College students are broke. Everyone knows that. And as graduation is approaching, the financial situation many seniors face may get stickier.Many college students will have to take on financial responsibilities they have not previously known, and the disconnection from Mom and Dad’s pocketbook sends many into frenzied fear.
Larry Lockwood, a professor of finance, said, “A financial planner can help, but there’s no substitute for reading and studying on your own.”
SPENDING & BUDGETING
Students can build positive spending habits by following a few simple steps.
Arthur Garcia III, a business specialist for Bank of America, said although it’s easy to say, but hard to do, graduates can take charge of their spending by setting up a budget and tracking expenses.
Jessica McCraw, a professor of economics, said it helps to prioritize expenses.
“Distinguish between wants and needs,” McCraw said. “You must have food, clothing and shelter, but you don’t need designer jeans and an expensive car.
“If that means that you can’t afford to do some of the extras, then tighten your belt a bit and develop the terrific habit of living within your means. Your grandparents and parents did it. So can you.”
It doesn’t always require cutting corners; it just requires making smart decisions, such as skipping that cup of Starbucks coffee, Garcia said.
Lockwood agreed that even simple changes in spending can make a big difference.
Lockwood’s advice: “Spend less; avoid impulse purchases.
“Balance the checkbook every month. Look for discounts and enjoy the simple things in life. Live a controlled life.”
He said not accounting correctly for living expenses is also a common oversight on the part of graduates and listed health insurance, car insurance, rising gas prices and entertainment as expenses to take into consideration. He also said to include an emergency cash account for items such as car repairs.
CREDIT & DEBT
Credit cards can be a positive move for your future, but Lockwood said the misuse of credit cards is a common pitfall for graduates.
To begin establishing credit, it is wise to open a credit card account, Garcia said.
He suggested paying more than the minimum payment or paying off the balance completely each month to avoid extra fees.
Lockwood also suggested limiting the number of credit cards a graduate carries.
“Get rid of them altogether if you aren’t paying them off every month,” Lockwood said.
If students run into credit problems, several steps can be taken to move forward.
Students can check their credit record by requesting a credit report from a major credit bureau, such as Equifax, Lockwood said.
“Correct any problems if they exist,” Lockwood said. “Students with serious credit problems should contact the creditors directly to explain the circumstances and to show a good faith effort to continue paying off the debt.”
However, be careful when dealing with debt consolidators so as not to increase debt through additional borrowing, Lockwood said.
TCU students have a little more than $24 million in student loans, according to the 2004 TCU Factbook.
In just a few years, these graduates will be fighting to pay off this debt.
Upon graduation, most students will graduate with loans to pay, Lockwood said.
“It was a necessary decision. If I didn’t take out loans, I wasn’t going to go here,” said Richard Newton, a senior religion and anthropology double major.
Newton said he is graduating in December and planning on starting graduate school in the fall.
“It’s going to be a lot longer until I can pay off my loans,” Newton said.
He said he is concerned because December graduates have to begin paying interest before they enter in to graduate school in the fall, so they lose the grace period that May graduates would have.
For students graduating with loans, the first step is to contact the institution servicing their loans to give their new contact information, Lockwood said.
Recently, student loan companies have begun consolidating loans, meaning they will review the loan and possibly renegotiate or set new terms, Garcia said.
The options are dependant on the loan institution, but options could include new interest rates, reduced payments or deferred payments, Garcia said.
Lower monthly payments, fixed rates, improved credit rating and flexible repayment terms were cited benefits on www.studentloanconsolidator.com.
“Save, save, save,” McCraw said. “It doesn’t have to be half your paycheck, but do it. If you can have it deducted from your paycheck, that is even better. If you never see it, you miss it less.”
Garcia added that many people do not save enough money, but cited savings as one of the best things graduates can do to be financially stable and achieve financial goals in the future.
“Start right away and be consistent,” Lockwood said. “Try to set aside 10 percent of gross income every month.”
Garcia suggested starting with a simple savings, and suggested automatic transfers, which transfers money from the checking account into the savings account, automatically building savings.
Later, it would be good to open a certificate of deposit (CD), Garcia said.
A CD is a savings certificate that has a specific maturity rate and a specific interest rate and also earns more than a savings account, according to www.investipedia.com. The extra earnings may help in future big purchases.
“College graduates may be saving for a new car, a down payment on a house, maybe even a wedding,” Garcia said.
It is also important to have an “emergency fund” as an umbrella, Garcia said.
“Have three to six months of living expenses in reserve,” Garcia said.
“To get finances on the right foot, the graduate should begin an automatic tax-deferred savings plan,” Lockwood said.
A 401(k) is a common tax-deferred savings plan that allows employees to set aside money for retirement, and it will not be taxed until a later date, according to www.investorwords.com.
While retirement seems little more than a glimmer in your eye, you, as a graduate, should look ahead and begin saving immediately.
Lockwood said these could typically be done through a work savings plan.
Many employers will match the employees contributions to the dollar amount, according to www.investorwords.com.
After doing a little investigation, several other money saving tips can be discovered.
When it comes time to fill out a tax return, this is the first time for many when more than a W-2 is involved, according to an article on money.cnn.com.
For graduates who would like to save some money during the job hunting process, several activities can be filed to receive a tax deduction including “resume services, mailing costs, travel to interviews (if you drive keep track of the mileage), professional association dues, subscriptions to journals, moving expenses related to starting a new job, charitable contributions and setting up a home office,” according to money.cnn.com.
Visiting the Web site www.irs.gov would be helpful in finding out about standardized tax deductions, Garcia said.
For the graduate with extra income, Lockwood suggested investing in a mutual fund.
“They are professionally managed portfolios with stated investment objectives ranging in risk from high to low,” Lockwood said.
“I would recommend a well-diversified mutual fund that has no sales charge.”
In the end, graduates will find it beneficial to do a little research and simply be intelligent and realistic about their finances.
“There is no one answer for everyone. What is right is whatever works for you,” McCraw said.