San Mateo, CA, October 13, 2010 --(PR.com
)-- Now that fall has arrived and schools are in full swing, new college students are settling into classes, dorms, and the reality of managing day-to-day finances. For many students, this is the first time they will carry responsibility for paying bills, making ends meet and living on their own.
To help, Freedom Financial Network LLC (FFN) and the nonprofit Glow Foundation are teaming up to offer tips to help new college students create and use a budget, and avoid excess debt.
“Many of the students we work with – high school students from lower-income families – have not yet had to manage a budget,” said Peter Kim, executive director of the San Francisco-based Glow Foundation, which helps low-income high school students bridge the gap to college with financial aid and advice. “When they gain the confidence to manage money and debt, that process helps put graduation and future success within reach.”
FFN and Glow have compiled these six tips for basic financial management. New college students, or anyone embarking on their first financial plan, can follow these steps to help manage their first budget:
1. Live within your means. Borrowing for college can be considered an investment in the future, Housser said, but students should avoid further debt to fund a lifestyle – as difficult as that may be. “Staying out of debt is infinitely more rewarding in the long run,” Housser said.
2. Create and use a budget. All students should have a budget, even if income comes solely from parents or a scholarship. Budgeting can be done with software, a spreadsheet, or paper and pencil. Housser’s steps include:
a. Understand the baseline. Total all incoming money, whether from a paycheck, scholarship or savings. Then categorize ongoing monthly expenses into fixed expenses (like rent), variable expenses that are “must-buys” (food, gas, medicine, books, supplies), savings and spending money.
b. Subtract expenses from income. If that number (bottom-line cash flow) is negative, find some way to either increase income or reduce expenses.
c. Map it. At the first of the month, make a plan for where to spend funds.
3. Save a portion of income. Housser suggests everyone deposit 10 percent of any paycheck directly into a savings or money market account. That applies whether the check is from parents, a part-time job or someone making a gift. The goal is to build an emergency fund to cover unexpected costs that come up.
4. Pay bills on time. Open every bill as soon as it arrives. Pay bills immediately or create a simple reminder system. Schedule routine bills to be paid automatically online. Remember to be sure funds are available in the paying account on the bill due date. As students start to have routine bills and payments – even phone, Internet or other utility – they also start to build credit scores. On-time payments, explained Housser, are the most important component of a credit score.
5. Pay credit cards in full. While the Credit CARD Act that took effect in 2010 makes it more difficult for college-aged students to obtain a credit card, some students can still get a card. For those who do, Housser’s cardinal rule is to pay the full balance every month. This practice avoids high finance charges and builds a credit score at the same time. Paying less than full payments each month begins a cycle of fees that is difficult to end. For example, for a $1,000 purchase where the borrower pays only the minimum (assume the higher of 3 percent or $15), on a card with 19.9 percent APR, the total paid on the $1,000 debt will be approximately $1,850 over many years.
6. Build and manage a credit score. A good credit score affects an individual’s ability to borrow money and the interest rate he or she pays. Credit scores also can affect the ability to rent an apartment, lease a car or even get a job. Everyone can access credit reports once each year for free at www.annualcreditreport.com, and college-aged students would be wise to check and monitor their credit at least annually, said Housser. If reports show any inaccuracies, correct them right away. For those without a credit card, a student loan or a car loan paid off monthly help build a credit history.
“We believe today’s students suffer from a sad lack of financial literacy,” said Andrew Housser, CEO of FFN. “These steps – like our partnership with the Glow Foundation – allow us to make a difference in the lives of young people by making financial education and future success easier to grasp.”
FFN’s support of the Glow Foundation combines scholarship assistance with hands-on financial literacy efforts. The company has helped fund the development and administration of a school adoption mentoring program, scholarships benefiting the students of the mentored schools, the matching grant program for student scholarships, and Glow’s signature fund raising dinner. In addition, FFN has contributed to the development of a Web-based financial education program. FFN employees also serve as mentors, assisting students in the Glow program through the college application and financial aid application process, and in creating and using a personal financial budget.