What are 5 budget mistakes that students make?
By Amanda Draper, National Content Director at NextGenVest
College is often the first opportunity many students have where they are budgeting and learning to manage their money for the first time, while living away from their families. Many students do not feel sufficiently knowledgeable about finances and prepared to manage their own finances. One of the leading reasons why students drop out of college is because of financial reasons, which is frequently caused by not properly handling their finances. If students try to avoid making these five budget mistakes, they are putting themselves on a good path for finishing college and can avoid taking on exorbitant debt.
1. Buying books at the bookstore
One mistake many first year students make is buying their books new at full price and/or buying them at their college or university’s bookstore. Frequently students can purchase or even rent the books required for their classes on sites like Amazon.com or Chegg.com, which sell many of the books students need for their classes at a fraction of the price. Chegg even offers homework help and online tutoring through their website.
2. Failing to create and stick with a reasonable budget
Another common mistake that students make is not creating and sticking with a reasonable budget. Students who do not create and stick to reasonable budgets run the risk of running out of money before the end of the first semester or the end of the school year. Even if you do budget, many high school students have no idea who much everything is going to really cost, and their college’s estimated cost of attendance usually is not an accurate figure of the cost of attendance, so students should plan accordingly and be willing to revisit and revise their budget after some time. The College Student’s Guide to Budgeting is a useful guide for those learning how to budget.
3. Not properly distinguishing between wants and needs
Another common mistake students make is not properly distinguishing between their wants and their needs. The University of Nebraska at Lincoln’s financial advice for parents of college students goes into great detail about this, but it is important to really consider where your money is going-when you are spending money, are you purchasing something that you absolutely need vs. something that you really want. Additionally, making a deliberate effort to be conscious about how you are spending your money, will help you avoid overspending and impulse purchases that you might regret later.
4. Using a credit card like it’s free
While it is important to eventually get a credit card so you can build a credit history, it is extremely important that you use your card responsibly. You can use your card responsibly and build a good credit history by only spending as much as you can afford, not going over your credit limit, paying your bill on time every month, and paying your balance in full each month. Credit cards should not be used to make up for gaps in your budget or to splurge. It is important to remember that since students are new to credit “starter credit cards” tend to have higher interest rates than credit cards for people with higher credit scores and longer credit histories, which means that credit card debt can quickly grow for students.
5. Succumbing to peer pressure
Peer pressure is powerful on college and university campuses. Students need to remember that it is always ok to say “no”. If their friends want to go out to eat, see a movie, go shopping, etc. and they know they do not have money in their budget to participate in said activity, they should remember that don’t need to give into peer pressure. Financial goals are extremely important in this context, since students need to concentrate on what they want to do in life, as a way to avoid overspending. If students are making smart and informed financial decisions, they can help their friends make good financial decisions as well.