Top Money Habits & Tips for College Students

Unless you’re a finance major, it’s doubtful that you’re learning about healthy money habits as part of your curriculum. Even if you are, you may not be learning lessons applicable to life in academia.

For example, did you know it’s wise to start investing while you’re in college? Thinking of your retirement may be the furthest thing from your mind, but we’ll share why planning early pays off.

We’ll also share typical money mistakes you can avoid to start contributing toward your lifelong goals, including how to cut back on big-ticket items, such as how to negotiate a better price for car insurance.

Investing as a College Student

You’re already in the investment mindset, as you’re investing in your future by pursuing an education. Why not take it a smart step further and start learning how to make your money work best for you?

Why You Should Start Investing During College

The sooner you begin saving, the more time your money has to grow. Gains each year build upon the prior year’s gains, which is the power of compounding — and the best way to accumulate wealth.

 You should also start investing as early as possible to realistically prepare for retirement. The more options you have to supplement your Social Security the better, especially since the future of the government program is uncertain. If it’s still in existence by the time you retire, benefits may be scaled back to keep it running.

 Investing during college is beneficial because the further away you are from retirement, the higher the risk you can take with your investments. Lower risk equals lower gain, so higher risk equals higher gain. For example, stocks have the best chance of achieving high returns over long periods. 

 It’s also a good idea to save and invest during college, especially if you don’t have or don’t want to rely on your family to help you with your finances both while you’re in college and when you graduate.

How to Start Investing During College

Luckily, you’re an early potential investor in a time in which you can invest easily and affordably. The first steps to investing while in college begin with determining where you want to put your money. 

 To make the most out of your money, you can put it into stocks, which fluctuate with the market; bonds, which are less risky; or exchange-traded funds (EFTs), which are a combination of stocks and bonds.

 Get an investment account through low-cost online brokers such as Charles Schwab or Fidelity Investments, or a free robo-advisor platform such as MoneyLion or Robinhood.

 An individual retirement account (IRA) is another way to take advantage of compounding but at a lower risk. You can build your savings if you have a job during college. You can defer taxes on your profits or dividends and save money on taxes by deducting your contributions.

 Opening a CD or a high-yield savings account is the safest way to enter the world of investing. You receive a fixed rate of interest and your money is immune from stock market fluctuations.

 If you automate those savings, such as a weekly or monthly transfer from your checking account, that will be even more beneficial. You’ll develop the healthy habit of investing in your future regularly and conveniently. You’ll be less tempted to forget to transfer funds or to see those funds in your checking and spend them. Then determine how much money you want to invest in one or more of these methods. You can get started for as little as $5-$30.

Money Mistakes College Students Can Avoid

It’s too bad that college orientation doesn’t include a session on money management. According to a recent report from EverFi, 47% of college students don’t feel they’re prepared to manage their money, which they consider their most daunting challenge.

Here are three common reasons why:

#1 – Living Without a Budget

If you have no idea what you’re spending, how do you know you’ll have enough money to finish out the semester or pay for your next semester?

Too many college freshmen have discovered the funds they built up from those part-time jobs during high school can be drained to dangerous levels quickly without creating and following a budget.

The less of a handle you have on your finances, the more you’ll be tempted to spend your (or your parents’) hard-earned money on too many unnecessary items. Budgeting will help you avoid financial pitfalls and create healthy money habits that you can carry throughout your life, including making room for savings.

The best budgeting and expense-tracking apps for college students include Mint, Billminder, and Pay Off Debt.

#2 – Irresponsible Credit Card Use

Credit cards are a double-edged sword, especially for college students.

Used responsibly, credit cards are a great way to establish credit history and aim for a high credit score.

The better your credit score, the easier time you’ll have getting lower interest rates on auto loans and mortgages, better rates on everything from insurance to your cell phone plan, and even approvals on renting an apartment.

But it’s easy for college students to fall prey to the credit card companies that target them by appearing on campus at kiosks, using promotional offers and free gifts to entice sign-ups.

And if they’re not budgeting, they can rack up credit card charges and then negatively affect their credit score by either not being able to make payments or only making minimum payments. That can put them further into debt due to compounding interest.

 So use credit cards to your advantage. Track your charges, pay on time, and make above-minimum payments. The best credit cards for college students include Deserve EDU Mastercard for Students, Discover it Student Cash Back, and Pedal 2 Visa Credit Card.

#3 – Not Researching Financial Aid Options

The bulk of researching scholarships and grant options takes place as you’re entering college. But if you regularly research throughout your college career, you could reduce the amount of student loan debt you’ll be stressing over.

 Make the most of your college’s financial aid office by asking about school-specific or curriculum-specific scholarships. They may also be able to guide you to national, statewide, and local government scholarships. Also check with your academic advisor.

 Start developing those networking skills you’ll need to get your post-college job by talking with family members, neighbors, and any community or religious organization you or your parents are involved with about scholarship and grant opportunities. 

 If there are no opportunities available, your networking could still benefit you by leading to a paid internship in your major, which will put you at a competitive advantage to land your first full-time job. 

Insurance Tips for College Students

 Another money mistake college students can avoid centers on insurance — as in not getting it, or not comparison shopping when they do get it.

Car Insurance for College Students

The ideal car insurance situation for a college student is if you’re living at home while going to school. As long as you don’t own the vehicle, you can stay on their car insurance plan for as long as you’re a student.

 The situation is similar if you’re living on campus in the same state as your parents. If you’re going to school out of state, your coverage may need to be adjusted to meet that state’s minimum insurance requirements. Check with that state’s department of transportation and with your parents’ insurance agent.

 If you’re on your own, or you own your vehicle, you’ll be paying a lot for car insurance even if you’re a good driver — up to double the average rates. Insurers charge much more for young drivers because they consider them a high risk for their lack of driving experience and statistics pointing to a higher likelihood of driving dangerously.

 But it’s even more expensive if you don’t have the proper insurance or you think you can skip getting car insurance. Depending on the state, you’ll be fined up to hundreds of dollars, receive jail time, and have your license suspended.

 The most affordable car insurance for college students is GEICO and USAA if you or your family has a military affiliation. 

Factors That Affect Your Car Insurance Rate

Whether you’re staying on your parents’ car insurance policy or getting your own, there are a few ways you can help reduce your insurance rate to save money.

 For one, the car you drive affects your insurance rate. Opt for smaller, older, and less valuable vehicles, which will be more affordable to insure than larger, newer, and more expensive cars.

 You could also be eligible for a few discounts:

• If your commute to campus is minimal, ask about a low-mileage discount that could save 5%-10% or sign up for usage-based insurance, which could save 5%-40%.
• If you attend school at least 100 miles from home and you only use a car during school breaks, ask about the distant-student or deferred-driver discount, which could save up to 35%.
• If you get at least a B average, ask about the good student discount for a 10%-15% savings.

Renters Insurance for College Students

If you’re living in a dorm, find out what your parents’ homeowners insurance policy covers. If it provides insufficient or no coverage, see if your school has relationships with insurance companies that provide discounts to students, or research dorm insurance.

If you’re living off campus, you’ll need to get your own renters insurance. Comparison shop at least three insurance companies, including your parents’ carrier. 

Renters insurance is much more affordable than car insurance. On-campus insurance is about $13 a month, and off-campus insurance averages $15 a month.

It’s well worth paying for one less pizza a month to get renters insurance since your landlord’s insurance doesn’t cover your personal property. The last expense you need is having to replace any of your worldly goods that are damaged or stolen.

As pioneering chemist Louis Pasteur once said, “Chance favors only the prepared mind.” So we hope we’ve helped motivate you to realize that the best chance for being lucky in your financial life is through investing the time and effort early on into learning how to manage your money.