Freshman year budget plans prove worthwhile
College is a notorious time for debt and credit cards are easily accessible.Plan your finances properly: simple instructions that can mean the difference between a post-graduate vacation and mountains of debt.
Here’s the fictional account of two incoming freshmen and how their spending habits greatly affect them upon graduation.
John has worked the entire summer before college to earn some money and has saved $5,000. He wants the dorm room to trump all other dorm rooms.
His parents have encouraged John to sign up for a student credit card before school, so he can start buying amenities for his dorm room. John looks around and find a student credit card with a lowered interest rate of 13.94 percent.
John immediately charges $2,000 buying a flat screen TV, HD gaming system and a surround sound system.
He saves his left over cash in case of emergency and decides to pay off the credit card in monthly payments of $100. This is above the minimum payment meaning he will not receive late fees. He also charges $200 on it every month to pay for food and gas. John figures he can pay that off with money he makes after college.
Now imagine Matt. Matt saved the same amount as John and spends the same amount for stuff to go in his room. Matt signs up for the identical credit card but instead of paying $100 a month on the bill, he decides that he does not want to let the debt increase. While still charging $200 additionally each month on other expenses, Matt instead, decides to pay the credit card company $300 a month.
Both John and Matt have been offered the same work positions for the following summer and each summer thereafter. Both will be able to save $5,000 each summer for the duration of school. Each will continue to splurge on items totaling $2,000 each summer during the month before they begin classes, just as they have done before their freshmen year.
This is where the fun begins. After 4 years with these spending habits, John will have accumulated a final balance of $17,178.15. This includes interest payments of $4,978.15. Upon Matt’s graduation, his credit card bill will show a balance of $4,422.82, almost a full $13,000 difference. Matt will have paid the credit card company only $1,822.82 in interest.
Both John and Matt had the exact same spending habits, but over a four year period, Matt has paid the credit card company $3,155.33 less than John has for the exact same merchandise. If this does not seem like that big of a deal, look online to see how much one can fly to Europe for, if booked in advance. After graduation, John and Matt have accumulated the same materials, but Matt is vacationing in Europe with the money saved in interest payments alone.
Pay attention to your finances from the beginning and create a reasonable budget that you can stick to.
All interest rates were quoted directly from www.bankrate.com.
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August 20th, 2008 at 4:43 pm
This guy is thinking too far ahead of himself. Think of all the booze John can buy with the extra $200 he saves by only paying $100/month instead of $300.
Booze now or Europe later? Choice is obvious.