College is quite a liberating experience to many students. The new found freedom can be exciting but oftentimes it comes with some degree of ignorance that can lead to a series of mistakes generally and on the part of managing finances.
While making mistakes in college is almost inevitable, some financial mistakes can have long-term effects on one’s financial future. To help you stay on track, here are some of the financial mistakes that you should avoid as a college student for a better financial future.
Higher education is an expensive path and for many college students, taking a student loan may be the only way to meet the costs. A 2021 report on student loans by the Higher Education Loans Board (HELB) shows that the lender is owed Ksh9.5 billion by defaulters.
The mistake most students with education loans make is failing to use the money advanced to them strictly for the particular purpose it was borrowed. Student loans are diverted for parties, buying expensive gadgets, night outs or recreational purposes etc. without bearing in mind that the debt will have to be repaid with interest.
According to the American Student Assistance, some of the dangers of misusing student loans are:
This is a common mistake among young people brought about by the lack of understanding the difference between a want and a need. Even if one may understand the difference, the inability to budget for both with displicine is a major contributing factor to overspending on wants.
If you spend most of your money on wants, you will not have enough to spend on what you need like books and projects.
You probably understand food is a need and coffee is a want. So you might want to consider cooking some food instead of buying a cup of coffee. You have to recognize and differentiate your needs from your wants. Spend more on the essentials than on what you just desire as this is an unhealthy spending habit.
Stay clear from spending lavishly on things like housing, gadgets etc. You can go for on-campus accommodation or think of co-renting with a friend while buying things you both need.
Living a lifestyle that exceeds what you can afford is a mistake that can get you in debt and financial trouble very fast. You have to carefully assess all costs when you want to make a purchase or a financial commitment.
Ensure that you’re living within your means so that you can avoid problems such as: accruing more and more debt, stress and anxiety – because you’ll lie awake at night wondering where your money went, getting a negative/bad credit score, not having financial confidence and having an unhealthy lifestyle.
Unnecessary spending tops the list when it comes to financial mistakes among college students. College years are notorious for overspending. Students generally haven’t formed great spending habits, so learning some valuable money-saving tips and tricks can be helpful.
Some of the instances where unnecessary spending is done include – buying upmarket outfits or luxury shoes, expensive gadgets, and overindulging in fun activities.
It is important to understand that these fancy gadgets and accessories purchased either from a part of the student loan or stipends from parents are often deemed to only provide momentary self-gratification and if not checked, such purchase behavior could persist beyond college life when someone is actually making their own money.
Most students incur so many expenses not only in their school activities but also in other events outside the school. It is rare for many young people to practice saving their allowance in preparation for rainy days.
Many are tempted to spend everything they have, with the knowledge that their parents can/will eventually cushion them when they run out of finances.
Expenditure on hobbies, parties, love, and friendships is common among students, which in itself isn’t a bad thing. With the expectation of a long life ahead, the importance of savings is not that appreciated by many.
As you go through college and become more independent, you will learn the value of money and understand the best ways to save it.
Learning how to save will allow you to enjoy the fruits of your sacrifice later. You will notice that you could make space for some optional spending, which would result in being able to afford your other wants. Once you have saved well and fair enough, you could finally afford to treat yourself to some little luxuries that you had put off.
For more on these, consider these 5 principles of responsible spending.
Many students don’t realize how and where their money is spent and end up depleting their cash even before the end of the month/semester. Having an awareness around where your money is going is great in helping you to avoid misuse and identify areas where you can cut back on.
Keeping track of your spending on a regular basis is very important because it will ensure that your financial life is balanced and you are living within your means.
Also, creating a spending plan will help you to better track how your money is being used. You can compare the money you have to your expenses and have a clear plan on how you will spend every coin.
Money management skills are not just essential while you’re in college, but very essential throughout adult life. Learning proper money management skills will help you to build a solid financial future that will go a long way in your adult life.
College should ideally be the place to actively learn and practice prudent money management, understand investment options in the market and get a full grasp of financial products; their pros and cons.
You can utilise on-campus training forums, webinars, take short courses on financial literacy or subscribe to free online publications such as the Money254 Newsletter to continually grow your money skills while you study.
Instant loan apps in Kenya are in the hundreds today. They provide loans to borrowers, including students, without collateral and sometimes even those with a bad credit score.
Tempted by the instant ownership of hard cash, many students often end up in high and many debts due to unwise use, late repayments or complete nonpayment.
This lowers your creditworthiness and puts you at the disadvantaged position of entering the job market with a debt chip on your shoulder.
If you have defaulted on instant loan apps that can list you on Credit Reference Bureaus (CRBs), you may be limited in terms of lenders willing to lend to you or some lenders may charge you a higher interest rate than others due to your default history.
Such that when you actually do need a loan, for example, to make an investment, purchase a much needed high-value asset or for an emergency, you may have to pay more than other borrowers.
It’s easy to think that because you’re in college and you probably don’t earn your own money or enough money yet, personal finance can wait until you are earning enough.
College should be a time to learn and grow in every aspect.
Recognize that the freedom that you enjoy comes at a cost and managing your money efficiently is a skill you must build.
If you have made any of the mistakes above, it’s never too late to correct and work on them. You’ll realize that some of the best lessons in life are learnt out of mistakes.
So straighten up your tracks and aim for better.