Tips for Saving Money as a Broke College Student: How to Get on the Right Track
The Poor College Kid
The cliché is an accurate one. Students struggling to survive in college often find themselves struggling with money as well. We attend college so that we may get a better job and secure financial security for ourselves. The problem is that the years immediately following our college years tend to be the ones that require large expenditures. Since we were not able to put away any money while going to school, we are forced to accept large amounts of debt as an inevitable reality when we graduate and enter the real world. We set ourselves up for years of repayments to all kinds of lenders.
But there may be hope. Personal experience and observations of others have taught me that this does not have to be the case, at least not to the point we often allow it to get to.
I would like to offer a few recommendations to someone either entering, or even well into their college years. I know that there are many out there who are in the same situation I was in not too long ago. I want to give my story and provide a bit of insight as to what I think it takes to set yourself up for success upon graduating college. I am by no means a wealthy person, but the choices I have made give me confidence and hope for the future. I feel I am on the right track.
That is my hope for you.
I spent my first couple of college years at a two year institution that was far less expensive than the state university that was also in my hometown. I worked at a couple of different retail outlets at different times making less than $8.00 an hour at both. I was very fortunate during this time, but also not quite as financially intelligent as I wish I would have been. I was generously given an older car by my aunt and so had no car payment. I lived, and currently live at home, so there wasn't and isn't any rent. I have an uncle who is quite good with financial matters. He guided me in opening a Roth IRA and an investment account to help pay off future debts like school. I could do this because I had extra disposable income with my retail job. After gas, insurance, fast food, and other unnecessary expenditures, I was able to invest about $165 a month in these accounts combined. This was during the financial crises so I actually ended up losing money. Still, I had around $1500 in each account after about two years. I felt I was doing well. I was a 19 year old kid with investment accounts, little expenses, and extra cash in my pocket.
My lack of financial smarts was clearly evident. By this time I had let a very cool looking, handy, shiny "Student Visa Card" handle lots of little transactions I said I would pay off at the end of the month. After around the same two years I mentioned above, I had accrued a balance of around $4500 in credit card debt (they were kind enough to let me continuously raise my limit). I was making minimum payments that eventually crept their way up to 29%. I chose not to pay for any college with extra cash, but rather took out large school loans. I took the maximum amount they would give me because I thought it would be cool to have that extra $1000 or so. I still have lots of student loan debts.
So what did I do? I made matters worse.
I chose to go to an expensive out of state university, cashing out the $1500 investment account to help with the move and things living expenses of being on my own. My tuition cost tripled that semester. I lived in a costly dorm room, bought a relatively expensive car that wouldn't break down (it ended up breaking down more than the old one), all the while keeping a low paying retail job with a different store of the same company.
Eventually, my debt spun out of control and I was starting to really struggle paying for living expenses, the car, books, etc. The choices I made following this period are what I now offer to you as suggestions for your own financial confidence.
1. Live at Home if Possible
I chose to go off to a college a couple states from my own because like so many, I wanted to get away from the place I had been around for my first 20 years. I wanted to fend for myself. I wanted to live free! Now, while I do think it is a good idea for someone of this age to experience the world from a new perspective, I think it can be done much cheaper that the way I did it. I could have spent a summer on my own somewhere. Paying for a high cost education isn't the smartest way to go about obtaining this freedom.
I chose to move back home and finish my education at the state university in my hometown. Not only did I cut loan cost dramatically, I significantly reduced everyday expenditures as well. Gas prices were less, food costs were less (thanks Mom), and I was able to start paying on my credit card debt. I understand that many in this situation cannot live at home for various reasons. To that person I suggest doing whatever you can to live as far below your means as possible. If you have enough in your budget to pay $400 a month for an apartment, don't. Look for a smaller place and pay $300 month. Do not let pride keep you from doing things like this. If you do, I would assume you really do not seek financial independence.
2. Spend like crazy.... on reducing debt.
I chose not only to increase debt with an expensive car and a high interest credit card, but to also put money that could have helped pay on these into investments and retirement. While I strongly recommend contributing to a Roth IRA as early in life as you can, it is more financially advisable to use the extra income to pay off all of your debts first. You will be thankful that you did.
If when you graduate you have large amounts of credit card debt, large school loan debt, and a car payment, even with a decent job you will struggle paying for typical post college expenditures like a mortgage, wedding, utilities, and children. On the other hand, if you can minimize expenses and pay a significant portion of the debt off, you will be able to save more and put a large down payment on things like a house. I understand that debt like school loans may seem too large to payoff at this point in life, but it is still a good idea to pay on the interest bearing loans as much as you can.
Debt never magically goes away. Minimum payments are getting larger and prices are getting higher. Set yourself up for success. Pay off your debts, live frugally, and reap the rewards later.
3. Save, save, and then save.
After you have paid off most of your debts and don't feel quite as burdened, you need to begin saving. I understand with your part time job you are probably only bringing home around $500 to $800 a month, but it is still very possible to save a good deal of money. If you live at home, the largest monthly expense you have is probably your car (which I still strongly recommend paying off before saving, but I know how hard it is to not put away some money when you want to). Then insurance, cell phones, gas, shopping, and and food seem to take the rest of our check. There are ways to save money in this situation.The best way is to treat saving like a monthly expense. Set up a monthly budget and add savings to the list of expenditures. I also suggest opening a Roth IRA at this point in life as well. The younger you are when you do this, the more you will have in retirement. You may even be able to retire sooner if you wish.
Also try to cut expenditures. If you don't text much, get rid of the unlimited texting plan. Sell your car and buy a cheaper one. I did and am now 150 bucks richer every month. Don't eat out as much. If you live on your own, eat sandwiches.
I assure you that you will be extremely proud and happy with the fact that you had the motivation to save money. Transitioning to life after college will be much smoother. Would you rather have $5000 in credit card debt, or $5000 to put down on a house. Set yourself up for success.
The Path to Success
Remember that all college kids are usually struggling with school and debt. It is a sad situation, but you do not have to take on the role of this stereotypical student. You can make the choice at 18, 21, 25, or 45 to set yourself up for success. There is no way to get rich quick. There is no way obtaining your degree will suddenly eliminate the debt you accrue during school. Eliminating your debt obligations and saving for the future takes willpower, patience, hard work, and lifestyle changes, but its the fastest way to financial happiness.
"The longest way round is the shortest way home." - C.S Lewis