Consumer Comeback Blog

Five Real-World Money Lessons You Won’t Learn in College

Written by Jeffrey Trull

college-lessonsCollege: a time when some of our most regrettable financial decisions are made. If students were graded on managing money, many would fail.

Unfortunately, most students aren’t taught the most important lessons about money in college, and instead, these lessons are often learned the hard way when graduates find themselves in credit card debt or short on cash in an emergency.

Whether you’re a recent graduate or are just looking back to your college years, here are five lessons that you wished you’d learned in college.

Always Do the Math

In high school, you might be more focused on getting admitted into your dream school than understanding exactly how expensive college is. After all, did you ever calculate what your entire education will cost once all the loans are paid and other expenses covered? The balances you’re left with after graduating might come as a surprise to you.

Monthly payment amounts and interest rates on student loans, a car, or a house can sound like a deal, but it’s only a small part of understanding the true cost. If you’re taking out a loan, you’re typically making a big purchase that you don’t have the cash to cover and instead agreeing to pay back the loan over many years (or decades). All those interest charges add up, so you need to get an idea of the total cost.

How do you figure out what the true cost of your purchase is? Do the math and determine the total when you’re factoring in interest payments. For student loans, check out FinAid’s loan calculator. For other loan types, has the rest covered. If you’ve never tried this before, you might be shocked to learn how much more you’ll have to pay over the sticker price when interest and other fees are thrown in.

Start Saving for Retirement Immediately

After college, you may be thinking it’s time to reward yourself when you collect your first paycheck. The money is rolling in, but there will be time to save later, right?

Even if there is, saving for retirement isn’t just about the amount of money you put in – it’s about when your money gets invested.

If you’re banking on waiting to save someday when you’re making six-figures, you may be headed for trouble. Even if you can afford to put away more money later in life, there’s less time for your investment to gain momentum and start earning significant returns. Much of investing is about the compounding – earning a return on an increasing principal year after year.

Besides, when you’re young, you can tolerate higher risk in your investment portfolio since retirement is so far off. But when you’re nearing retirement age, standard strategy is to move your money to more stable investments that aren’t susceptible to big fluctuations in the stock market. While you’re protecting your nest egg from short-term losses later in life, you’re also sacrificing some of the upside that more risky options provide.

Get Insured

In college, the greatest extent you deal with insurance might be just rolling into your campus health services center to get checked out for a cold while letting college staff and your parents sort out any paperwork. Unfortunately, it’s not that simple once you enter the real world.

Health insurance is arguably the most important coverage to have. If you’re not covered, you might not only be risking your well-being, but you might be looking at financial disaster, too.

Hopefully you’re able to get coverage from an employer, but if that’s not an option, look around for alternatives. Some states offer discounted health insurance plans. Securing your own high-deductible plan is another option that at least covers emergencies and severe illness.

While insurance can get expensive, other types offer peace of mind a reasonable price. Look at renter’s insurance – if you live in an apartment, you can insure everything you own for only a few hundred dollars a year.

Finally, for those with a home and a family, you’ll eventually need to look at life and homeowner’s insurance as well. Check to see if you’re able to get a discount for carrying multiple policies with the same provider.

Credit Mistakes Stay With You For Years

Think that applying for that credit card just to get a free t-shirt can’t hurt? Sorry to say, it most certainly can later if you’re not careful. In fact, any credit decisions you make can affect you for years down the line.

Most credit mistakes, like a late payment or being sent to collections, will show up on your credit report for seven years. That means if you screw something up at age 20, you’ll potentially have to deal it when applying for a car loan or home mortgage later in your 20s. Don’t let that silly decision to grab a freebie cost you a fortune when credit really matters.

Don’t Do As Others Do

In college, students always want to be doing whatever their friends are doing: eating out, flying off for spring break, and snagging the latest electronics when they come out.

Comparing your life to that of others around you is so easy to do and often leads to a “If they can afford it, so can I!” attitude.  But “keeping up with the Joneses” is rarely an intelligent idea. Just because everyone else is buying it and you feel entitled to it as well doesn’t mean you can or should afford it.

Unless you have a deep understanding of someone’s finances, it’s hard to judge how well they’re really doing financially. As Dave Ramsey’s blog points out,”…seven out of 10 families in America are living from paycheck to paycheck. That means that if they missed one paycheck, bills would literally go unpaid. They may look like they’ve got it all together, but realistically—and statistically—it’s just not the case.”

Sure, your neighbors may live in a mansion and cruise around in a Mercedes, but they might also be drowning in debt. Never assume anything about someone else’s money since the background story is almost more complicated than it seems on the surface.