5 Huge Financial Mistakes that College Students Should Avoid

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Most college students see their college years through a lens of excitement. Often, it’s your first time away from home, your first time making your own rules, your first time mapping out a life for yourself. And, for many students, it’s your first opportunity to handle money on your own.

It should be expected, then, that you’re going to make some mistakes every now and then when it comes to dealing with your money. That’s natural! A slip up in your budget every so often, especially when you’re young, isn’t that big of a deal, and can actually offer some important lessons.


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But there are other financial mistakes that can have a serious, long-term impact on your financial wellbeing. These are the financial mistakes that you need to avoid at all costs if you want to leave college on a sure financial footing.

1. Not having a budget.

Having a budget or a spending plan is the first step for anyone to ensure that they are in good financial health. Without one, you won’t have a clear sense of where your money is coming from and where it’s going, and that’s a dangerous life to lead. In college, that might lead to a few [DECLINES] at your local bar, but out in the world after graduation, it can mean missed payments and surprise budget holes that leave you scrambling to make ends meet. It’s just better to get started early and make budgeting a habit.

At its simplest, your budget should acknowledge how much money you have coming in each month, and how much of that money is dedicated towards set costs. These set costs would be things like rent (if you live off campus), food (if you don’t have a meal plan), debt payments, car payments, etc. It’s important that you always set this money aside to ensure that your basic needs are met. Then, you know exactly how much money you have left over for things like having fun or getting a jump start on paying down your student loans or investing for your future.

Having a clear budget will help you to avoid overspending and will keep you from relying on credit cards to make ends meet (which, again, would be a really bad idea).

2. Relying on credit cards.

I know we spoke about it above, but I want to reiterate: Relying on credit cards is no way to run your finances. Credit card debt is very clearly a bad kind of debt, which has the potential to ruin your credit if you don’t use them appropriately. Until and unless you have a steady stream of income so you can be sure to pay off your balance each month (before interest is charged) it would be wise to simply stay away.

One of the reasons that credit cards are so dangerous is that they encourage students to live beyond their means. Don’t have cash to cover a night out with friends? Just charge it on your card. Want a new outfit for homecoming? Swipe that plastic. Taking a trip for spring break? Good thing you’ve got a Visa (hehehe).

Though convenient in the moment, the true cost of these purchases can be hundreds or thousands of dollars in interest depending on how long it takes you to pay your balance down. And relying on credit encourages this kind of behavior in life after college as well, setting you up for a very expensive life of card-swiping.

A better bet? Create a budget (See #1 above!) and stick to it. Working hard for something that you want, saving up for it, and paying for it in full with cash is a supremely rewarding experience.

And if you’re thinking of your credit card as a sort of “emergency” card that will help you cover an emergency, just don’t. Instead, build an emergency fund. It sounds hard, but it’s really not.

On the same note, let’s talk a little bit about credit card rewards. Many cards offer some very attractive rewards options, from cash back, to points, to miles that can be used on travels. All of these rewards are there to encourage you to sign up and to use the card for your expenses. That’s good for the card issuer, but can be catastrophic for you if not handled responsibly. If the rewards are your reason for signing up, you may want to consider skipping.

3. Not saying “no.”

College is a time of fun and freedom, and that can make saying “no” kind of difficult. Tim admits fully that he agreed to do many things in college that he really didn’t want to do, per se, simply because his friends were doing it and he didn’t want to be left out. Many expensive meals and trips to the club later, and he had nothing to show for it other than a hole in his budget.

That’s the power of peer pressure for you.

That’s why it’s important to learn to say no to things that you don’t want or need. Your wallet will thank you, and it will also help make it easier to say “yes” to the things that you do want to do.

4. Misusing your student loan and/or student loan refund.

Student loans are meant to be used to cover school-related expenses. This means tuition, room and board, and other essential supplies.

Some students get into trouble by broadening the category of “other supplies” a bit too wide. They find that they have excess student loan funds, and they use those funds to pay for an expensive new laptop, or to freshen up their wardrobe, or to decorate their dorm room. What they don’t realize at the time, though, is that every dollar they borrow is a dollar that they’ll need to pay back—with interest. And that interest adds up to big bucks over the life of a loan.

On the same note, many students receive what is called a “student loan refund” from their university at some point through the semester. This refund consists of excess student loan funds that were not needed to cover the cost of college. Students who receive refunds are encouraged to use them to pay off a portion of their student loans, but often times students use these funds for other things. No Bueno.

5. Not making payments on your loans while you’re in school.

One of the perks of student loans is the fact that, while you’re a student, you don’t need to make any payments. This allows you to focus on your studies without having to worry about making any payments.

But that is a truly expensive luxury. By not making any payments while you are a student, you are allowing interest to begin accruing on your student loans: For up to four years! (Unless your loans are subsidized, that is.)

At the end of those four years, if you can’t pay off the accrued interest, it will be capitalized. I.e., the interest will be added to the principal of the loan, and you’ll begin paying interest on the interest. That means you’ll have to spend hundreds of dollars more over the life of the loan to pay it off.

A better bet? Making payments while you’re still a student. Even just making payments big enough to pay off the accrued interest each month can have amazing benefits over the life of your loan. And of course, if you’re able to pay off more and start chipping away at the principal then you’ll be able to save even more money and pay off your loan even faster after graduation.

The Bottom Line

Making big financial mistakes in college is a surefire way to set yourself up for a future of living paycheck to paycheck. Taking some time now to learn the basics of personal finance and create healthy financial habits will go a long way towards a happy, financially sound future.

About Tim Stobierski

Tim Stobierski is the founding editor of Student Debt Warriors. A freelance writer and editor with a passion for teaching people about all things personal finance, his goal is to help parents and students tackle their student loan problems so that they can live happier, healthier lives. Tim's writing has appeared in a number of publications, including The Huffington Post, The Hartford Courant, Grow Magazine, and others. His first book of poetry, "Chronicles of a Bee Whisperer," was published in 2012 by River Otter Press.

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