5 Essential Finance Tips for High School Seniors

As you embark on your final year of high school, you may be anticipating newfound adult freedom. However, adulthood comes with serious financial responsibilities. Unfortunately, a nationwide study found that less than 17 percent of students are required to take personal finance courses in high school. If you are part of the 83 percent graduating without a personal finance class, there are several things you need to know. Financial independence starts with healthy money habits and education. These five tips will give you financial confidence as you enter adulthood.

1. Build and Check Your Credit

Every US citizen has a credit score. This is a number that typically ranges from 300 to 850. Credit is critical for several reasons. Having a high score will help you qualify for lower interest rates on credit cards and loans, saving you hundreds to thousands of dollars. It will also greatly impact your ability to purchase a home. A low score may stop banks from lending you money, or cause you to pay more for the same home due to higher interest rates. It can even impact your employment, especially in professions related to finance or that require background checks.

The factors that determine your credit score include the following:

• Payment history- This has the greatest impact on your credit score. Paying the total balance due on your bills on time will help you establish and maintain a high score.
• Credit utilization- Every credit card has a set limit. The amount you actually use compared to the amount you can use is called your credit utilization ratio. Keeping this amount under 30 percent will raise your score. For example, if your credit card has a $1,000 limit, try to charge less than $300 on that card every month.
• Credit age- The older your credit accounts, the better. Time shows dependability. Once you open a credit card, keep it for years, even if you don’t use it frequently.
• Different types of credit- Having different types of credit, such as credit cards and loans, impacts your score. It also helps to have multiple open accounts.
• Number of inquiries- Applying for several loans or credit cards in a short period of time will negatively impact your score. Avoid opening multiple accounts at the same time.

You can start building credit by opening up your first credit card or taking out a student loan. Decide now to make your monthly payments on time. Choose your lines of credit carefully. Opening and closing credit card accounts sporadically will lower your score.

There are many websites that allow you to check your credit score for free. Your bank or credit card company may also provide your score with your monthly bill. Check your score regularly and look for any major changes.

You should also check your credit report. This gives detailed information about how many credit cards and loans you have, how long you’ve had each account, and whether you have paid off your loans completely. You can receive three free credit reports each year, one from each of the major credit reporting companies. It is a great idea to check one in January, one in May, and one in September so you can monitor your credit throughout the year. Look for any errors, especially for fake or suspicious accounts. You can correct these errors by writing the credit card company and reporting agency.

2. Use Credit Cards Carefully

Credit cards help you build credit; however, they can cause serious problems if misused. As you prepare to open your first card, the following tips will help you make wise financial decisions.

• Pay your full balance each month- Credit cards allow you to make minimum payments, sometimes as low as $15 a month. However, the company charges interest, a certain percentage of the amount you owe. If you only pay the minimum amount, you will end up paying a lot more in the long run. Let’s say you purchase something for $100 and only pay the minimum amount, $15 a month. If the credit card charges 10% interest, it will take 10 months to pay off your debt, and you’ll spend almost $150 due to interest.
• Pick your credit cards carefully- You don’t need several credit cards. One or two cards will help you build credit. Look for cards that don’t charge yearly fees and that give you rewards. Many cards offer cash back on certain purchases.
• Keep track of your spending- Credit cards make shopping easier than ever. However, if you don’t watch your spending, you can easily get into debt. Ask for receipts and monitor your spending each month. This is a great way to make sure your bill is accurate and to make sure you don’t spend more than you can afford.

3. Avoid Unnecessary Debt

There are many reasons that people go into debt. Not all debt is bad; two positive uses of debt are student loans and mortgages. These allow you to advance your education and to purchase a house, which may not be possible without debt. However, unnecessary consumer debt can have serious consequences. It can be very hard to pay off large amounts of debt.

• Establish wants versus needs- Take time to distinguish between wants and needs. Make a list of things you need, such as groceries, and things you want, such as a brand new car. You can also prioritize your wants and as you save money you can purchase them. However, if it is not a need, don’t buy it unless you already have the money to pay for it.
• Create a budget- A personal budget is one of the best and most neglected ways of staying out of debt. Determine how much you typically spend each month. Use this information to create a budget. Then, track your spending. You can make your budget as strict or as flexible as you want; however, make sure you set it up so that you are not spending more than you earn.
• Use cash for most purchases- If you are concerned about overspending with your credit card, use cash for the majority of your expenses. You can use your credit card for set purchases, such as phone bills, and cash for everything else. This will help you build credit while avoiding debt.

If you do find yourself in debt, help is available. There are many credit counseling agencies that can help you overcome debt. They can discuss your debt relief options and help you create a debt management plan to pay off your debt. It is important to develop a plan to pay off debt as quickly as possible. The longer it takes, the more you will pay in interest.

4. Save, Save, Save

Most Americans don’t have an emergency fund. A GoBanking survey found that 69 percent of Americans have less than $1,000 in their savings. It is critical to have savings in case of emergencies. You can start saving right now, even with as little as $10 or $20 a month. The best way to save money is to make it automatic. You can set up monthly or weekly transfers; these will pull money from your checking account to your savings account without any thought on your part.

5. Start a Retirement Fund Early

You may have no idea what you want to study, so why would you even think about retirement? Compound interest is powerful and the earlier you start, the more money you’ll have at retirement. Every dollar you invest at age 20 could be worth $5.84 at retirement. This drastically decreases as you get older, dropping to $3.24 when you reach 30 and $2.67 at 40. Saving young has huge returns and will make the difference of hundreds of thousand dollars when you retire.

The two main types of retirement accounts are 401(k) and IRA accounts. These come in standard and ROTH forms. Standard accounts allow you to avoid paying taxes now, which will be paid when you retire and take money out of the account. On the other hand, ROTH accounts require you to pay taxes now and not in retirement. When you land your first job, ask about retirement plan options. Beginning to save early will pay off in the long run.

As you prepare for financial independence, take time to learn basic money management skills. Begin building credit and monitor your score and report. As you open your first credit card account, make sure you treat your card like a tool. Avoid unnecessary debt by developing a strict budget. Begin building your savings, and start saving for retirement as soon as you can. These tips can help you be financially successful after you graduate from high school.