Student's Guide to Financial Wellness in College and Beyond

It’s no secret that college is expensive. Student loan debt in the United States totals an estimated $1.617 trillion–and that’s just counting loans by the federal government, not from private lenders. With students going into thousands of dollars of debt paired the rising cost of living and tuition, it might seem impossible for you to build wealth during your college years. But with the right strategies, you can manage student loan debt, create a budget, and even start investing and saving before you graduate. This guide covers all the tips and tricks you need to set yourself up for financial success and graduate from college with more savings and less debt.

Strategy #1: Learn to Live on a Budget

A large part of your physical health is determined by creating good habits. Similarly, a large part of your financial well-being begins with creating good spending habits. One of the best ways to do this is to create and stick to a budget. A budget helps you live below your means and allocate money toward important costs, like rent and groceries, each month.

But, creating a budget you can actually stick to can be difficult if you lack the discipline and a goal. Be sure you are clear on why you are living on a budget and know that it won’t always be this challenging. Once you get the hang of budgeting, it is definitely rewarding when you see your money beginning to work for you instead of controlling your every move. Whether you make $10,000 per year as a student or $100,000 per year in the working world, living on a budget is key to financial success.

Check out these five steps to creating an easy-to-follow budget:

Step 1: Figure Out How Much Money You Have

Subtract your regular monthly fixed expenses, such as rent, utilities, car payments, groceries, phone, and internet, from your monthly income. This tells you how much you have left to spend each month on fun stuff and incidentals. As you create your budget, you’ll have to balance essential bills and expenses with your nice-to-have items. Fixed expenses are what you need to pay to live, such as rent and utilities. These should always take priority over nice-to-haves, such as Uber Eats and concert tickets.

Step 2: Plan for Emergencies

Take a portion of what’s left after expenses and allocate it as a buffer for unexpected expenses or emergencies. This is what we call an “Emergency Fund.” This is not the money you dip into when you run out of beer at the party. Beer is not an emergency. This is for true emergencies only. Some financial experts recommend a minimum of 3-6 month’s of expenses in your emergency fund, but in college, you might not need that much. Only you can decide what this number should be based on your circumstances.

Step 3: Start Saving

Set aside some money in savings each month. Like your emergency fund, this is a general savings fund. Ideally your emergency fund is already funded and sitting there. If you are needing to build up your emergency fund first, do so, then create another savings account for actual savings. This is money you could save for a rainy day or begin to find a retirement account with. No amount is too small here. Start with whatever you can reasonably afford to save, and get in the habit of doing it every month. Up this number over time as your income increases.

Step 4: Plan for Fun

Once you have money allocated toward an emergency fund, savings, and fixed expenses, you can create a budget for the stuff you want to splurge on—eating out, shopping, concerts, electronics, etc. In a typical budget, you would allocate a certain number each month to this and try really hard not to go over. If you have future fun stuff you want to plan for such as travel or holiday gifts, then consider creating different savings buckets for those things so that when those times come you aren’t strapped trying to make it work in your budget. It may mean allocating a little less to your extras budget each month but it is also so rewarding to your future self, knowing you can afford to take that spring break trip.

Step 5: Adjust as Needed

Adjust your budget as needed and as expenses, income, or financial priorities shift. Remember, as a student, your budget will look a lot different from 5 years from now, but being flexible and tweaking your budget to work in your current situation is the key to a successful budget. And keep it fun too. Being too rigid all the time will make you want to quit. Find your balance and keep at it.

With any budget, you can also allocate a certain amount of money toward a debt savings account. Once you graduate and have to start making loan payments, that savings can make making those payments easier. Depending on what type of loans you have, you could even start paying them off during college with a budget.

Still confused about budgeting? Here are five resources to help:

• Advice from a real-life college student: Curious what your budget might look like for you? Check out this YouTube video in which a college student walks you through her budget.
• Buxfer: Tracking all your savings accounts, investments, and student loans can be tricky. Let Buxfer do it for you with an all-in-one financial platform.
• Mint: Organize all your expenses, spending, and income with Mint. This app includes multiple visual displays so you can better understand where your money is coming from and where it’s going.
• Notion Budgeting Template: Notion, which offers free task-management software, has budgeting templates specifically designed for students.
• 50/20/30 Budget Calculator: NerdWallet provides a free budget calculator based on the 50/20/30 principle—using 50% of your funds for needs, 20% for savings, and 30% for wants.

Strategy #2: Start Building Credit Responsibly

Your credit score might not be a huge concern now, but it can dictate your financial health for years to come. When landlords consider potential tenants and banks consider candidates for home and business loans, they typically look at applicants’ credit scores.

A good credit score (typically anything over a 700 is considered good) ensures you can get the apartment or home you want or are able to take out a loan to start your dream business. A bad credit score limits your renting and home ownership options and affects your eligibility for credit cards and lines of credit.

By building your credit responsibly during college, you’re setting yourself up for financial success later in life. But credit is often a chicken and egg situation: You have to have good credit to get a credit card in your own name. These six steps get you on the path to building up good credit. The earlier you take steps towards building credit responsibly, the sooner you’ll have a good credit score.

• Build some credit. One way to do this is to become an authorized user on someone’s account (like a parent or grandparent.) Since you typically need good credit to get a credit card, becoming an authorized user on someone’s account allows you to build your credit score before applying for your own card. However, if you don’t have someone who can help with this, you may be able to qualify for a low-limit student card to begin building your credit history.
• Apply for a credit card. Once you have a credit history, it’s time to apply for your own credit card. A student credit card, such as the Capital One Student Card or the Discover Student Card, is a great first option. Most banks have a student credit card option.
• Begin using for regular expenses and pay it off every month. Use your new student credit card for a small purchase or to pay the same bill every month. Make sure to pay your monthly credit bill in full and on time.
• Use your card responsibly. Continue to use your card responsibly and never use more than one-third of your available credit. Using one-third of your available credit helps keep your credit score healthy.
• Pay off debt. Once you finish school, pay down your student loans as soon as you can. Putting consistent payments toward your loans boosts your credit score even more.
• Monitor your credit report regularly. Many financial advisors recommend checking your score once or twice per year.

Strategy #3: Reduce Debt

Even though most loan payments don’t start until after college, it’s never too early to reduce your debt or be aware of how much debt you are taking on. In fact, awareness before and after applying for loans is key.

Think Before You Commit

When applying to student loans specifically, think of how much debt you should take on given the salary you anticipate once you graduate. Taking out $100,000 in student loans to pay for a degree with an average starting salary of $50,000 a year isn’t the smartest financial move and choosing a school that offers more scholarships or a lower tuition may be a better route. Also, pay attention to your loan payment terms. Federally funded loans often have more favorable interest rates and loan repayment options than privately funded loans.

Have a Plan

When it comes to paying off student loan debt, it’s best to create a debt reduction plan. This plan reduces the overwhelm of paying back a large sum of money and makes sure you’re on track with reducing your debt as quickly as you can. Here are four steps to pay student loans off as quickly as possible:

Pay Down the Highest Interest Rate Debt First

If you do have other types of debt with higher interest rates such as credit card debt, prioritize paying off the higher interest rate first. For example, if you have $50,000 in student loans and $5,000 in credit card debt, pay off the credit card debt first since that interest increases more quickly. This might be done by paying the minimum payment on your student loans and throwing as much extra money as possible towards the credit card until it’s paid off.

Strategy #4: Learn to Save

Saving shouldn’t just take place on a rainy day–it’s a habit you should get into as early and consistently as possible. Even if you’re living on a minimal budget while attending school, it’s never too early to begin saving. For example, you could set aside $10, $25, $50, or $100 each week toward your savings—whatever is feasible, no amount is too small. By getting into a consistent saving practice, you’re building your future wealth, similar to how lifting weights each week builds your muscle.

To start a habit of saving, follow these tried-and-true tips:

• Create different savings goals: When you have a goal, you’re more likely to save because you can envision where that money is going. Savings goals could include starting a travel fund, putting aside money for your dream home, or even saving for retirement.
• Establish an emergency fund: No one likes to have to spend money on new tires or a trip to the urgent care. But having an emergency fund set aside with money allocated toward these types of life events makes the mental and financial burden of emergencies lighter.
• Allocate a certain amount of money to save each week or month: Consistency is the name of the game. When you save a little bit on a regular basis, that investment in your future compounds over time. To make this as easy as possible, decide on an amount you’d like to put into savings each week or month. Alternatively, you could determine a percentage of each paycheck that will go directly into savings.
• Pay yourself first: Once you’ve decided how much will go into savings, put that money in your savings account before paying any of your bills. By paying yourself first, you’re ensuring your full monthly savings goal goes toward your future, not an impulse buy.

Strategy #5: Make Your Money Work for You

While it’s important to have money in savings, that money isn’t working for you. Investing is what causes your money to increase exponentially and become a passive income stream.

Even if you don’t have much to invest right now, a little can go a long way. Investing early can lead to greater exponential growth and is a key aspect of building long-term wealth. Check out the most common investment avenues for students:

High-yield Savings Account

All savings accounts provide interest, though usually it’s a small percentage. A high-yield savings account has a larger interest rate than a traditional account. This allows your money to grow faster.

IRA

An individual retirement account (IRA) is a fund that allows you to invest money now and then take out that money when you hit retirement. It’s a great way to exponentially grow your savings so you have enough money to retire. There are two types of IRAs:

• Traditional: With a traditional account, you invest the money now tax-free. Since you don’t pay taxes on the money when investing it, you must pay taxes when you take the money out. With this option, you usually owe more in taxes since the amount in the account grows over time.
• Roth: If you choose a Roth IRA, you pay taxes now on any money you invest in the account. When you take out the money, which will be a larger sum than what you put in, you don’t have to pay taxes again.

Fund Investing

With a fund investment, an organization like Fidelity or Vanguard takes your investment along with others’ investments and pools the money together. They then invest across a range of assets, reducing the overall risk in case one or two stocks–or an entire industry’s stock–plummet.

Stock Market

When you invest in the stock market, you’re investing in a publicly funded company. Your investment will (hopefully) grow over time as the company generates more revenue. There are multiple ways to invest, from utilizing a financial advisor, opening an investment fund such as a Vanguard account, or doing it yourself with the help of apps like Robinhood. Not all stock investment options are the same, and you’ll often see better results if you open a mutual fund or work with an advisor instead of doing it yourself.

Crypto

Crypto and web3 investments like non-fungible tokens (typically called NFTs) are often talked about and touted as get-rich-quick schemes. Over 20% of college students invest in crypto currencies, and it’s important to understand that this is a highly risky and volatile market. It’s also unregulated, which can lead to more scams than other investment avenues.

Bonds

A bond is a loan made by a private individual to a government or private entity. Similar to a student loan, you make this loan with the expectation that the government or entity will pay you back with interest after a set time frame. Usually, bonds are between an individual and the US federal government or between an individual and a foreign government.

20 Financial Terms to Know

As you start to build your budget, look into investing options, and reduce your student loan debt, you most likely will come across a lot of confusing financial terms, from annual percentage rate to FICO score. To help you better understand the financial world, we’ve defined 20 terms to know as you build your wealth.

• Annual fee: This amount of money must be paid for access to a certain membership, service, or object. In the credit space, this often refers to the annual fee charged for credit cards with lucrative rewards.
• Annual percentage rate (APR): The APR is interest generated each year on money that’s invested or money that’s loaned out.
• Bonds: With this type of investment, you entrust money to the government or another entity on the promise that they’ll pay it back in a fixed amount of time, with interest.
• Budget: A tracker of how much you are bringing in and spending every month, this document helps rein in spending so you don’t spend more than you make.
• Compound interest: This is the concept that you earn interest on interest, meaning your investments and other assets accumulate interest and grow exponentially.
• Consolidation: This is the process of combining debt, sums, or other financial assets from multiple sources into a centralized location.
• Credit: When you obtain goods or services before paying for them, based on the assumption that you will be able to pay for them later, you’re utilizing credit.
• Credit bureau: This is an organization that collects financial information, such as an individual’s credit score, and makes this information available to banks, other financial institutions, and individuals.
• Credit score/FICO score: This number between 300 and 850 represents your ability to repay credit and loans. The higher your credit score, the better your credit.
• Credit report: This document conveys your current financial situation, including your debt, current credit score, and credit payment history.
• Debt: Your debt is the amount of money you owe to another individual, bank, or state or federal government.
• Expenses: This is the amount of money you’re paying out. Expenses include anything you spend money on, from necessities such as rent to splurges such as dining out.
• Income: This is how much money you are bringing in. Income can be from a job, a business, or any other sources that give you money.
• Interest: The percentage of money you owe back each month on a loan. An interest rate is calculated based on the type of loan, the borrower’s credit score, and their financial ability to make payments.
• Investment: This is money entrusted to an organization or individual with the hopes of it growing over time.
• Liquid savings: Your liquid savings is the amount of money you can readily pull from today if you need to make a purchase.
• Loan: A loan is a sum of money borrowed from a lender, with the expectation that the borrower will pay back the amount and an agreed-upon interest rate.
• Minimum payment: This is the smallest amount you can pay without the bank closing your credit account. If you don’t pay this amount, which is usually 1%-5% of the total, you can get hit with fees and other penalties.
• Stocks: With this type of investment, you can invest money into a publicly owned company in hopes of getting a larger return on your money.
• Taxes: This is the money you owe the government. If you’re an employee, taxes are taken out of each paycheck. However self-employed individuals must calculate and make these payments themselves.

Financial Wellness Resources for Students

Working on your financial wellness can be confusing, but you don’t have to tackle your finances alone. Check out these 12 resources designed to help students take control of their finances:

• Buxfer: See all of your accounts in one place and gain insight on your spending so you can take control of your finances.
• CashCourse: This nonprofit provides free courses to help students (and the public in general) better understand personal finance.
• GreenPath Calculators: Get the tools to help you determine your total debt and your student loans–and create a debt reduction plan.
• Mint: This app helps you develop simple, effective budgets so you can manage your money more easily.
• My Money: Created by the Financial Literacy and Education Commission, this .gov site works toward sustained financial well-being for all individuals and families. Learn about a variety of financial topics from crypto scams to how to plan for retirement.
• Napkin Finance: Want a crash course on money? Check out these quick, back-of-the-napkin visual guides, bite-size courses, and more on topics such as college, credit, insurance, bonds, budgets, and much more.
• NerdWallet: Compare investments, credit cards, and other financial options side by side so you can choose the best one for your financial situation.
• Practical Money Skills: Sponsored by Visa, the free resources at this website are aimed at helping those who are new to personal finance. Learn everything from how to improve your credit score to what should be in your budget.
• Scholarship Guide: Looking to reduce how much debt you have to take on or how much tuition you have to pay out of pocket? Check out our guide to scholarships.
• Student Aid: This government website explains the financial aid process and other financial considerations specific to students.
• Too Good to Go: The cost of food is rising exponentially. This app connects you to unsold food at local restaurants and grocery stores, which you can purchase at a discounted rate.
• Wise: International students can get lower transfer rates and utilize foreign bank accounts in the United States with a Wise bank account.

Financial Wellness for Parents

College students are not the only population with a vested interest in establishing and maintaining financial wellness. If you’ve found this page because you are supporting your child as they pursue their education, you are likely feeling some strain yourself — and not only on your budget. As of 2023, more than 75% of parents were covering a portion of their child’s college costs and 18% relied on borrowed funds to do so. Keep reading for a look at tips to navigating this period.

Regularly Review and Revise Financial Plans

The cost of your child’s tuition, fees, rent, and other college costs can fluctuate, but so can your financial situation. It’s important to have regular conversations with your child about your ability to contribute to their education, and to what extent. If you intend to take out loans to support your child through their education, it’s important that you know how much debt you are willing to take on — and how much you can realistically afford to pay off as you approach retirement. Parents, particularly middle-income and minority parents, are increasingly reporting that they were unaware of, or under-informed on what taking out loans to support their children academically would entail.

Seek Financial Counseling or Assistance

Unfortunately, there is a lot of misinformation out there surrounding financial wellness and college loans — so much so that it can be difficult to parse on your own. If you’re feeling overwhelmed by conflicting or confusing information, look into free or reduced cost financial counseling resources to help set you on the right path. You can start by consulting professionals at financial institutions with whom you already do business or learn helpful strategies online by vetting quality resources.

Interview with a Financial Advisor

Q: What can students do today to improve their financial wellness?

A: Know thyself. The first step for students–or anyone–looking to improve their finances is to understand how and why we think and act the way we do when it comes to understanding our emotions around money. Once we understand our psychology, we can regain control over–and improve–our finances. Just getting smarter about money by itself does not likely get one to financial success. Your relationship with money, value system, and how you process money decisions are critical first steps to gain control.

Q: How can students stick to a budget?

A: When it comes to making a budget, there’s no one right way to do it. Instead, students should consider their own psychology and what budgeting hacks work for them. For some this could look like reining in impulsive spending, for some it could be less lattes, and for others, this could look like allocating more money toward investments, even if investing feels risky when first starting out. Once you understand your psychology, priorities, values, and motivations, creating a budget you will stick to becomes easier. Anyone can create a budget – the key is creating one that you can stick with through good and bad times.

Q: Do you have any tips to help students save money while attending college, other than applying for financial aid?

A: Eliminate any unnecessary expenses. One of the biggest causes of overspending is when our emotions are out of control or we feel stressed–and college often causes emotional roller coasters! Because of this, it’s important to practice proactive self-care. Whether it’s doing yoga, baking, or something else, cultivating a self-care routine minimizes your stress and keeps emotional spending in check.

Q: What is the best strategy to pay back student loans?

A: There are multiple things to consider. What is my interest rate on my student loan? Are payments means tested? What are my other debts? What are the interest rates on those debts? Is there discretionary cash flow to attack my debt more effectively? Having the bigger picture generally allows you to create a plan that is sustainable and one that can reduce your debt more efficiently.

Q: What is the best investment a college student can make?

A: While it’s never too early to start investing in the stock market or to open up an IRA, the best investment a student can make is in themselves. By investing in their education, skill set, and professional futures, they can set themselves up to own their career and create wealth for years to come. While investing in growth strategies or Roth IRAs sooner rather than later is always better, it is more important to have an overall understanding of your financial picture, have a plan, know yourself, and invest in yourself.