Making the Leap: Financially Preparing for College Life
The first year of college may bring a lot of new experiences, and for many, this includes the need to budget a limited income for the first time. Earnings from a summer job can provide financial help for the school year as well as the opportunity to learn how to be financially independent.
Follow these five steps to make the most of the opportunity this summer.
1. Take time to really understand the financial aid package. Make sure you have a good idea of expected aid and how much college will cost for the student as well as the parents or other financial supporters.
- Each college provides set costs for tuition, fees, room and board, and expected expenditures like books and transportation.
- In addition, families often face additional expenses that either add up over time or weren’t expected.
- How much awarded financial aid is gift aid? Grants and scholarships do not need to be paid back and fall into this category. Be aware, though, that many awards are one-time gifts and are not renewable for future years.
- Is work-study reliable? Work-study awards are dependent on the student finding a qualified position and receiving the wage and hours required to total the award. Check the college’s website for a job board or financial aid section to gather information. Social media can also provide insight on whether students are able to find adequate work-study jobs.
- Remember that loans must be paid back, with interest. It may help to calculate an expected monthly payment for anticipated college loans and compare that to average monthly payments for a car, house or other major expenses.
2. Track spending. Keeping track of purchases for a week or a month helps indicate where and on what most spending occurs.
- Apps like Mint and tools like banking or card statements can be helpful.
- A pattern of where spending can be cut or reduced may start to become clear.
3. Set up a basic budget. Budgets compare income and other funds to monthly expenses to keep consumers from spending more money than they have.
- Take into account taxes and other deductions that will be removed from gross earnings.
- Divide up expenses into general categories based on typical spending.
- Consider how spending will change once the academic term begins.
4. Plan out a monthly budget. Use realistic numbers to calculate an in-school budget.
- Don’t forget that earnings will need to cover expenses for the remainder of the summer plus the entire academic year, unless the student also works while taking classes.
- If a school-year job with the desired hours or pay doesn’t happen, or if it’s necessary to reduce hours to concentrate on schoolwork, each dollar may have to go further.
- If parents are contributing to expenses, how will that happen? Options include a one-time gift intended to last through the school year, a monthly deposit into a checking account, a shared credit card account for certain purchases, or another method.
5. Evaluate the results. Adjustments may be required, based on the initial budget and events that occur later.
- Extra money at the end of the month means anticipated student loans might not all be needed, payments could cover loan interest before it capitalizes, or other tools like a Roth IRA can be used to invest for the future.
- If earnings aren’t enough to cover expenses, one or the other will need to change. Either costs will need to come down or funding will need to increase.