Chapter 18: Managing Your Money

The cost of college should never discourage anyone from going after a valuable degree. –Arne Duncan, former United States Secretary of Education


By the end of this section, you will be able to:

  • Establish financial goals
  • Identify strategies for creating and maintaining a budget
  • Describe available options for paying for college
  • Describe the benefits and risks of credit
  • Develop financial literacy skills to prepare for your financial future

What is a chapter on personal finances doing in a book on student success? If you’re a new college student you may not yet have money problems or issues—but most college students soon do. It doesn’t matter whether you’re a “traditional” college student enrolled in college just after high school or a “nontraditional” student returning to school. If you are living away from home for the first time, you may have less experience setting and sticking to a budget and handling money in general. If you have been working and/or have started a family, you will likely face the challenges of new expenses and additional demands on your time.

Almost everyone eventually has money issues at college, and they can impact your academic success. Money problems are stressful and can keep you from concentrating on your studies. Unfortunately, money problems cause many students to drop out of college entirely. But it doesn’t have to be this hard. Like other skills, financial skills can be learned, and they have lifelong value.

Financial Goals

Whatever it is you plan to do in your future, whether work or other activities, your financial goals in the present should be realistic to enable you to fulfill your plan. Consider these scenarios:

Keri entered college planning to major in business. Her family was not able to give her much financial support, but she chose to attend an expensive private college because she thought it would help her get into a good graduate business school. She had to take large loans to pay her tuition, but she wasn’t concerned about a budget because she assumed she’d make a lot later on and be able to easily pay off the loans. Yet when she graduated and had to begin making payments on her private bank loans, she discovered she couldn’t afford to go straight to business school after all. She put her dream on hold for a few years and took a job she didn’t much like.

Jorge had worked a few years after high school but finally decided that he needed a college degree to get the kind of job he wanted. He was happy with his life otherwise and kept his nice apartment and car and enrolled in a couple of night classes while continuing to work full time during the day. He was surprised how much he had to study, however, and after a couple months he felt he was struggling. He just didn’t have enough time to do it all—so he dropped first one class and then, a couple weeks later, the other. He told himself that he’d try it again in a year or two, but part of him wondered how anyone could ever get through college while working.

What Keri and Jorge have in common is a conflict between their financial goals and realities. Both were motivated to succeed in college, and both had a vision for their future. But both were unsuccessful in finding ways to make their dreams come true—because of money issues.

Could they have done things differently? Maybe Keri could have gone to a less expensive school and still reached her goal, or maybe she could have avoided such heavy student loans by working summers and part time during the school year. Maybe Jorge could have reduced his living expenses and cut back his work hours to ensure he could balance school and work better. Maybe both were spending thousands of dollars a year on things they could have done without if only they’d thought through their goals and learned to live within a budget.

Taking control of your personal finances begins with thinking about your goals and deciding what really matters to you. Here are some things to think about:

  • Is it important for you to graduate from college without debt? Is it acceptable to you, or necessary, to take some student loans?
  • What are your priorities for summers and other “free time”? Working to earn money? Taking nonpaying internships or volunteering to gain experience in your field? Enjoying social activities and time with friends?
  • How important is it to take a full load of classes so that your college education does not take longer than necessary?
  • How important is it to you to live in a nice place, or drive a nice car, or wear nice clothes, or eat in nice restaurants? How important in comparison to your educational goals?

There are no easy answers to such questions. Since you will have to make choices, it’s important first to think about what really matters to you—and what you’re willing to sacrifice for a while in order to reach your goals.

The following strategies can help you set financial goals for yourself:

  • Create SMART goals: SMART stands for specific, measurable, attainable, realistic, and timely. These kinds of goals are more manageable and can help you reach your final target more easily. For example, instead of setting a broad, vague goal of “paying for college,” you might set a goal of paying off your two college loans five years after you graduate. This more specific, measurable goal can help you keep track of your progress and whether you need to make changes to reach it.
  • Monitor your spending: Try keeping track of what you spend money on during a one-month period. This can help you see where your money goes and where you may be able to save.
  • Create a budget: Based on what you discovered after monitoring your spending, create a monthly budget you can stick to. While some expenses, such as food and transportation, are necessary, you may find that you can save money on both by riding a bike (instead of driving) to school and eating out in restaurants less.
  • Consider working: Some students have full-time jobs while attending college, whereas others may not have a lot of time to work if they’re taking a full academic load. You will find information later in this chapter on how to decide if working while in school is right for you.
  • Choose loans wisely: Many college students need some sort of financial support through loans. While loans are a good way to pay for tuition up front if you don’t have the money, remember that they accrue interest until you pay them off. That means that you will end up paying back more—in some cases, thousands of dollars more—than you initially borrowed. Make sure you investigate and apply for as many scholarships and grants as you can since they won’t need to be repaid, and shop around for the loans with the lowest interest rates and best repayment plans. Check with the financial aid office on your college campus—they can provide additional help.


A budget is simply the best way to balance the money that comes in with the money that goes out. In this section, we will review common expenses and sources of income for college students and discuss ways to balance these in a budget that works for you.


There are certain financial obligations most college students have to pay for. Common examples include:

  • Tuition: This includes the price for attending an institution. Students pay relatively more or less for this based on where you are going to school and how many credits you are taking.
  • Room and board: These are essentially “food and shelter” costs. Many college students live in a dorm and eat their meals on campus. Students who live off campus will have to pay for comparable things, like renting an apartment and buying their own groceries.
  • Books and supplies: These include books for classes and supplies like notebooks, writing utensils, and calculators. Textbooks are often very expensive, so you may try to find used textbooks for sale.
  • Transportation: Students typically have some transportation costs, whether it be car insurance, maintenance, and gas, or public-transportation expenses.
  • Personal needs: Regardless of where you live, you will need money for things like laundry, cell phone, computer, and going out with friends. This expense can vary a lot depending on personal preferences.

Needs Vs. Wants

Before you can make an effective budget, you examine your expenses and consider what’s essential and what’s optional. Essential costs are the big things you need to get by:

  • Room and board or rent/mortgage, utilities, and groceries
  • College tuition, fees, textbooks, supplies
  • Transportation
  • Insurance (health insurance, car insurance, etc.)
  • Dependent care if needed
  • Essential personal items (some clothing, hygiene items, etc.)

In contrast, “optional” expenses are things you want but could easily get by without. You don’t have to spend money on them, and you can spend more or less on them as you choose. Most people spend by habit, not really thinking about where their money goes or how quickly their spending adds up. If you knew you were spending more than a thousand dollars a year on coffee you buy every day between classes, would that make you think twice? Or another thousand on fast food lunches rather than taking a couple minutes in the morning to make your lunch? When people actually start paying attention to where their money goes, most are shocked to see how the totals grow. If you can save a few thousand dollars a year by cutting back on just the little things, how far would that go to making you feel much better about your finances?

The Price of College

Given what you have read so far, what types of expenses do you think you might face as a college student? The following video will help you review the types of college expenses and examine particular costs that are common for both four-year and two-year institutions.

Sources of Income

Paying for college can be a big challenge. When deciding how to cover the expense, two important source of income include:

  • Jobs: Many student work while taking classes to cover their expenses.
  • Financial Aid: This can come in the form of loans, grants, work study, or scholarships.

Both options can help you finance your education, but both also come with both benefits and potential pitfalls. The next sections look at each of these options in more detail and will help you determine the what strategies will be best for you.

Working During College: Pros and Cons

Finding a job as a college student can help you stay on track financially, but it can also be difficult to balance with your other responsibilities, and it’s not for everyone. Here are some of the advantages and disadvantages of working during college:

Young male barista with long hair in a ponytail, wearing glasses, a white t-shirt, and an apron, prepares a beveragePros

  • Earning extra money: The money you earn can help cover college expenses.
  • Enhanced budgeting skills: If you are working, you may learn to budget your money better since you have to earn it yourself.
  • Enhanced time-management skills: Juggling classes, work, and possibly other activities such as clubs or sports, may actually help you excel in your classes because you learn how to effectively manage your time.
  • Networking: In addition to work experience in a field related to your interests, you may also meet people who can help you later when you’re ready for a career.


  • Lack of time-management skills: Though working during college can help build time-management skills, you may struggle if you aren’t used to balancing activities. For example, a student who heads to college straight from high school without any prior job experience (or with few extracurricular activities during high school) may have trouble meeting multiple academic and job obligations and commitments.
  • Lack of free time: If you take on a lot of work hours while in college, your may not have time for other activities or opportunities, such as joining clubs related to your interests or finding volunteer work or internships that might help you discover career opportunities and connections. These “extras” are actually significant résumé items that can make you more employable after college.

Deciding whether or not to work while you’re in college is obviously a personal decision that involves your own comfort level and situation. Some students may prefer to put off looking for a job until after the first semester of college, so they can better gauge their work load and schedule, while others may prefer to avoid working altogether. For some, the question isn’t “Should I or shouldn’t I get a job?” but “How much should I work?” In other words, the challenge is to strike the right balance between schoolwork, social activities, and earning money.

The following video shares one student’s experience with the pros and cons of working her way through college.

Financial Aid

You may already be receiving financial aid or understand what types of financial aid are available. Even if you are not receiving financial aid, however, you should understand the basics because your financial situation may change and you may need help paying for college. You owe it to yourself to learn about potential types of aid you might receive.

There are three main categories of financial aid:

  1. Scholarships and grants (money or tuition waivers that do not need to be repaid)
  2. Student loans (money that does need to be repaid, usually starting after graduation)
  3. Work study programs (money that is earned for tuition or other expenses)

Scholarships and Grants

Scholarships and grants are “free” money—you do not have to pay them back, unlike student loans. A scholarship is generally based on merit as demonstrated by past grades, test scores, achievements, or experiences, including personal qualifications such as athletic ability, skills in the arts, community or volunteer experiences, and so on. Don’t make the mistake of thinking scholarships go only to students with high grades. Many scholarships, for example, honor those with past leadership or community experience or the promise of future activities. Even the grades and test scores needed for academic scholarships are relative: a grade point average (GPA) that does not qualify for a scholarship from one organization may earn a scholarship from another. Never assume that you’re not qualified for any kind of scholarship or grant.

A grant also does not need to be paid back. Most grants are based on demonstrated financial need. A grant may be offered by the college, a federal or state program, or a private organization or civic group. The largest grant program for college students is the federal government’s Pell Grants program. Learn more about Pell Grants and other scholarship and grant programs from your college’s financial aid office or the online resources listed later.

Student Loans

Many different student loan programs are available for college students. Ideally, one would like to graduate without having loan balances to repay after college. However, almost two-thirds of full-time college students do need student loans to pay for college. With smart choices about the type of loan and a structured repayment program for your working years after graduation, there’s no reason to fear a loan. Just remember that the money eventually has to be repaid—it’s not “free” money even though it may feel that way while you’re in school.

All student loans are not the same. Interest terms vary widely, and with most private loans the interest starts building up immediately. The best loan generally is a subsidized federal Stafford loan. “Subsidized” in this case means the interest does not begin on the loan until after graduation. With unsubsidized loans, by contrast, you are responsible for paying interest on the loan even while you are in school, meaning the terms of an unsubsidized loan are less favorable to you as a student. Check the U.S. Department of Education site for information on applying for different types of loans.

Many colleges and universities have also created additional programs – such as textbook or childcare assistance or an emergency fund – to support their students facing financial need. Check with your school’s financial aid office to find out if you qualify for any additional assistance.

Work Study Programs

Work study programs are the third type of financial aid. They are administered by colleges and are a common part of the financial aid package for students with financial need. You work for what you earn, but work study programs often have advantages over outside jobs. The college runs the program, so you don’t have to spend valuable time looking for a job. Work study students usually work on or near campus, and work hours are controlled to avoid interfering with classes and study time. Work study students are more engaged with the academic community than students working off campus. Remember the section above that discussed working while in college and be sure to carefully weigh the pros and cons before deciding about a work study program.

As the following video shows, regardless of your background, which college you’re attending, or your time commitment, there are numerous financial aid opportunities for you to consider:

Tips for Success: Applying for Financial Aid

  • Talk to your college’s financial aid office early and get the appropriate forms.
  • Start your applications early to ensure you make the deadline. If you are eligible, be sure to submit the Free Application for Financial Student Aid (FAFSA) to see if you qualify for federal student aid.
  • Do online research to learn about additional private scholarships you may be qualified for.
  • Evaluate student loans carefully and do not borrow more than you need or can repay without hardship after graduation.

Budgeting Strategies

Now that we have looked at common college expenses and forms of income, it is time to talk about budgeting. Without a personal budget, most people have a hard time gauging how much money they spend and where their money goes. If you have ever gone to an ATM to withdraw money and been surprised to discover how little you had left in your account, this section is for you. Even if you’re very conscientious about paying your bills on time and generally have frugal spending habits, creating and following a budget can put so much further ahead.

In essence, a budget is a plan for how you want to spend money. It details how much money comes in each month and how much you’ve allocated for spending on each thing. The virtue of a budget is that it puts you in control of financial decisions—so you can avoid surprises at the ATM or at the end of the month. Let’s look at some strategies for creating a budget:

  • Be realistic: People are often intimidated by budgets because they’re afraid the plans will be too strict or force them to cut back too much. Though a budget may reveal that you indeed spend a lot of money on clothes, that’s okay—it may just also need to show that you spend very little on restaurants and eating out to make up for it. Again, it’s about making choices and being realistic.
  • Choose a time line: Creating a budget for a fixed period of time will help you monitor whether you’re meeting your financial goals. The time line you choose is up to you and your goals. For example, you might create a monthly budget to monitor how you spend your paycheck every month.
  • Add financial padding: Even if you feel like your list of financial obligations is already long, try to set aside a certain amount each month for a “rainy day” fund to pay for unforeseen expenses and emergencies, like car repair, lost textbooks, etc.
  • Make adjustments as needed: While sticking to your budget is important, there’s nothing wrong with revisiting and adjusting your original targets. For example, if you find that you are actually spending $50 more per month on groceries than you intended (even after shopping for sale items), you may decide to save that money elsewhere in your budget next month—on entertainment, for example.

Tracking one’s income and spending is a good exercise for anyone, and if you follow the basic steps, below, it’s easier than you might think:

  • Calculate regular expenses: Using your bills, receipts, checkbook, and any other financial records you have, make a list of your regular expenses and record how much you typically pay each month or year. Since some expenses like grocery bills may vary from month to month, you’ll want to examine several months’ worth of receipts to come up with an average.
  • Record your income: Identify all income sources and add up how much you receive during a given period of time. This amount should include all sources of money—from regular full- or part-time work and from intermittent sources, such as freelance jobs, babysitting, etc.
  • Adjust your expense percentages, and set goals: After you outline your financial obligations and income, you can start deciding how much money you’d like to allocate for each expense. Start with fixed expenses such as rent, car payments, etc. Next, decide how much you want to devote to each of the remaining categories, such as food and entertainment. At this point you can also set specific financial goals. For example, you may decide to lower the amount you spend on clothes in order to pay off outstanding credit-card debt or save for a trip.
  • Identify a method for tracking your budget: Develop a plan for monitoring your budget. You might decide to use an Excel or Google spreadsheet, a budgeting app, or a budget tracking tool provided by your bank. You can also write things down in a notebook. The method doesn’t matter, so long as it’s easy for you to access, use, and interpret.

Still not convinced that making and following a budget is doable? The following video describes a budgeting technique that’s very easy and straightforward to follow: the “Envelope Budget.” Simply placing cash in labeled envelopes (one for each category or purpose) each month can be a very effective means of building healthy spending habits.



  • Identify strategies for creating and maintaining a budget


  • Identify two larger college expenses and two smaller college expenses that you are responsible for. For example, tuition might be a large college expense while notebooks and folders might be smaller ones.
  • Describe any sources of income you currently have to cover these expenses.
  • Explain three financial goals you have for covering your college expenses. For example, you might want to consider work study or taking out another loan.
  • Follow your instructor’s guidelines for submitting assignments.


For many college students, who may not have a lot of money or a job, owning a credit card may seem out of reach. Without money in an account and assurance that you can pay your monthly credit bill, the average student may not seem very “credit-worthy.” Still, it can be important to build a credit history for certain opportunities down the road, such as getting a loan to buy a house. You may be surprised to learn that there are plenty of companies that offer special options for younger customers, especially students. Some good offers to look for include error forgiveness (such as waiving penalties the first time you miss a payment), no extra fees, rewards for good grades, and effective customer service.[1]

Risks and Rewards of Credit

Credit cards can give students new opportunities, but owning them is also a big responsibility. Students should consider the advantages and disadvantages of credit before choosing the best plan.


  • Saving money: Credit cards can be connected to checking accounts so that companies know where their customers’ money is coming from and they have an account to charge interest rates to. The account can help you practice saving money rather than needing to have a lot of cash on hand. This can make it easier for you to make large payments for things like tuition and unexpected expenses like vehicle maintenance or medical bills.
  • Receiving benefits: In addition to cash back for good grades, credit card companies may offer other benefits such as store discounts, gas rewards, and points toward air travel.
  • Building credit: If you pay off your credit card every month on time, you will start building credit and have a good credit score early on. Your credit score can be an important factor later on if you decide to open another account or take out a loan. Some potential employers may even want to see your credit history.


  • Overspending: If something is out of sight, it may be out of mind, and the same can be true of money. Sometimes people overspend with credit cards because it’s easy to think that you have more money than you really do.
  • Interest: Credit card companies with student deals still typically include some level of APR or interest rate. If you don’t pay off the entire balance every month, using a credit card can be expensive. Suppose you decide to use your credit card to pay for $1,000 in school supplies and books. Credit card A has an APR of 10 percent, and credit card B has an APR of 24 percent. If it takes you a year to pay off the $1,000, you’d actually pay a total of $1,055.04 with credit card A and $1,134.72 with credit card B—that’s $55 or $135 on top of the original $1,000 you charged! This example highlights the importance of paying off the balance as soon as possible AND of choosing a credit card with a lower interest rate.
  • Debt: Unlike debit cards, credit cards allow users to borrow money that they can pay back at a later date. While this can be useful in emergency situations, you may end up charging more than you can afford to pay back right way, and you may find yourself saddled with debt. Carrying a lot of debt can damage your credit history and score.

Avoiding Debt

As we just learned, the temptation to overspend with a credit card and the interest you are charged on your balance can combine to leave you owing more money than you have. Following are tips that will help you avoid slipping into credit card debt:

  • Pay with cash when you can. Use your budget as a guide for how much cash to carry with you – refer back to the video in this chapter on the envelope budget strategy.
  • When possible, use a debit card instead of a credit card. A debit card is taken just like a credit card in most places, so you can use it instead of cash, but remember that a purchase is subtracted immediately from your account. Don’t risk overdraft fees by using a debit card when you don’t have the balance to back it up. Record a debit card purchase in your checkbook register as soon as possible.
  • Make it a priority to pay your balance in full every month. If you can’t pay it all, pay as much as you can—and then remember that balance will still be there, so try not to use the card at all during the next month.
  • Don’t get cash advances on your credit card. With most cards, you begin paying interest from that moment forward—so there will still be an interest charge even if you pay the bill in full at the end of the month. Cash advance interest rates are often considerably higher than purchase rates.
  • Don’t use more than one credit card. Multiple cards make it too easy to misuse them and lose track of your total debt.
  • Get and keep receipts for all credit card purchases. Don’t throw them away because you’ll see the charges on your monthly statement. Write the amounts down in your spending budget. You also need the receipts in case your monthly statement has an error.
  • Stop carrying your credit card. If you don’t have enough willpower to avoid spontaneous purchases, be honest with yourself. Don’t carry the card at all—after all, the chances of having an emergency need for it are likely to be very small. Having to go home to get the card also gives you a chance to consider whether you really need whatever it is that you were about to buy.

Credit History and Credit Reports

You begin to establish a credit history as soon as you get your first credit card or get a loan. Everyone needs to understand what a credit history is and how your monetary habits now can affect your future financial well-being and your future options.

Credit bureaus collect financial data on everyone. The credit report they issue is a detailed history of many years of your financial habits. It includes the following:

  • Current and past credit accounts (credit cards and store charge cards)
  • History of balances and credit payments
  • History of late or missed payments
  • Inquiries into your credit status (e.g., if you’ve applied for a number of credit cards, this is recorded even if you did not receive the cards)
  • Bankruptcy or mortgage foreclosure proceedings

All this information remains in your credit report for up to seven to ten years. For example, frequent overdrafts on a debit card can prevent you from being approved for a credit card, or late credit card payments can prevent you in the future from obtaining a car loan. What you do today can really come back to haunt you!

By law, you’re entitled to one free credit report each year from Annual Credit Report. Although you have to pay extra for your credit score to be included with your credit report, a lot of people use this as a quick reference to gauge how good or bad someone’s credit is. Different companies use slightly different ratings, but 300 or so is considered to be a low credit score, and 700–850 is considered to be high. The following video shows how your credit score is determined and some rules of the road for improving your current credit rating.

Resources for Credit Issues

Maintaining credit is a big responsibility, and sometimes it can be challenging. Repairing bad credit can take a long time—up to seven years—so it’s important to take action as soon as you’re having trouble paying bills or overspending. Different resources and options are available to help you deal with credit issues, including the following:

  • Loan consolidation: Students may consider having multiple loans consolidated with the federal government so they have to make only one loan payment per month. While this may give you more time pay off student loan debt, it may not be the best option, since the one monthly payment can cost more and accrue a higher interest rate. Students should talk to loan company representatives and financial aid resources at their institution to discuss other payment options, such as income-based payments in which the amount you pay each month is based on your income level.
  • Credit counselors: Credit counselors are trained to help people develop personal budgets and to provide classes on savings and debt solutions. They may also offer debt management plans in which they work with your credit card and loan companies to arrange a deal and ask you for monthly deposits so that they can help you pay off your debts. If you are interested in a consultation from a credit counselor, do your research to find a reputable one who does not charge customers too much for their services to avoid additional debt.
  • Debt settlement plans: Debt collection companies will offer services to their clients that involve talking to credit card and loan companies and coming up with a plan to pay a lump sum instead of the total debt owed. Similar to finding credit counselors, you should contact local government offices to find reputable debt collection companies so you can avoid overpayments and scams.
  • Bankruptcy: Bankruptcy is an official status that is obtained through court procedures, and it means you are unable to pay off your debts. Bankruptcy damages your credit score, and the fees for filing paperwork and hiring an attorney can be costly, so it is important to consider other financial solutions first.


  • Now is the time to identify and begin working toward your financial goals.
  • Budgeting involves assessing your spending habits to ensure your income will cover your expenses.
  • Many students work while they are in college; weigh the pros and cons to determine if this is the right decision for you and how you can strike the best balance between working and taking classes.
  • Financial aid – in the form of scholarships, grants, loans, and/or work study – is available to help you pay for college.
  • Owning a credit card comes with significant benefits and risks. While it is good practice to begin establishing your credit history, be careful to avoid falling into debt.
  • Your credit history is tracked by financial institutions and can be used in future determinations about other credit cards, loans, or even in getting a job. Review your credit report regularly to know where you stand and check for errors.

  1. Gardon, Michael. "Best Credit Cards for Students in 2016." The Simple Dollar. 10 Feb 2016. Web 12 Feb 2016.