By Dayana Yochim, who writes for Fool.com, for CollegeCandy.com
Let's face it, "the talk" is awkward for everyone: You, picturing your parents at your age; your parents trying to cover all the bases (protection, safety, responsibility and the long-term consequences of your young-adult actions) before letting you leave the nest.
You know we're talking about the "money talk," right?
What's the big deal? Well, unlike the mechanics of procreating (which, if you're reading this, we can assume your mother and father mastered at least once), there's a good chance that your parents made a mess of their own finances back in the day. They might even feel like they're still unqualified to offer sage advice. After all, this stuff isn't taught in most schools, which leaves most folks learning money lessons the old-fashioned -- and very expensive -- way: At the school of hard knocks.
I'm here to do your folks a solid and give you six money management tips that will help you avoid graduating with a major financial hangover.
1. Sweat the big stuff: Here's something you won't hear from most money gurus: Go ahead, enjoy your daily latte. If that's what gives you the will to face each morning, then far be it from me to admonish you to skip it and sock away that $3 daily splurge into a savings account.
The gurus will point out that your small indulgence robs you of a $1,000-plus in savings annually. I'll point out that denial and deprivation is what leads to spending benders that can put you in the hole for a lot more than a thousand smackaroos.
The trick to having your latte and enjoying it guilt-free is to slash your spending on big-ticket items to free up cash for that coffee (or whatever small treat brings you joy). In other words, sweat the big stuff -- find cheaper alternatives or price-cutting strategies for the those double-, triple- and quadruple-digit expenses.
For example, if you brought your car to campus but never drive it, return it to your parents' driveway and tell your insurer to slash your premiums. That's hundreds of dollars in savings right there. Rent your textbooks instead of buying them outright. According to Chegg.com, the average student saves $2,000 over the course of their college career by renting books they don't intend to keep after they graduate.
2. Don't bother with budgeting: Sounds like heresy, right? Okay, it was a bit of a bluff. But the truth is that "spending plan" sounds a lot more palatable than "budget," right? So think of your -- ahem -- spending plan as a guide to making sure you have enough money at the end of the week to go out dancing (or whatever it is you kids do these days).
Your spending plan can be as high-tech or low-tech as you want:
High-tech: Mint.com is a free tool that links up with your accounts (just to get the balances; it doesn't allow any transactions to be made) that can keep you up-to-date on your every dollar move.
Low-tech: The envelope budgeting approach is like an instant spending plan. The idea is that you carry around just the amount of cash you want to devote to various spending categories (lunch, entertainment, cute shoes) for that week. If the envelope is empty before it's time to re-fill, you'll need to start getting creative with ramen noodle recipes.
There's no right or wrong way to do it -- just use whatever method works best for you.
3. Say "no" to plastic: Lucky you, it's a lot harder these days to get a credit card than it was for last year's incoming freshman. Seriously, the new laws that prevent anyone under the age of 21 from getting a credit card in their own name without proof of income or an adult co-signer is going to save you years of financial trauma.
Ask just about any grownup about their biggest financial regret from college and the answer will be: "Plastic." (I know people in their 30s still paying down debt they rang up when they were co-eds. We're talking about pizzas that end up costing hundreds of dollars because of the interest that racked up over the years.) Don't be in such a rush to prove that you're creditworthy. Building credit takes time. Ruining your credit is a piece of cake.
All that said, mom and dad may want you to have a plastic safety net for emergencies (e.g. actual "I'm stranded roadside and need to pay for a tow" emergencies, not "awesome sale at Abercrombie!" quote-unquote emergencies). If so, here's a 60-second crash course on credit -- how to establish a squeaky-clean credit and avoid the shackles of debt.
4. Avoid late fees like the plague: It's one thing to sleep through a Tuesday morning biology lecture. It's another to hit snooze when bills and other time-sensitive money matters come due. Your mea culpas are no good in the real world. (And, no, last-minute cramming won't get the electricity turned back on.) Messing up leaves a mark -- and this time, it's your money and reputation that's on the line.
-- Make a few too many ATM withdrawals this week? Feast your eyes on the litter of rubber checks and overdraft fees multiplying in front of your very eyes! (The remedy: Sign up for low-balance alerts. And decline pricey overdraft protection programs and link your checking account to a savings account or just let the bank deny purchases you don't have the cash to cover.)
-- What's another late payment to Visa? Yet another late-payment fee as well as a nasty bruise on your credit report that won't completely fade away for the next seven years. (Just automate your payments so at least a check for something is in the mail on time every month.)
-- Watch in amazement as that crumpled $25 parking ticket at the bottom of your messenger bag morphs into a $100 one (special for last-minute callers: a free lovely safety-yellow car boot!).
If that's not enough to convince you to hit your due-date deadlines, then think about what you could have done with the money you instead blew on $35 late fees, $20 expedited payment surcharges and $100 fines for defacing campus property.
5. Mooch rides as much as possible: It's not just about saving money on gas. If you're under the age of 25 insurance actuaries assume you've got a lead foot and an "I Drive Like I am Invincible" bumper sticker. Maintaining a clean driving record (for at least three years), and paying for small claims out-of-pocket are still the best ways to keep insurance costs in check until you age into better rates.
However, there are some ways that college students can still drive a better car insurance bargain. Let your insurer know if:
-- You're parking or garaging the car in a different location (a low-crime zip code or secure garage, for example)
-- You're acing your finals. Good grades may earn you a "good student" discount on your premium
-- You're in the market for renter's insurance (if your stuff isn't covered under your parent's homeowner's policy). Buying coverage from the same insurer can cost less than purchasing separate plans from different companies.
6. Bonus tip! Make everyone wonder if your new beau just loves you for your money: You're young, scrappy, and while you might not have a lot of extra money lying around, you do have one thing in spades: Time.
Time is an investor's best friend. And right now you've got enough of it to make your elders spitting jealous. (Most elders will say that the second biggest financial regret behind racking up credit card is not starting to save and invest sooner. Seriously, just ask.) When you're young you have time to weather the stock market's ups and downs. You have time to let whatever money you can squirrel away compound and multiply.
While that $2,000 you saved on textbooks is indeed a lot of beer money, what if I told you it could be worth $15 grand by the time your 25th reunion rolls around -- or grow to an extra $70,000 by the time you're ready to retire. That's the power of compound interest -- a concept they do teach at colleges, but most students fail to put it to use in the real world when they have the chance. (Here's how to get started investing even if you have mere dollars to do it with.)
Make saving a lifelong habit by starting now. Get into the habit of watching expenses, saving and investing now while time is really, really on your side. The sooner you start building wealth the richer you'll be in the end.