Image:  Lynchburg College
Kim Raff  /  AP
Avoid stressing about college finances by creating a budget and sticking to it. Here, a well-sheltered senior at Lynchburg College, walks across campus.
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updated 8/19/2011 8:46:31 AM ET 2011-08-19T12:46:31

Congratulations on being accepted to college! This is a primary step toward financial security; according to the U.S Census Bureau, completing college increases the possibly of significantly increasing your income, to the point of tripling it if you complete a master's degree versus completing high school. Having more income means you will be able to add larger amounts to your retirement nest egg. For instance, in 2005, the average income for a high school graduate was $37,000, compared to about $85,000 for someone who completed a master's degree.

The academic education you get in college may increase your income potential. However, math, English, history and geography are not the only things you can learn in college. As a transition period between living with your parents and surviving on your own, college can also serve as a defining period for learning practical money management and general financial planning skills.

Budgeting
Budgeting is necessary to ensure that you get the funds you need to cover your necessary expenses; it also helps to make sure you do not overspend. If your academic and/or physical talents satisfy certain levels, which are usually established by your school or others who hold the purse strings for scholarships, you may have all or a portion of your tuition and other college-related expenses paid for by someone other than you and/or your parents. If not, then you and/or your parents will be responsible for paying your college expenses and you must then decide how much you will need.

One way to help make sure you always have funds to pay for a new textbook or other expenses is to design your budget and work within your established limits. Start by making a list of all the things that you will need. The following are some items that often appear on a college student's list:

• Food
• Books
• Lab fees
• Internet service
• Telephone
• Television
• Transportation/gas and general vehicle upkeep, including any lease or loan repayments
• Health insurance
• Entertainment
• Clothing

It is unlikely that you will be able to get the exact figure for many of these amounts in advance; however, if you have an idea of the classes that you will be taking for the semester, where you plan to live, etc., your college should be able to give you an estimate of your living expenses. Establishing the amount you will need each week or day allows you to pace your spending and ensure that you do not go over budget.

Eat on the cheap
Food can be pretty expensive, and you do not want to sacrifice quality for quantity. However, there are things you can do to ensure that you get the most for your money. For instance, compare your college meal plans with other sources of food to determine whether it is cheaper to buy your food elsewhere. Colleges often offer meal plans that allow you to purchase food at reduced rates. However, the meal plan makes sense only if you eat the food prepared, instead of spending additional amounts at other places.

An occasional meal outside of the plan will not be detrimental to your budget, but if you find yourself eating food outside of the plan two or more times per week, then you need to reevaluate whether a meal plan is suitable for you. Some colleges offer alternate types of meal plans, such as block meal plans, where you get a fixed number of meals for a certain period. Block meal plans allow you to add variety to what and where you eat while still benefiting from the lower cost that typically applies to college meal plans. Check with your college to determine the available options and whether any is suitable for you.

Where should you live?
For many, college is the time to experience independence and freedom. As such, living away from home while attending college is an attractive choice for many students. For others, they have no choice but to live away from home if the college they attend is far away. If you choose (or have) to live away from home, consider the costs of living off campus or on campus before making your choice. The cost of living on campus can be as costly as your tuition. Some colleges charge different rates for different dorms, depending on the amenities available, allowing you to choose more affordable options. Of course, the less expensive options are usually harder to get as they are usually in high demand. Alternatively, living off campus can be less costly, as it could mean sharing expenses with more than one person. To be sure, compare both options.

Beware of easy loans and credit cards
College notice boards are usually packed with offers of loans and credit cards for students. As you try to cover your living and other expenses, you may be tempted to use these loans. Before you apply for any credit cards, consider the following:

• Does the credit card offer a low introductory teaser rate that increases to a much higher rate within a few months or increases if any payment is late or missed?

• Will fees be assessed for late payments?

• Will you be charged an annual maintenance fee, regardless of whether you use the card?

• Are you getting the card to use in case of emergencies or do you plan to use it to pay for your everyday living expenses? If the latter applies and you are unable to pay off your balance each month, it may make more financial sense to apply for a student loan or line of credit than to use a credit card where the interest is generally higher.

Many of these are negative features that should deter you from applying for these credit cards.

Start funding your retirement account
If you work while attending college, the taxable income you receive from your job can be used to fund your retirement account. The following are some tips to consider when choosing your retirement savings vehicle:

• If you have must choose between contributions to an employer sponsored 401(k) plan and funding an IRA because you can't afford to do both, check to see if your employer makes a matching contribution to the 401(k) plan. If so, contribute enough to the 401(k) plan to receive the highest possible matching contribution.

• Add as much as you can afford to your retirement account. The difference can be quite significant after only four years. Compare JB, who saved $4,200 each year, to MT, who saved $2,100 each year over a four-year period. Both JB and MT received 5 percent interest on their investments.

• While you want to save as much as you can, leave enough disposable income to cover your everyday expenses and add to your emergency fund. You do not want to add so much to your saving that you are forced to use credit cards and other loans to pay for your everyday expenses as this could negatively affect your finances.

Learn from mistakes
As you go through college, you may make some mistakes with your financial planning and money management. That's OK. This is a good time to learn from your mistakes and take steps to ensure they are not repeated later on in your life. While mistakes make good learning experiences, avoid making those that will stay with you long after you leave college. For example, accruing unmanageable credit card debts may result in late or missed payments, causing a poor credit rating that could affect your ability to secure a mortgage or other important loan in the future. Before you make any financial decision, consider how it could affect your finances both now and in the future to help ensure you make savvy choices.

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