Going to college is one of the first times you're given a taste of true independence and responsibility. But here's a secret your place of higher education won't tell you: Responsibility for your newfound freedom starts well before you move to campus.
Here are five steps worth taking before leaving for college. They'll help to make your time both in school and after graduation more financially stable.
1. Get a job and put together a budget. Getting cash flowing, even if it's a part-time job, is the first step in securing a stable financial life. Don't wait. It may be tough to balance a job, school, and a social life, but the experience will pay off--not to mention you'll be earning some spending money on your own, rather than have to entirely rely on your parents.
When you start working, establish a budget. Estimate how much spend on food, clothes, transportation and non-essentials each month. Keep track of what you spend and review your expenses. If you're off at the end of the month, adjust your spending behavior.
2. You need to start saving your money, and that means opening an IRA. Opening an Individual Retirement Account (IRA) as soon as you can is one of the best ways to prepare for retirement. It's also a great way for your money to accumulate without being taxed. Admittedly, retirement probably feels like light years away, but the earlier you start saving, the easier it will be down the road.
There are two options when it comes to an IRA: the traditional IRA, which isn't taxed until you withdraw from the account, and the Roth IRA, which is taxed when you contribute to the account but not when you withdraw. A Roth IRA is usually considered the better option when you're younger because you'll be paying the less in taxes. When you start a full-time job, consider putting money into an IRA alongside any 401(k) plan offered by an employer.
3. Get a credit card and use it very, very carefully. A study by Ohio State University found those born between 1980 and 1984 possess on average $5,000 more in credit card debt than their parents and $8,000 more than their grandparents. Having good credit is necessary, but establishing it in college, where the temptation to spend is rampant, can prove challenging.
Don't be intimidated. If you want to build credit, there are a few basic tips to follow: Understand the interest rates and penalties on a card before you sign, stick to one card (at least at the beginning), use your card sparingly and only on small purchases (unless an emergency requires a larger purchase) and pay off your debt in full and on time each billing cycle.
Getting a card early in life can be a smart move to build credit, but it requires a lot of self-discipline, restraint, and time. Many credit card companies require a co-signer for credit card newbies--someone who can pay if you fail to.
4. Pay off debt as soon as possible. The first step in tackling student debt is to know the loan details through and through. If you have private loans, pay them first. If you can manage to pay more than the minimum, do so.
Consider consolidating your debts, which can help lower your interest rate and make payments easier. However, sometimes consolidation isn't the best option. Unsure? Consult a professional for help.
5. Build your emergency fund. If life throws you a curveball, have an emergency fun at bat. Ideally, you should have three to six months' worth of expenses stowed away. If you're not sure how much that is, return to step one and create a budget.
Put a small amount of your income towards an emergency fund. If your car breaks down, if you have a medical emergency, or if you're out of a job, you'll be thankful you created a cushion.
Being financially secure is difficult, but important. Work to build the financial habits and confidence now so you won't have to worry later.
John Gower is an analyst at NerdWallet, a website dedicated to providing unbiased financial information and helping consumers find the highest CD rates, best checking accounts, low-interest credit card, and more.