We answer a listener question about budgeting, opening a credit card, and planning for retirement all while still in college!
Use of Credit Cards:
“I have started a budget on excel, and have been following it for about three months adjusting as needed. I was thinking about applying for a credit card to build my credit and to potentially get cash-back and other benefits. I will use the credit card to pay for everything. Without touching the money that is ‘actually’ in the bank, I buy everything I need throughout the month using the credit card and then pay it all off using the money that I have waiting for it.”
There are two schools of thought:
- Credit cards should never be used
- They can be used, but only if you’re paying them off each month.
For us it works to use them – it keeps a record of what we’ve spent (we seem to just lose cash), builds credit, and gives us some reward points (we actually have 3 credit cards – Nate, Danielle, and Amazon).
I would only suggest using credit cards if you have an established budget and have enough self-control to record what you’re spending and not go beyond what you make each month.
The benefits aren’t necessarily necessary – you can actually get a mortgage/rent without a credit score (your credit score will go to 0 eventually); the reward points will quickly be outweighed if you’re paying interest.
“I want to build up income equivalent to one month’s spending in my bank account. I plan to start an account with $500 and put in whatever is left over at the end of each month.” She asks whether it’s worth it considering some months she may only be able to put $15 in.
She also asks about saving during college in general.
We always suggest 3-6 months expenses for a crash fund, but working toward one month is a great start.
It is definitely worth putting whatever you can into the savings acct – until you reach 3 months, which is probably plenty for a college student that doesn’t own a house. Once you reach an amount you’re comfortable with – that would cover your living expenses if you were to lose all income – then start thinking about what you want to do with any extra income.
Pay off debt? Contribute to retirement?