College students, especially freshmen, have a lot of responsibilities they’ve never dealt with before, and budgeting is one they often push to the back burner. But Richard said personal finances should be at top of mind for students.
“These years will establish your foundation for responsibly managing your financial situation beyond college,” Richard said. “As you enter college and then independence beyond college, your financial decisions will affect your lifestyle and the quality of your retirement.”
Richard, who has been teaching finance at Auburn for eight years and worked in investment banking with Wells Fargo and SunTrust Robinson Humphrey before that, said students need to be actively aware and intentional when it comes to tracking their finances.
“Every student needs to learn the basics of financial literacy, including how credit cards work and how to create a spending plan,” Richard said.
Students should always have some emergency cash set aside in the event of an unexpected expense, she said.
Debt is a reality for many — if not most — students who must obtain loans to pay for college, but careless credit card use can greatly increase that burden. Richard warns students against spending beyond their means.
“Once you get caught in the debt cycle, it’s tough to break out,” she said. “Remember, compound interest is an amazing tool for building an impressive nest-egg.”
But that knife cuts both ways – compound interest on a credit card can grow quicker than a student is prepared to handle and can bring on financial distress quickly, Richard said.
“If at all possible, use the credit card to build credit, not as a tool to charge beyond your means,” she said. “Try to pay off your balance in full every month.”
Richard encourages students to focus not only on the present but the future, as well. She tells her students all the time to open a Roth IRA.
As long as students are earning money at a job, they are eligible to open an account, and invested money grows tax-free until retirement.
“The greatest asset these students have is time, and it’s the one that you never get back,” Richard said. “With time on your side, you don’t have to rely on predicting the next ‘home run’ stock like Apple. The earlier you start saving for retirement, the better off you’ll be. And it doesn’t have to be a huge chunk of money – that’s the great thing about starting to save for retirement early on.”
When it comes to purchases, college students can struggle with differentiating between necessities and non-essentials and having the self-control to spend prudently in both categories.
Richard recommends students embrace owning less during their college years.
“College is a great time. Enjoy it, but enjoy the simplicity of it as well,” Richard said. “More does not always result in better. Divide your purchases into ‘needs’ and ‘wants’ and don’t venture into the ‘wants’ category for purchases unless you have the cash to pay for it. Your future you will thank you.”