do not have a card with access to this account, but at the bank, an ATM, or online you can transfer to your savings from checking to add more money or from your savings to your checking to be able to spend it. Almost all employers now require direct deposit information while onboarding, and you can choose your paycheck to enter either account. As a college student, your financial aid has a direct deposit option, too.
2. What Is Credit, How To Get It, And Why You Need It
Oh, the big and scary world of credit…. Well, I am here to tell you it is actually pretty simple. First off, credit scores and line of credit are connected but different. A credit score is a number between 300 and 850 and is based on how well you handle lines of credit. If you use a credit card regularly and pay it off every month, this shows responsibility and steady income, and this raises your credit score. Higher credit scores are needed if you want to rent an apartment during your college lifetime, if you need a loan for a new car, or get a second credit card (perhaps a cashback or miles earning one). This brings me to the second point, line of credit. Line of credit is most often interpreted as a credit card from your bank, (which is where your checking and savings account is). For college students and others without credit, most banks required a one-time down payment that they can access in case you cannot pay your bill. (Wells Fargo, for example, required a $500 down payment for a credit card with a $500 limit.) As you continue to use the credit card and make payments on time, you may be allowed to up your credit limit, (e.x. $500 to $1,000). It is important that you use your credit card for things you have already budgeted, like gas and food, and try to stay away from the ever-temping miscellaneous purchases, such as expensive electronics or unneeded items. This way you will pay off all bills, keep your credit score from dropping, and do not accumulate debt.
3. School Loans
Speaking of debt, let us talk about student loans. I remember my senior year of high school when all I knew is that I had to fill out FAFSA to apply for student loans and those loans would pay for my college classes and materials, plus room and board. AS my college life started, I soon learned that there are two kinds of student loans, also known as Financial Aid, from the government: subsidized and unsubsidized. Subsidized loans do not have an interest while unsubsidized ones do, but both are due for payment starting when you have a six-month gap without classes. The hope is that you will be rewarded with subsidized loans that will cover as much as possible, if not all of your classes and materials, and you will only file for unsubsidized for the smallest amount needed (to keep a roof over your head, for food, and transportation – things that they would suggest getting a job to cover so you do not have to file for unsubsidized loans). Once you see a few thousand dollars in your bank, though, it may be extremely tempting to drop money on things you have always wanted, but it is extremely important that you only spend money on school-related things. This way, if you actually have “extra” loan money, you can put it into savings for when you need to start paying your loans back, or next semester you can buy your schoolbooks and supplies upfront, leaving part of the subsidized loan for other parts of college life.
4. Interest-earning Savings Accounts
“I need to do that thing that rich people do where they turn money into more money.”
Well, guess what folks? You do not have to be rich to do that! Yes, you will need to save for a while to get the minimum amount required to earn dividends, but once you have it, you are golden! Even as a college student, living your crazy college life, you can open an interest-earning savings account and do other things “adults” do. Navy Federal Credit Union requires a minimum amount of $2,500 to open their smallest interest-earning savings account. This means that I can open a third account where I will put the $2,500 and as it sits there untouched, it will earn interest, a.k.a. dividends, a.k.a. money. If I leave the $2,500 untouched, the money will be added by the bank overtime – at a rate of 0.40% APY- which, yes, is not a lot on its own, but the goal is to add to the account monthly. The more money added to an interest-earning savings account, the more interest/money will be earned, (up to the bank’s cap).
5. Living Debt-free
With a clean slate as you enter college life and adulthood, you have every opportunity to do things right and create the best foundation for yourself and your future. School loans aside, it is very possible to live debt-free and have everything you need and some things you want. I am opening my interest-earning savings account in a couple months, have a decent credit score (that I only started on recently), have a small savings, and always pay off my monthly bills on time. This way, the savings I do have can partly turn into a nest egg to pay off my school loans when the time comes and go on trips with my best friend across the country. Living as debt-free as possible can not only make the rest of your life easier but give you more chances to do amazing things such as travel and invest in quality things like a good car.
There’s A Great, Big, Beautiful Tomorrow
Forget haul videos on Youtube, forget #TreatYoSelf posts on Instagram, forget the vacation albums on Facebook. Social Media only shows a tiny, very well-crafted snapshot into a person’s life, and you cannot and should not compare yourself to anyone else. You are glorious just the way you are and living within your means is the smartest decision you can make for yourself now and for your future. Have any other tips and tricks? Comment below!
Author | English Major | #RealLifeBelle | Academic Romance | "This was no accident, this was a therapeutic chain of events." | www.TheMousyGirl.com