There is not a lot that I regret in my life, but not knowing about my money sooner is one of them; had I started at a younger age (perhaps in high school!) I would have definitely been better off and smarter than having to figure it out on my own once I graduated with a heap of student loans to pay back at rather high interest rates.
Here are the three things I wish someone had told me about money before I started college:
1. Compounding interest can be your best friend or your worst enemy
Compounding interest is a wonderful thing, but only if it is working for you rather than against you. When I graduated, the interest rates I was paying back at the time were an average of 6% and with the amount I had borrowed to pay for my degree, it was literally dollars a day in interest charges that I was paying for the entire time I was clearing my student loans.
For each day I didn’t repay my loan in full, I was losing more and more of my salary towards and it made me feel rather sick but it motivated me to clear my loans as soon as possible.
In contrast, after I had cleared my student loans, I was able to relax when I had savings in the bank because the compounding interest was now working in my favour, generating cash for me while sitting in the bank or invested in the stock market.
If someone had told me or alerted me to the presence of compounding interest affecting your student loans and savings before I had started college, I may not have made certain financial decisions had I known what I know now.
2. Practice living frugally and make a budget to live with
Ever hear of the phrase: “living like a college student”? Well I did not do that. I didn’t even know what the word ‘frugal’ meant, let alone that it would be common sense to make a budget and stick to it.
In my mind, I had taken out a whack load of student debt and this was all the money available to me. I allocated money from that debt to make sure my tuition and books at the very least were covered, and then I saw the rest of it as ‘free money available to use’, which was one of the dumbest things I have ever told myself.
As a result, because I was pre-approved for so much credit, I spent every penny and didn’t think about the consequences until I graduated and had to start paying it all back.
If I had made a budget and stuck to it, perhaps I would have been able to slash those loans in half, which would have made a significant difference in how soon I cleared them as well as my current net worth today.
3. Take only as much as you need
When applying for student loans, I took the maximum that was available to me, and as mentioned above, I spent every penny.
To help limit myself, I should have only taken as much as I needed, based on a budget created, or at the very least, told the banker that if I needed more credit, I would come back and apply for it.
Having a limit on how much student loans you can take out would have made a big difference in how much I saw I could spend each year, at least, this was something that could have helped in my case.
The bottom line is that going to college is never an easy or cheap financial decision, but had I known these three things before attending, I would have been a lot better off after graduating.
And that makes 2 of us.
I wish I learned these things as well way back in college. I could have had less problems back then and now.
Thanks for sharing.
The “don’t buy a thing you don’t really need” is one of the best pieces of advice I have in my mind.
A few days ago I came across the idea of living on 70 % of your income. Great advice, hard to achieve.
Sometimes it’s the experiences, the vices that consume most of our income/wealth.
A little night on the town, a little holiday, and so on…
I certainly wish I had learned more about budgeting back in college. Perhaps it would have staved off the mini financial mess am dealing with.
What else would I tell my pre-college self? “Get a part time job kid…you’ll thank me later in life for it :)”
I like the phrasing of that… as long as the kid didn’t spend it all, haha.
Anne recently posted…4 Personal Finance Celebrities
I was happily living on $500 or so a month in college, just out of scholarship, then got jobs to complement. Resorting to credit is much more complicated in France, but tuition is also lower thank goodness. I think if college were super expensive I would have worked full time rather than gone into debt for education, safe for a medical or law degree.
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Interesting approach. I do remember that tuition is practically non-existent, which is awesome.
Anne recently posted…4 Personal Finance Celebrities
Take only as much as you need is solid advice. I think a lot of students take what’s available and align their lifestyle with that instead of really thinking it through–and then they whine and whine about student loans for the next 20 years.
Ben @ The Wealth Gospel recently posted…Dollar Shave Club Review: Delicious
It’s the whining that gets me! I agree that most people don’t stress about “how to take as little as possible” at the time.
Anne recently posted…4 Personal Finance Celebrities
I wish someone had told me all that as well. I never took the maximum student loans, but still took more than I needed. Whatever I bought with those loans that was not my education was certainly not worth making payments on for over 10 years!
Kim recently posted…Frugal Trip To Yellowstone National Park
Ouch!
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I think living frugally can’t be stressed enough when you’re in college. It’s the one time in your life you can literally live in a tiny apartment (or room of a house) and pay nearly nothing for rent and have it be 100% socially acceptable even by judgmental people! Haha but seriously I think living frugally in college is so important.
DC @ Young Adult Money recently posted…Why It’s OK To Make Money Mistakes
Good point… and the more frugal you can live in college, the more likely you are to be able to keep expenses low afterward!
Anne recently posted…4 Personal Finance Celebrities
I’m in school now and took out the maximum loan I was given, but with all the grants and scholarships it ended up not being that large of a loan. I’m hoping next year I’ll be able to take out even less.
That’s fantastic. School is one of the only times there are a ton of opportunities to get free money. Nicely done taking advantage of it!
Anne recently posted…4 Personal Finance Celebrities
Yes, practice using a budget is by far the best tip I can recommend. Well, besides living on one. 😉
Athena recently posted…Why I’m Bumping Up My E-fund
This ain’t a practice, this is real life 😉
Anne recently posted…4 Personal Finance Celebrities
I didn’t take out much in student loans and I still managed to use some for totally unrelated purposes than books and tuition! I’m glad I was able to pay off the loans pretty quickly though.
Kassandra @ More Than Just Money recently posted…Mentors I Admired (and Why)
Nicely done.
Anne recently posted…4 Personal Finance Celebrities
I too am SO guilty of taking the maximum amount of student loans they’d give me every semester. And sometimes, they gave me A LOT. I was good at saving this money, but definitely used this “cushion” to fund things that I didn’t need and shouldn’t have spent my money on. I worked a very cool, and well-paying part time job for most of my university life which was enough to cover all of my expenses (which is how I ended up saving most of my student loan money). But, they restructured my position (from a pt student role to a full time one) and I ran into some housing/roommate issues which ate up all of that saved money in a matter of 5-6 months. (Okay, part of that was also me NOT changing my lifestyle when I lost that job and source of income.)
Great lesson? Yes. Worth being over $45,000 in student loan debt 6 years after graduation? NO!
Amanda recently posted…Another $225 Spent at the Vet
Ouch! I am surprised to hear they gave you a lot… I know a lot of people who still struggled to piece together enough money, including their loans.
Anne recently posted…4 Personal Finance Celebrities
I wish someone would have told me how easy it was to dig yourself into a credit card hole…if I could go back I’d walk right by that citibank table.
Brock @CleverDude recently posted…Financial Head Scratchers: Always Buy More Beer
No shiny free gifts would go a long way to keeping students out of credit card debt!
Anne recently posted…4 Personal Finance Celebrities
Oh yeah, both my husband and I made similar mistakes. I’m just glad we didn’t make any huge ones- like taking out 100k for student loans or anything. All of our money mistakes were fairly easy to overcome.
Holly@ClubThrifty recently posted…12 Ways I’m Going to Save Money This Fall
Whew, it’s good that you can appreciate the mistakes you didn’t make, not just regret the smaller ones that you did make.
Anne recently posted…4 Personal Finance Celebrities
I see people take out student loans and then use that money to go on spring break or finance unnecessary lifestyle habits. I don’t think people fully grasp how much extra they’re paying for those indulgences by financing them, even under the guise of “student loan”
Stefanie @ The Broke and Beautiful Life recently posted…Labor Day Savings: Throw a Budget BBQ
Totally, plus everyone thinks they’re going to roll out of school and earn a ton of money.
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