Top 5 financial decisions for college students

Andre Alamina, Business & Finance Columnist

College is one of the most transformative periods of anyone’s life.  A lot of who you become stems directly from the experiences you have and  the decisions you make in college.

While college is for many people a time for learning and self-discovery, not many college students view their time at university as a period of financial growth. It’s easy to see why when most students need to take on debt just to fund their education.

But even in the face of this, there are financial decisions you can make in college that your future self will definitely thank you for.

Here are 5 of the best:

1.      Build your credit

Nobody really seems to care about their credit score until they want (or need) to borrow money and realize just how crucial having a strong credit score is to getting an affordable loan. When you’re in college just trying to get through Calc I, having a strong score seems like a problem for the distant future.

Here’s the thing.

Because building a strong credit score takes time, most people have to put off buying a home or a car or taking out a small-business loan because they don’t have strong enough credit to get an interest rate they can afford.

This is why building your credit as early as possible can be so valuable to you over the course of your life.

If you’re not too familiar with credit scores, here’s the basic idea:

Essentially, the higher your credit score, the more confident a lender (like a bank) will be in your ability to pay them back. Because of this, they’ll be willing to give you more favorable “terms” like lower interest rates and down-payments. Having a lower interest rate means that the cost of borrowing money for a house or a car is less than it would be if you had a lower credit score and got less favorable terms from your lender.

The best way to start building your credit in college is to apply for a credit card. You will probably have some people in your family who will discourage you from getting one and make you feel that credit cards are boogie men out to rob you of your financial freedom, but that will only happen if you let it. If you pay your usual expenses with a credit card instead of cash or your debit card and pay off your credit card balance at the end of every month, you will:

1.      Start establishing a credit history and thus build your credit score.

2.     Save/make money from cash-back and credit card rewards.

3.      Never have to pay a dime in extravagant credit card interest charges.

The key here is to be disciplined with your credit card use and not use it to start buying things you don’t already have the money for.

2.      Choose your major carefully

Going to college is a major investment of both time and money. After you graduate, you want to be certain that the four years and tens of thousands of dollars of debt were worth it.

The harsh reality is that some degrees simply pay off more than others, and that is something you absolutely need to consider when you’re deciding on a major.

This doesn’t mean everyone should drop what they’re doing and switch to engineering.

It’s counter-productive to pursue a field you genuinely don’t like or don’t feel you have the innate skillset for. But whatever you major in, you need to be certain that you have a plan to turn that piece of paper into an income that can support the lifestyle you want to live.

With one in three college graduates between ages 22 and 27 working in jobs that don’t require a college degree, having that planned out is more important than ever.

At the very least, have an idea of what the realistic job prospects are for you with your degree choice and get an understanding of what graduates with your degree from your college typically earn following graduation. If you don’t find the job prospects compelling or feel the earning potential of that degree will not be enough to support your long-term life aspirations, you may want to consider switching to a program that will.

On a side note, it’s important to understand how the job landscape is changing.

Humanities graduates, who traditionally had trouble landing jobs following graduation, have become more attractive to recruiters from a variety of different industries who are looking for candidates that possess the soft skills like critical thinking, creativity and leadership that humanities students usually develop.

Similarly, majors with historically rock solid job prospects, like accounting and finance, may see job security erode as more accounting processes are automated and disintermediated by artificial intelligence.

3.      Start investing

One of the biggest assets we have as young people is time. When it comes to investing, the earlier you start, the more wealth you are going to create for yourself. This is because of a little something called compounding interest, where the interest, you earn on the money you invest also earns interest. Over time, this can turn relatively small investments into fortunes.

Albert Einstein famously called compounding interest the eighth wonder of the world.

Now there are plenty of ways you can invest your money but, for college students, the most accessible and simplest way is, in my opinion, investing in the U.S. stock market.

Now the stock market can sound very intimidating to a beginner. When people think stocks, they typically think of those guys on Wall Street in pin-stripe suits sitting in front of maybe 20 computer monitors.

But investing is a lot easier than you think.

All you need to do as a college student is invest a little money every month into a low fee and diversified index fund, and you’ll be amazed at how your money grows.

The stock market has historically returned an average of around 9.8 percent per year over the past 90 years. This includes periods of up years and down years.

Using this 9.8 percent rate, if you invest just $10 a week from your first week of college to the weekend of your graduation (about $2,000 in total), and never invest a single dollar in the stock market ever again, by the time you’re 65, the money you invested in college will be worth close to $1.2 million!

You’ve taken your investment of just under $2,000 dollars and grown it to $1.2 million by doing absolutely nothing but putting your money into the stock market and having the discipline to not touch it.

I personally invested money in an account for my (future) kid’s college tuition my sophomore year at JCU, and I’m amazed at how much that money has grown in just a few years.

4.      Get a job/monetize your talents

Working while in college is another decision you will be thankful you made.

It really doesn’t matter a ton what the job is, especially in your freshman and sophomore years. All that matters is that you dedicate time to working.

Here are just some of the reasons why working is tremendously beneficial to any college student:

1.      It nurtures work ethic that you can demonstrate to future employers or grad schools.

2.      It forces you to improve your time management skills to balance your work commitments with your school commitments.

3.      It gives you some degree of financial independence where you can buy things for yourself without asking your parents.

4.      It provides you with the additional income you can use to invest or make early payments to your student loans which can save you thousands in student loan interest when you graduate

Getting a job somewhere is one way to do it, but what I’d recommend to most college students is to actively find ways to monetize your talents.

If you’re a skilled photographer or videographer, consider doing commercial shoots for local businesses. If you’re a talented musician, see if you can get a gig playing at a local pub, or giving lessons in person or online with Udemy.  If you’re a girl who is fantastic at doing make-up, set up your own business as a makeup artist or start a YouTube channel. If you are exceptional at math or killed your ACTs, try tutoring. If you’re a college athlete, ask schools in your area if they’d allow you to put up a poster advertising private 1-on-1 coaching.

If you’re great at something, don’t sit on it. Put that skillset to use and make yourself some extra cash doing something you love. You’d be amazed at just how much money it could make you.

There are a lot of people, especially online, who want to convince you that you have to make a choice between going to college and becoming an “entrepreneur.” There is absolutely no reason you can’t do both.

5.      Build a strong network

It’s hard to understate the importance of a strong professional network. It seems more than ever that success in the modern economy is as much dependent on your connections with smart and talented people as it is on your own smarts and talent.

Porter Gale, author of the book “Your Network is Your Net Worth,” wrote:

“I believe in the power of social capital to improve your productivity, expand your professional options, and raise your overall quality of life. I believe that seeking out and working in collaboration with others who share your interests and values will provide a stronger foundation, enabling you to reach a higher level of success than you would on your own.”

As much as you need to focus on building up financial capital, you need to also make a concerted effort to build up social capital – high achievers you can leverage throughout your life to maximize the opportunities that are in front of you.

That means surrounding yourself with ambitious people that have big goals and a strong work ethic. At school, these may not always be the A students in your classes, but those are definitely a good place to start.

At the very least, avoid conflicts and be kind to everyone you come in contact with because you never know who someone might become and how your lives may intersect.

Most importantly,  identify people who embody what success looks like to you. People who are successful in an area or field you hope to be successful in can be great mentors and help guide you through the early challenges of your career. They can help you avoid early mistakes that people in your field make,  or,  at  best, can provide you with opportunities you may not have otherwise gotten.

If you have questions relating to anything I wrote in this column, or would just like to chat, feel free to contact me at [email protected].

I also write articles like this on my blog if you want to read about my takes on investing, interviewing and achievement.