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Student spending: How to start a budget

Johns Hopkins expert offers tips for incoming students juggling personal finances, credit, and taxes

The resumption of in-person classes and some extracurricular activities, as well as more grab-and-go food options on campus, means that Hopkins students have a growing number of opportunities to earn and spend money this fall. However, managing finances may be a new experience for many students spending their first semester on campus.

For guidance on sticking to a budget, safely using credit, filing taxes, and more, the Hub turned to Mia Russell, a lecturer in the Whiting School of Engineering's Center for Leadership Education who teaches courses in enterprise, communications, leadership, and finance. Russell has more than 20 years of experience in business and finance, most recently as the vice president for financial education and youth financial health philanthropy at the Wells Fargo Foundation.

Do you have any tips for students who might be developing and sticking to a budget for the first time?

One good approach to developing a realistic budget is to have a firm understanding of where you're actually spending your money. Begin by tracking your spending for the first two or three months on campus, looking at all the ways you spend money, and then categorize them into some big buckets, whether it's housing, food— both groceries and eating out—communications (cell phone/internet), entertainment, medical/health expenses, and others. Once you have an idea of how you're spending your money, you'll be able to create a more realistic budget that you can follow. I think of a budget—or a spending plan, which is a nicer way to say that—as a way to help you reach your goals, not as a limiting tool.

What free tools do you recommend that students use to create a budget or track their spending?

There are many personal financial management (PFM) tools. A few free options include Mint.com, Mvelopes, Budget Simple, and You Need a Budget. In addition to helping you create a budget, many PFMs aggregate your accounts, allowing you to see your financial picture more comprehensively and holistically. Some financial institutions, such as PNC Bank's virtual wallet, offer similar platforms. It's also very important that students do some due diligence around the security, privacy, and other regulations around [the PFMs]. For example, consider whether, and to what extent, they will be selling personal information.

Is it important for students to begin establishing credit, if they haven't already? How can they safely establish credit?

I am honestly not a proponent of students establishing credit for the sake of establishing credit. Of course, they will need to use credit at one time or another, but I find that students are hyperfocused on credit worthiness as if it is a measure of self-worth. I think that's one reason why I don't say you need to have a credit card by [a specific age]. I don't subscribe to those types of rules or principles.

"I am honestly not a proponent of students establishing credit for the sake of establishing credit."

The research shows that when you use credit, you spend more. One reason is that you don't experience the pain of loss when you pay using credit. For example, if you actually went to Best Buy or the Apple Store to buy a new iPhone, and you counted out $1,300 in $20-dollar bills, that might hurt, especially when compared to a simple swipe with your credit card.

I hear students, even in my graduate Managing Personal Finances class, talk about rewards cards, but those rewards cards are meant to tempt us to spend more, so any benefit associated with those miles or that cash back is negated the minute you pay interest. I think we can get overextended quickly, especially when there is no pain of loss associated with the purchases.

What are some best practices when making purchases on credit?

Treat credit use like cash. Don't charge more than you can afford to pay off by the time the bill comes.

Know the type of card, the provisions of the card, and the credit arrangement that you are entering into, and value paying your bill in full every month.

What's most important to understand when we talk about credit is that your payment history is the single largest factor in your credit score, along with the amount owed in relationship to the credit limit. Those two [factors] make up nearly 60% of your credit score. And remember, you're building your credit every month.

What kind of student-friendly products or accounts do banks offer? Are there any offers that seem student-friendly but aren't?

So, as I often say, it depends, and I think that the answer is likely "yes" to both [questions]. Many banks have student accounts. Many will not have any associated fees as long as you are a student. In terms of things that seem too good to be true, I'm absolutely certain that those exist, too. I can't point to any, and luckily the Consumer Financial Protection Bureau is a watchdog in that regard.

While not a popular idea, it's really important to read the fine print to understand what type of agreement you're entering into. We don't think of credit cards as loans, but essentially, you're borrowing money with each swipe. And the interest is payable once you carry a balance. Most card holders do not pay their balances in full each month.

"We don't think of credit cards as loans, but essentially, you're borrowing money with each swipe."

What should students know about filing and paying taxes?

I think the most important thing is to understand whether or not they're required to file taxes and to keep good records. Student employees can visit University Experiential Learning for more information on filing taxes, and the Johns Hopkins Office of University Finance offers tax prep assistance for international students.

Any other advice you would like to share?

In the spring, I will teach Managing Personal Finances, a graduate course that covers the full spectrum of personal finance, from students' relationship with money and understanding their values around money to taxes, retirement, and estate planning.

I want to recommend PowerPay.org. The Utah State University Extension created this free tool that tackles debt repayment using the snowball method. Let's say you have five bills, each $100 per month. [The snowball method] would suggest that you attack the one with the highest interest rate first. When you finish paying off the first one, you take that $100 and apply it to the next bill, so now you're paying $200 on the second bill and then $100 on the rest. The tool offers an amortization schedule, so you can see when you pay things off and put them in context.

Finally, start saving today. Students can start an emergency fund to have a little cushion set aside to help avoid a financial crisis. And, if students have income that they do not need to sustain themselves, they can start an IRA right now.