- How do you open a checking account?
- How do you build credit?
- How do you save money for school?
Well, Class Tracker has your back! Our handy dandy guide for financial literacy answers all of these questions!
Setting up a checking account and savings account
Picking your bank is the first step to establishing yourself financially. You’ll need your own checking account when you begin working (for advice on how to land your first summer job, read our blog on the subject here) and having your own bank account is the first step to establishing credit, saving money, and, well, “adulting.”
There are over five hundred and forty one checking accounts available in the US, but only a few offer multi-state operations, free checking, low deposit minimums, and a large ATM network. When deciding on where your first bank account should be, consider the following:
How large is the ATM network? Frequently banks charge a fee when you use another bank’s ATM. If you’re going to school outside of your own hometown, you’ll probably end up using another bank’s ATM on a frequent basis. So this is something you’ll want to consider!
Does the bank require overdraft protection? Just say no. The average overdraft fee is around $30. Many banks charge additional fees for every day that the account is overdrawn.
How competitive is the savings account’s interest rate? Don’t settle for an account that offers anything less than a .1% interest rate. Also, consider whether or not the savings account charges a monthly fee. If you don’t plan on depositing into your savings account on a monthly basis, these monthly fees can feel steep, in the long run.
What about credit unions? Credit union savings accounts often offer higher interest rates, their checking accounts frequently have low deposit requirements, and often, they don’t charge ATM fees. They’re highly worth looking into!
Your savings account doesn’t *have* to be in the same bank as your checking account. Make sure that you’re getting a good deal, on all fronts.
Building credit
College students are faced with massive amounts of debt thanks to the rising costs of college and predatory school loans. This has scared many of us off from applying for and getting credit cards. In the end, this is more damaging than helpful. Credit cards and bank loans are, ultimately, the way to build your credit score. And a credit score can determine whether you qualify for everything from future school loan applications to your first mortgage. But picking your first credit card can be tricky.
Some student bank accounts offer linked credit cards for their customers that have a low spending limit. Another source that you may want to consider for your first credit card is a store. Retail cards, like those through the GAP or Banana Republic, tend to have higher APRs (annual percentage rate) but they’re easy to get and tend to have low spending limits. Finding a card that as a low interest rate is key. Some cards offer flashy perks, but those can be overrated for those establishing credit for the first time. Instead, go for cards with clear billing procedures, low interest rates, no annual fees, and low spending limits.
Once you’ve been approved for your first credit card, you can begin establishing credit. Getting a card is not enough to establish credit. You have to use it. Make small purchases on the card (such as groceries or toiletries) and pay off your card completely, every month. Don’t carry a balance, if you can help it.
Once you’ve established credit, you’ll want to maintain your score and here’s how you do that:
- Don’t apply for multiple credit cards at the same time
- Pay off your debts in full every month
- Pay all of your bills on time
- Avoid making large purchases on your cards.
Keep track of your credit score for free through sites like Credit Karma, to make sure you’re staying on track. Credit Karma also offers great explanations for what makes (or breaks) your credit score.
Developing a budget
Now that you’ve opened your first bank account and established a credit score, you have to learn how to budget! Building and keeping track of a budget is the best way to stay afloat, save money, and become financially independent. If you don’t want to build one on your own, use a site such as Mint, which takes into consideration your income, weekly expenses, credit card payments, and any financial goals you may have.
If you feel more comfortable developing your own budget, you can build yourself a basic template. Generally, your budget should cover food and living expenses, medical expenses, recurring bills, savings, and a buffer for any unexpected costs that come up. Ultimately, your goal should be to have two paychecks worth of money in your checking account at all times, and six months worth of paychecks in your savings account. It may take some time to get there, but this should be your goal! If that seems unrealistic, try to put at least 10% of your paycheck into savings every month. This will help create a buffer, just in case anything happens.
Using these basic tips, you’ll be well on your way to financial security and independence. Just remember, everyone has to start somewhere and every penny counts.
Share this blog with your fellow students, and let us know if you have any topics you’d like us to explore next month in the comments!
Thanks for reading, Class Trackers!
We’ll see you next time!
Alex
