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Financial Responsibility: The New Independent You

By Don Rauf

Money Matters: Getting a Grip

Armed with a credit card his freshman year at Loyola University, Jason Power took full advantage of one of his favorite cities-Chicago. There were concerts and plays, movies and restaurants, and Power decided to enjoy it all.

"I guess I spent a lot of money on entertainment," he recalls. "I really enjoyed eating out at good sushi restaurants. I thought it was OK to indulge yourself."

But when the credit card bills started rolling in, things got a little depressing. It wasn't long before Jason reached his credit limit of $500, and more of his work-study job salary started going toward monthly payments. Before he knew it, things had begun to snowball, and he was using his card to get cash and pay for groceries. Sometimes his checks would bounce, and when he didn't have money for his phone bill, he borrowed from friends.

Lucky for Jason, a generous uncle came to the rescue with a big college graduation check, covering his debts and helping him start fresh. After landing a job with a high-tech firm in New York City, Jason became a lot more responsible about his financial habits.

"I was pretty haphazard about money," he admits, "but now I make sure I have money allotted for everything I need. When I use my credit card, I pay the debt quickly."

Although Jason learned the hard way, today's students appear to be increasingly more aware of financial matters. A recent survey of 500 students by Netbank , an Internet-based financial institution, found that 95 percent grade themselves an "A" or "B" when it comes to personal banking habits.

"College marks the time in life when many young adults begin making independent financial decisions," said Jerry McCoy, chief marketing executive, NetBank, Inc. "The survey results indicate that today's college students realize how wise banking habits can help maximize their money."

Take Charge of Credit

Jason is living proof that credit cards can be one of the biggest sources of financial trouble for college students. Soon after you leave home and set up a place of your own, credit card offers will probably start filling your mailbox. Many credit companies set up tables in student centers, and give away free water bottles, T-shirts, and mouse pads to encourage you to sign up. But let's face it: You will need a credit card in the real world. They're a convenient way to make purchases, and they can help you keep track of your spending by detailing your purchases on monthly statements. Even more importantly, using a credit card lets you build a good credit rating, which is vital when you want need a loan in the future to buy a car or a house.

The trouble with credit cards comes when you make too many purchases and can't pay your bill. Keep these facts in mind:

• Credit is not free money. Every purchase you make with a credit card is a loan. You have to pay it all back-plus if you don't pay the bill on time, you can pay a high amount in interest (sometimes as high as 20 percent) on the unpaid portion of your bill. Plus, many credit cards charge an annual fee and fees for late payments.
• Mistakes don't go away. If you miss a payment, a negative mark will appear on your credit rating-that's your financial report card. It could haunt you for years and keep you from getting a car loan or a home mortgage. Many employers and landlords check your credit report, too, before offering you a job or an apartment.
• Some cards offer better deals than others. Credit card companies will try to get you to sign up with a "teaser" rate, which can even be as low as 0 percent. But those rates typically expire after several months and then you pay much higher interest. The key is to always read the fine print of the credit card contracts.
• Build smart spending habits. Don't charge every slice of pizza to your card. You'll regret it later if you have to take a second job to pay off your college pizza debt. Try to limit your credit card use to major purchases.

Kill Bills: Budgeting Basics

Keeping up with credit card payments requires financial discipline, and that's exactly what a budget is designed to give you. A budget is your plan for saving and spending money. The first step is to create a budget worksheet. Write down what funds you have coming in and track what expenses you have going out. Free budget worksheets are available online. List the funds you have coming in as your "income," which may include money from jobs, parents, loans, and scholarships. "Expenses" should include everything you spend money on-rent, laundry, cell phone bill, car, movies, CDs, books, and loan payments.

Typically, people follow a weekly or monthly budget. The goal is to keep the amount of your overall income higher than you're the total of your expenses. To make this work, you may have to make some painful spending decisions-crossing out items on your expenses that you can live without. Even cutting a frappuccino or two from your weekly habit can add up to big savings. Usually, just being more aware of your expenses will help you manage your money more wisely.

The most ideal situation is to have some money left over from your income to put toward a savings account. Think of your savings account as a reserve of cash for emergencies and future expenses. Financial experts often recommend that you put at least 10 percent of your income into savings.

Using credit cards wisely during college is just one way you can set yourself up for a healthy financial future. See how you pay back your student loans can affect life after college.