By: Allison O’Brien
When I was a first year student, I often went months at a time without checking my bank account. I was scared to look at the money that I was spending and the debt that I was incurring. I was spending a lot of money on tuition, books, food, and living expenses – money that I wasn’t used to spending. However, after becoming more aware of my financial situation, I started to get comfortable with looking at my expenses and creating a budget. Hopefully, you can experience this too by following UPEI business professor Amy MacFarlane’s four tips for financial success.
- Budgeting: MacFarlane says that the key to budgeting is to learn to live based on what you earn. ” I have friends and colleagues who make very modest levels of income, and yet they are some of the best savers that I know. I also have friends who earn incredible amounts of money, and are also very much in debt. So learning to live on what you earn, in my mind, is critical,” MacFarlane says.To start budgeting, MacFarlane says the first thing to do is to get a grasp on all of your sources of income. Next, start tracking your expenses to figure out where you are spending your money, and ask yourself if anything can be cut out.
MacFarlane recommends the app Mint because it helps you create a personalized budget, and you can connect your bank account so it tracks your expenses. One neat feature of the app is that is gives you an analysis of where you are spending your money.
- Debt: “I really, truly believe that many of us get weighed down by debt, and we dig ourselves a hole which can be really difficult to get out of,” MacFarlane says.
MacFarlane tells students to be aware of “good” debt such as using a student loan to invest in your education, versus “bad” debt which includes borrowing money for anything that is going to decline in value quickly. For example, borrowing money for a car is considered bad debt. Although it’s a necessity for many of us, MacFarlane challenges students to ask themselves, “Do I really need an expensive vehicle? Or is a less expensive vehicle just as good?”
MarFarlane also advises students get used to borrowing as little as possible. She warns students that banks will loan individuals more money than they truly need, but this doesn’t mean that you should spend it all.
“I’ve had students who have used their student loan money for wants versus needs, and I think that is where you need to be cautious, because at the time, when you borrow money, it feels like it’s free money.” But eventually the money will need to be paid back, and with interest.
Some alternatives to incurring debt include applying for scholarships, awards and bursaries, doing part-time work, taking more time to complete your degree, or doing a co-op program.
- Credit cards: MacFarlane says that having a credit card is great, as long as you’re smart about it. “One really strong benefit of having a credit card is that you are starting to build a credit history, and by establishing early on that you are somebody who is reliable and will pay your bills on time, that history accumulates. Down the road, when you need to borrow money to buy a house, with a strong credit history, the likelihood of you obtaining that financing increases.”
If you’re going to opt to get a credit card, MacFarlane says your objective should be to never carry a balance. Make sure that if you are using your credit card, you are constantly paying off what you use. MacFarlane also suggests to keep your credit utilization low. For example, if your bank gives you a credit limit of $2,000, try and utilize as little of that as possible, as this also influences your credit history.
Some websites that allow you to check your credit score are Mogo and Credit Karma. (Editor’s note: I check my credit score on Credit Karma every month, and it truly is free and doesn’t lower my credit rating.)
MacFarlane also warns students to avoid the temptation of using your credit card to make big-ticket purchases that are beyond your means, such as travel. It can be so easy to see your friends on Instagram going on these amazing trips, but if you put that expense on your credit card, you could be paying for it for up to ten years, assuming you are making minimum payments at 19.9% interest.
- Protecting your identity: Lastly, MacFarlane speaks from experience about the importance of monitoring your credit.
“I was guilty, like many of us, I never worried about my credit history, I never monitored it. I mostly paid my bills on time, and I assumed my credit history was decent. Imagine my surprise when I tried to open a new credit card and I got denied. I was like, what? Are you kidding me? In my mind, I thought I was a perfect customer. It was at that point that I thought, well, maybe I better look into this whole credit history thing and do some digging. So I obtained a credit report, and discovered that a credit card had been fraudulently opened in my name in Halifax in 2008. I didn’t discover it until 2010.”
“Here we are ten years later, I’ve probably logged about 200-300 hours dealing with that incident through phone calls, investigations, RCMP, and all of the necessary steps to reestablish my credit. It’s been an incredible ordeal. Had I been monitoring my credit, I would have been alerted instantly.
“So identity theft is real, not something you only hear about in the movies.” MacFarlane suggests students request a copy of their credit report annually and follow up with anything suspicious, and review your accounts regularly. She also warns students not to overshare on social media, and not to give our their SIN number.
Looking ahead: MacFarlane’s advice to students who are graduating? Be aware and start learning good habits to help manage your money while you are young. Money is the #1 cause of failed marriages, so the earlier you begin exercising healthy financial habits, the better you set yourself up for success in the future.