Financial Literacy
Do you wish you had a resource for information about budgeting, money and time management? The resources below will give you access to the information you need to successfully manage your money and time while in college.
Budgeting
A budget is, simply put, a plan for your money. By tracking income and expenses you can create a plan for your spending and saving.
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Why do you need a budget?
- If you have ever found yourself looking at your bank account and wondering where your money went, a budget can help. The most common cause of financial problems is spending more than you are earning. With a flexible, sensible budget, you can control of your money and avoid financial stress. It can help you limit spending and ensure there is enough money to do the things that you want.
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How to get started
- Build a starting budget with your best guess of what you spend in a month (on average), separated into categories like books, personal expenses, rent, phone, and entertainment.
- Track your expenses for a few months. Then, compare these figures with your previous projections. You may be surprised to see where your guesses were higher or lower.
- Once you have tracked your expenses, compare these to your income. If you are spending more than you are earning, you need to make changes.
- Be honest about "needs" vs. "wants". Enjoying a store-bought coffee every single day is nice, but you could save up to $80/month by reducing this purchase from daily to weekly.
- Review your monthly budget for any necessary changes. Remember: a budget is fluid, meaning that it will (and should) adjust as your income and goals adjust.
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Moving forward with a flexible budget
- For your budget to be useful, you need to follow it for more than a few months. Tracking your daily purchases only takes a few minutes. It takes even less time with a budgeting app that links to your bank and credit card accounts and automatically categorizes your purchases. Finding it hard to stick to your budget? Some of your figures may be unrealistic so review and adjust as needed. Perhaps you need to allocate more towards books and travel, and less on clothing. The best budget is one that grows and changes to meet your needs.
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What can you do now
- Setting up financial goals will help you plan and prioritize what’s important to you, and how you should set up a budget to align with your interests. Goals will also help you be more aware of how you spend your money day-to-day. It’s a good idea to write out these goals, and to stay mindful of them as you go through college!
Credit
Credit is a major factor in today's economy and is your reputation as a borrower. In order to have the best reputation, credit wise, you should take the time to learn about managing your credit. This is especially important when it comes time to rent an apartment, finance a car, buy a house, or even find a job. The sooner you start building your credit profile, the better off you'll be in the future.
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Credit Report vs. Credit Score
- A credit report is a detailed report of your credit history. It has personal information, employment history, and a list of open and closed credit accounts. You can get a free copy of your credit report once per year from each of the three credit reporting bureaus: Equifax, Experian, and Transunion. The website to check is annualcreditreport.com. It’s a good idea to review your report at least once per year to ensure accuracy and check for fraud. If someone were to fraudulently open a line of credit in your name, you might never know without checking your report.
- A credit score is a snapshot of your credit risk at a point in time, based off of your credit report. Credit scores such as FICO range from 300-850, with the majority of Americans scoring between 600-800. For lenders, a higher score means a lower chance of default.
- Lenders often charge higher interest rates when taking on higher risk, so a low credit score means a more expensive loan. Conversely, a higher credit score means a less expensive loan. With a solid credit history you can pay less for many credit products like private loans, credit cards, insurance, auto loans, and mortgages.
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Do your research
- Before applying for a credit card, compare each potential card’s annual fees, interest rates, special rewards, and credit limit. Little differences can have major impacts. Once you choose a credit card and begin using it, make your payments on time and pay off your balance each month. Failure to do so can result in large fees and do serious damage to your credit score. Try not to carry a balance on the card; instead, make occasional and sensible purchases.
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Helpful reads
- For more information on effective credit building as a student, the following articles are useful:
Saving & Investing
Figuring out how to secure your financial well being is one of the most important things you can do.
For many people, the path to financial security is with saving and investing. As a student, these topics may not yet be on your radar, but saving is a key concept for financial well-being. If you make saving a regular habit, even a small amount, you are building a foundation for financial success.
Tips on getting started with saving and investing
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Pay yourself first
- This means that for every paycheck you receive, commit to putting an amount (even a small amount) aside in a savings account. An effective way of doing this is to have a set amount of your paycheck directly deposited into a savings account, separate from what you use for everyday expenses. You will be surprised how quickly your savings can grow.
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Keep track of your saving
- People who track their savings tend to save more because it is on their mind. With online and mobile banking, there should be no excuse not to know exactly how much money you have.
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Set Goals
- Setting financial goals is crucial. As a student, you may only have a few financial goals, but this is the perfect opportunity to hone your skills. Think of this scenario: You want to pay off a student loan before graduation, how will you accomplish this? How much do you need to work? To save? The better you do now, the easier accomplishing future goals will become.
Thinking ahead
Even now there may be long range financial goals that you start saving for. Here are some tips for investing in your long term financial goals.
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Plan Ahead
- As with any endeavor, advance planning is a way to figure out what you want, when you want it, and what you can do to achieve it. The sooner you start planning, the sooner you start accomplishing.
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Understand the time value of money /compound interest
- This is the principle that a dollar today is worth more than a dollar in the future, because the dollar received today can earn interest up until the time the future dollar is received. The longer the time frame for investment, the more you can increase the income potential of your investment. On the flip side, waiting to invest can make it more difficult to achieve your financial goals. Discover how much waiting to save could cost you with the SEC compound interest calculator.
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Understand your objectives
- As a general rule, the shorter your time frame for investing, the more conservative you should be. For example if you are in your twenties and trying save for a down payment on a house, you are going to want to put your money in a vehicle that ensures the least risk of losing your principle investment. When your time frame for investing is long, you can consider less conservative options. Retirement savings are an example. Starting young allows you to save for a longer period and allows time to make up for potential loses in a less conservative environment.
Debt Management
Borrow Smart
You may decide to use loans to help cover certain expenses while at NMC. If you are considering loans then it is important, both now and in the future, that you “borrow smart.” This means finding a loan with the best terms and conditions and with a monthly payment you can handle.
Remember – loans are an obligation. You are borrowing money from someone with an agreement to pay that money back. Failure to uphold your end of the bargain can result in serious consequences, including adverse credit, collection agencies, and even wage garnishment. All of those are avoidable, so long as you are careful and informed about your borrowing. Here is some information the Financial Aid Office put together to help you manage loans you might incur. The intention is to help you manage education debt, but terms and concepts here can be applied to other loan programs outside of NMC.
Here are some loan terms to know:
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Master Promissory Note
- Commonly abbreviated MPN, this is the legally binding contract that sets the terms and conditions of your loan. It is also your signed acknowledgement that you will pay back the loan you have borrowed, plus any applicable interest. You can complete your MPN at studentaid.gov.
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Deferment/Forbearance
- These are temporary pauses on your loan payments, granted at the lender’s discretion. Deferment may be available for situations such as graduate student enrollment, certain volunteer work, armed forces enrollment, and economic hardship. Forbearances are typically limited only to economic hardships; however, your lender can explain which of these two options are available to you and when.
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Loan Servicer
- A loan servicer is in charge of overseeing the repayment process. This means they collect monthly payments, calculate payoff amounts, and generally manage your account. It is possible your loan servicer and your lender are different. Remember, the lender gives you the loan, the servicer is in charge of getting it back.
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Default
- Failure to repay a loan according to the terms of the Master Promissory Note can result in borrower default. Going into default has serious negative effects on your credit and credit score, so it is something to avoid. If you are ever unsure of your ability to make a payment or are experiencing a financial hardship, contact your loan servicer immediately.
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Grace Period
- This is the period of time after you drop below half-time enrollment and before you start repayment. Not all loans have a grace period, so check with your lender first. Typically, loans retain their characteristic of being subsidized or unsubsidized during the grace period.
- Note that grace periods start after dropping below half-time enrollment. This means that if you take a gap year or leave of absence, it is possible your loan could run through its grace period and payments would be due before you return to school.
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Subsidized/Unsubsidized
- If a loan is subsidized, then any interest that accrues while you are in school or in deferment is paid by the lender.
- If a loan is unsubsidized, then interest starts accruing immediately after the loan is disbursed and the borrower is responsible for it. Many unsubsidized loans have the option of either paying interest as it accrues, or simply adding it to the principal of the loan. Adding loan interest to principal is known as capitalizing or capitalization.
Alternatives to Borrowing
Online Resources
The below programs give students online access to important financial information throughout their academic careers to reinforce time and financial management skills beyond higher education.
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- Northwestern Michigan College partners with CashCourse.com to provide students with free financial resources. CashCourse is a web-based, self-directed financial literacy programs that provide students with financial information, tips and skills necessary to be financially successful.
- Select “Register Now” under the Students section to create your account. Create a CashCourse user name and password by clicking on 'Request a new account'. We suggest using your Northwestern Michigan College email address as your user name. (If not, use FirstName.LastName).
- Complete all of the information.
- Select Michigan and Northwestern Michigan College on the next pages and accept the terms and conditions.
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- TimeforPayback.com is an interactive game based on the life choices a student can make while they are a student. This game allows students to see how different choices can make a financial impact on their current and future debt.
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- YouCanDealWithIt.com provides practical and easy-to-understand advice on how to deal with common financial situations facing today's college students and recent graduates, such as:
- Understanding student aid, including the repayment of student loans;
- Learning effective money management, including setting a budget; and
- Dealing with the dangers of credit cards while enjoying the benefits.
Other Resources
Northwest Michigan Community Action Agency offers a matched savings program for people with limited earned incomes who want to save for their education, a home purchase, or to expand or start a business. For every $1 saved (up to $1000), it will be matched by either $2 or $3, depending on the desired asset. While saving, participants will enroll in an 8 part financial capability workshop series. This is a
great program to start a habit of saving, while gaining key financial knowledge and skills! Visit their website or call (231) 947-3780 for more information on NMCAA's Individual Development Accounts.