In conversations about how to pay for college, grants, scholarships and student loans usually donate the conversation. But there are some saving tools and habits that you can do right now to prepare for your first or next tuition payment. In my opinion, good personal finance skills are probably the most important thing a student can learn, and it usually starts well before they even hit the classroom.
Start Saving Now
If you’re thinking ahead to college for your children, it’s worth starting now to save, even if you’re starting small. The earlier you start, the longer compound interest and investments have to pay off. Even just $100 or less per month, every month for the next decade or so, invested in a 529 plan or other smart investing can turn into tens of thousands for college-related expenses.
To locate those extra hundred dollars or more to sock away, the first thing to do is get your budget straightened out. Start by tracking your existing spending with a free app like Mint.com, or get friendly with spreadsheets and save all your receipts. You need a way to look objectively at the money you have going in versus what you have going out. This sounds simple in theory, but it’s actually seldom put into practice.
After a month or two, you’ll have a good picture of where your money is going, and you’ll probably see some room for improvement right away.
Budget-Cutting for College Students
If you’re a single student, with no mortgage, no debt to speak of and your entire focus bent on school, you can turn yourself into a lean, mean, saving machine if you really want to. When you have few responsibilities beyond your education and a part or full-time job, you can drastically alter your budget to free up room for next semester’s tuition and books.
Look at drastic ways you can change your life that will free up extra cash. If possible, get rid of that car; it’s costing more than just the price of gas and your car payment (e.g., insurance, finance costs, unexpected repairs, etc.). You could free up as much as $500 a month by switching to a bike or mass transit. That’s thousands of dollars you could free up per semester. If transportation is eating up a lot of your time and money, you can also look into online university courses that will let you take some or all of your classes remotely.
And while you’re in school, resist the daily trickle of cash out of your pocket with that morning coffee, lunch out with classmates or tickets to the movies. These little micro-costs will eat your budget alive if you let them. Try finding any of the myriad of free activities to enjoy on campus instead.
Wherever you can, find a way to strip your budget down to the bare essentials: food, shelter and school. Anything unrelated is essentially extra during your school years, and should be eligible for trimming, if not getting rid of it altogether.
Take Advantage of Education Tax Benefits
For students in the US, your fellow countrymen really do value your education, and they’re willing to put their money where their mouths are. There are significant tax benefits for full and part-time students, and you should definitely know about them to help reduce your burden and even pad your tax refund.
We’ve already mentioned tax-free college savings plans like 529s. But there’s also the American Opportunity Credit, the Lifetime Learning Credit, and others. Then there are deductions that you can take as a student, like tuition and fees, student loan interest and certain education-related expenses can all be deducted from your taxes.
Know the tax benefits of being a student (or parent of a college student), which are as good as grants and scholarships if they get you a larger tax refund. Don’t worry; you’ll pay it all back during your lucrative career.