Hey, college student! Ready to manage your own money?

There’s no doubt the best time to start financial planning is when you’re young. For starters, while you may be money-poor, you’re rich in time, which is a powerful wealth builder. You are also at the point in your life when you are making important choices that will impact your financial situation for decades to come. 

Having a plan to guide those choices is like preparing an outline before you write that first college paper. You’ll know where you’re going — and whether you’ve arrived there — more quickly and efficiently than if you guess as you go.

That said, financial planning for a college student often isn’t as complicated or comprehensive as that of, say, a business owner, parents with kids, or a soon-to-be-retiree. Without regular earnings or dependents, you do not need life or disability insurance (yet!), and are not yet concerned with the finer points of 401(k) contributions and investments.

Essentially, there are four questions you need to think about answering.

1. What can I do to build a good foundation for my future earnings and long-term wealth?  

Most college students have what CPAs term “negative net worth.” This means that what you owe — such as student loans, outstanding credit card balances, or a car loan — is greater than what you own. What’s not counted, however, is your potential for future earnings — presumably one of the reasons you are going to college in the first place. Your focus should be simple: Do as much as you can to enhance your earnings potential, such as choosing a major that’s being sought by employers. Diversify your skills by taking a few practical courses; apply for internships; and practice, practice, practice your public speaking and writing skills.

2.  How do I manage my debt, and build the credit I’ll need once I graduate?

Managing your debt and keeping your credit score healthy is imperative for your post-grad plans. Be as conscientious about paying your bills on time as you are about turning in your assignments – if not more so! Live by a budget, and not by peer pressure: If you haven’t planned for a given expense, don’t buy it. Utilize things like work-study and other campus employment options to help offset expenses and save, while offering valuable experience. And try living off campus, cooking your own meals, or buying used books to help make your budget last.

In the case of credit cards, remember that they are not free money – don’t use them for purchases you otherwise can’t afford. Maintain one credit card with a moderate limit so that you can begin building a positive credit history and have a safety net in case of emergency. Look into joining your school’s affiliated credit union if available, as it may offer students a credit card with a much lower interest rate than most standard cards. 

3.  What financial mistakes should I avoid?

Student loans lead to overwhelming debt for too many college students. Avoid getting in over your head by making sure your student loan debt will be manageable based on the income level of the field you plan to enter after graduation. The total amount of your undergraduate student loans should be no more than your first year’s salary.

The No. 1 rule for wealth-building is to increase your future earning potential while decreasing your present debt. Violating this rule can lead to financial trouble. With this rule in mind, avoid using student loan money for just about anything other than college expenses – your debt goes up (or does not go down) without a corresponding investment in your earning potential. And don’t play credit card “roulette” by repeatedly transferring your balances to a new card with lower teaser rates. Such activity can ding your credit score, which in turn can impair your ability to get a good job, as employers look at credit scores, too. 

4.  Where can I go for guidance?   

You've probably heard that financial advisers focus on older clients with positive net worth and ample investable assets, not young adults. But with some research, you can find a qualified financial professional who will help you. Take those research skills that helped get you into college and use them to find a financial planner to get you started.  If your parents work with one, start there.