7 finance tips for college students

Developing healthy money habits during college can help you start out on the right foot once you graduate.

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Four years at college can turn you into a geologist or a psychologist or a history teacher, but you'll really short-change yourself if you don't emerge from college as a financially savvy person, too. You can graduate as many do, with loads of debt and poor financial habits, or you can begin your adult life with a good credit rating, minimal debt, and maybe even a head start on retiring early.

These finance tips can help set college students on the path to financial success.

1. Develop good money habits and learn to be frugal

Aim to live within your means or, better still, below your means. Get used to differentiating between things you need and things you want, and prioritize. College is a good time to open a bank account and to get used to managing your personal budget, paying bills on time and not bouncing checks. You needn't cut out having fun, but know how much you can afford to spend on fun and stick to your plan. Cultivate inexpensive hobbies, too, such as game nights, museums, hiking, and volunteering. Buy your textbooks used and then sell them when you're done with them. Find out about available student discounts for everything from pizza to computers. Learn to make a great cup of coffee, too, and you can save the money you'd spend at a local coffeehouse. (A single $4 cup of coffee each day adds up to nearly $1,500 per year!)

2. Minimize debt and be credit-smart

The college class of 2014 was the most indebted ever upon graduation, with the average indebted graduate owing $33,000 and 15% of graduates owing $100,000 or more!

Student loan debt is bad enough and can weigh you down for many years following graduation, but credit card debt can be even worse, often bearing interest rates above 20% annually that can cost you $200 per year for every $1,000 you owe.

For some, it's better to simply avoid credit cards and their temptations and to stick with debit cards. But for many, it's best to have a credit card and to use it wisely, charging only what you can afford and paying off your bills in full and on time. Do so and you'll be establishing a solid credit history and credit score that can serve you well in your adult life as you borrow money (for a car or house, for example) and have your financial trustworthiness assessed by insurers, landlords, and others.

3. Grab some scholarships

One way to leave school owing less is to pay less for your education. There are more scholarships available for college students than you probably realize. Spend some time exploring possibilities and aiming for maximum financial aid. There are lots of websites where you can learn more and search for scholarships, some of which are quite targeted—for example, some aim to support rowers or bassoon players or Lithuanian-Americans.

4. Start investing

Many people learn about investing and begin saving money for retirement far later than they wish they had. That's because of the power of time. Check out the following table, which shows you how much a single $5,000 investment can grow to (at the stock market's long-term average annual growth rate of 10%) by the time you're 60, depending on when you started investing:

Age You Begin Investing Years Your $5,000 Has to Grow Your Savings by Age 60
45 15 $20,900
35 25 $54,200
30 30 $87,200
25 35 $140,500
20 40 $226,300
19 41 $248,900

For Illustrative purposes only.

Clearly, starting as soon as possible can make a huge difference. And so can starting while you're young instead of when you're approaching middle age. It can be hard to think about (or care about) retirement when you're in college, but you would probably agree that the idea of retiring while you're still relatively young sounds good. If so, then this is the time to start setting yourself up for that. If you can scrape together earned income, you can fund a Roth IRA each year, and the accumulated funds in it can be withdrawn tax-free in retirement1. Spend time at Fool.com and read up on investing and personal finance, and you can enjoy a much easier financial life.

5. Save lots of money by being healthy

During college, many habits such as smoking and drinking can become more ingrained and hard to shake off. If you're a non-smoker and don't smoke a pack a day, you can save yourself $2,000 to $4,000 per year, depending on where you live. It's estimated that people who smoke lose about 10 years of their lives. By quitting or not smoking, you can live longer and be wealthier. Meanwhile, heavy drinking is also associated with a shorter life—alcoholics, for example, live about 10 to 20 fewer years than non-alcoholics. And if you're spending $10 per day on alcoholic drinks, that's costing you more than $3,500 per year.

6. Boost your ultimate earning power

Remember that you're not at college just to take and pass courses, but, ideally, to decide on and prepare for a career. You may, for example, be studying to be an engineer or a professor or a lawyer. Don't simply meet the requirements of your major. Enhance your learning (and increase your earning potential) by mastering a language or gaining some other useful skills and knowledge beyond your major. If you're an engineer who has learned a language such as Chinese, or you're a lawyer who has taken some computer- programming courses, you may find that you're a more appealing job candidate and that you can end up with more interesting work and sometimes even better pay.

7. Learn from others

Finally, learn from others by being curious about money and how people accumulate, spend, and grow it. Ask your parents and their friends and other adults you know or meet about their smartest and dumbest money moves. Ask about their financial achievements and regrets. Many people are happy to offer advice, and if you listen, you can learn much more than you might have expected.

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1. A distribution from a Roth IRA is tax free and penalty free, provided the five-year aging requirement has been satisfied and one of the following conditions is met: age 59½, disability, qualified first-time home purchase, or death.
This article was written by Selena Maranjian from The Motley Fool and was licensed as an article reprint. Article copyright November 16, 2014 by The Motley Fool.
The statements and opinions expressed in this article are those of the author. Fidelity Investments cannot guarantee the accuracy or completeness of any statements or data.
This reprint is supplied by Fidelity Brokerage Services LLC, Member NYSE, SIPC.
The third party provider of the reprint permission and Fidelity Investments are independent entities and not legally affiliated.
The images, graphs, tools, and videos are for illustrative purposes only.
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