If you have ever found yourself looking at your bank account and wondering where your money went, a budget can help. The most common cause of financial problems is spending more than you are earning. With a flexible, sensible budget, you can control of your money and avoid financial stress. It can help you limit spending and ensure there is enough money to do the things that you want. 

• Build a starting budget with your best guess of what you spend in a month (on average), separated into categories like books, personal expenses, rent, phone, and entertainment.
• Track your expenses for a few months. Then, compare these figures with your previous projections. You may be surprised to see where your guesses were higher or lower.
• Once you have tracked your expenses, compare these to your income. If you are spending more than you are earning, you need to make changes.
• Be honest about "needs" vs. "wants". Enjoying a store-bought coffee every single day is nice, but you could save up to $80/month by reducing this purchase from daily to weekly.
• Review your monthly budget for any necessary changes. Remember: a budget is fluid, meaning that it will (and should) adjust as your income and goals adjust.

Consider setting some of your income aside in a savings account, and putting limits on how much you can spend on non-essential items.

Let’s say you buy a cup of coffee on most days, grab a quick bite a couple times a week, and go out on Saturday nights for fun with friends. Your yearly spending may look like this:

• Coffee 4x/week @ $2.50 = $520
• Quick late-night snack 3x/week @ $6.50 = $1,014
• Weekend Fun @ $25-30 each weekend = $1,560

Your total spending would be $3,094 per year, or $12,376 for the four years of college--enough to buy a car. Considering this, make sure you’re being thoughtful about how you want to spend and save your money!

For your budget to be useful, you need to follow it for more than a few months. Tracking your daily purchases only takes a few minutes. It takes even less time with a budgeting app that links to your bank and credit card accounts and automatically categorizes your purchases. Finding it hard to stick to your budget? Some of your figures may be unrealistic so review and adjust as needed. Perhaps you need to allocate more towards books and travel, and less on clothing. The best budget is one that grows and changes to meet your needs

Setting up financial goals will help you plan and prioritize what’s important to you, and how you should set up a budget to align with your interests. Goals will also help you be more aware of how you spend your money day-to-day. It’s a good idea to write out these goals, and to stay mindful of them as you go through college!

If you like a pen and paper approach, you can try a simple tracking sheet like this one from Balance Pro or a more comprehensive budget worksheet like this one from the Harvard University Employees Credit Union. If you prefer a phone app, there are many to choose from and most are free. Read reviews to determine what makes the most sense for you.

A credit report is a detailed report of your credit history. It has personal information, employment history, and a list of open and closed credit accounts. You can get a free copy of your credit report once per year from each of the three credit reporting bureaus: Equifax, Experian, and Transunion. The website to check is www.annualcreditreport.com. It’s a good idea to review your report at least once per year to ensure accuracy and check for fraud. If someone were to fraudulently open a line of credit in your name, you might never know without checking your report.

A credit score is a snapshot of your credit risk at a point in time, based off of your credit report. Credit scores such as FICO range from 300-850, with the majority of Americans scoring between 600-800. For lenders, a higher score means a lower chance of default.

Lenders often charge higher interest rates when taking on higher risk, so a low credit score means a more expensive loan. Conversely, a higher credit score means a less expensive loan. With solid credit history you can pay less for many credit products like private loans, credit cards, insurance, auto loans, and mortgages.

Before applying for a credit card, compare each potential card’s annual fees, interest rates, special rewards, and credit limit. Little differences can have major impacts. Once you choose a credit card and begin using it, make your payments on time and pay off your balance each month. Failure to do so can result in large fees and do serious damage to your credit score. Try not to carry a balance on the card; instead, make occasional and sensible purchases.

• Payment History (35%) This is the largest factor and thus the best way to improve your score: make consistent, on-time payments. If you are more than 30 days late even once, that record remains on your credit report for 7 years and could result in a drop of 90 points or more in your credit score.
• Amount of Debt (30%) How much debt you have relative to your available credit makes up the second largest factor in your score. A good rule of thumb is to keep your debt utilization ratio (amounts owed/total credit limit) below 30%. Pretend you have two credit cards and both have a limit of $500. To stay within 30% you would spend no more than $300 between the two cards.
• Length of Credit History (15%) Lenders like to see long relationships with other lenders. One easy thing you can do to build credit history is open a no-annual-fee credit card, charge a few dollars each month, and pay it in full each month when the bill comes. 
• New Credit (10%) Anytime you apply for a line of credit and a lender does what is called a "hard pull" on your credit score, your score can drop by a few points. This isn’t a big deal as new credit only makes up 10% of your score, but if you do this often enough it can substantially impact your score and ability to secure new credit. This information remains on your report for 2 years.
• Credit Mix (10%) Lenders like to see a variety of credit accounts in good standing because it signals that you are a responsible borrower. A person who is making on-time monthly payments on a credit card, an auto loan, and a student loan is considered less risky. Your access to different types of credit may be limited as a student, and most lenders realize this.

Each year, U.S. News and World Report conducts a survey of students who own a credit card. From the results, they identify and address common credit topics such as credit scores, costs of credit, and providing tools that help guide students with credit card best practices. View the survey and guide here.

For more information on effective credit building as a student, the following articles are useful.

• CreditCards.com Presents: 10 Ways Students Can Build Good Credit

• A College Student’s Guide to Building Credit

• Pay yourself first: This means that for every paycheck you receive, commit to putting an amount (even a small amount) aside in a savings account. An effective way of doing this is to have a set amount of your paycheck directly deposited into a savings account, separate from what you use for everyday expenses. You will be surprised how quickly your savings can grow.
• Keep track of your saving: People who track their savings tend to save more because it is on their mind. With online and mobile banking, there should be no excuse not to know exactly how much money you have.
• Set Goals: Setting financial goals is crucial. As a student, you may only have a few financial goals, but this is the perfect opportunity to hone your skills. Think of this scenario: You want to pay off a student loan before graduation, how will you accomplish this? How much do you need to work? To save? The better you do now, the easier accomplishing future goals will become.

Even now there may be long range financial goals that you start saving for. Here are some tips for investing in your long term financial goals.

• Plan ahead: As with any endeavor, advance planning is a way to figure out what you want, when you want it, and what you can do to achieve it. The sooner you start planning, the sooner you start accomplishing.
• Understand the time value of money /compound interest: This is the principle that a dollar today is worth more than a dollar in the future, because the dollar received today can earn interest up until the time the future dollar is received. The longer the time frame for investment, the more you can increase the income potential of your investment. On the flip side, waiting to invest can make it more difficult to achieve your financial goals. Discover how much waiting to save could cost you with the SEC compound interest calculator.
• Understand your objectives: As a general rule, the shorter your time frame for investing, the more conservative you should be. For example if you are in your twenties and trying save for a down payment on a house, you are going to want to put your money in a vehicle that ensures the least risk of losing your principle investment. When your time frame for investing is long, you can consider less conservative options. Retirement savings are an example. Starting young allows you to save for a longer period and allows time to make up for potential loses in a less conservative environment.

Determining whether or not you need to file taxes depends on two things: how much money you earned and how much was taken out (aka “withheld”) for taxes.

If your earned income is over a certain limit as determined by the IRS, you may be required to file taxes regardless of how much was withheld from your paycheck.

• As an example, a typical Harvard undergraduate was required to file (2018) taxes if their income (including taxable scholarships) was equal to or greater than $12,000.
• The IRS strongly suggests that you file taxes, even if you are not required to do so. By filing your taxes, you may be eligible for a refund of some or all of the income withheld.

The information provided here is intended only to get you started to learn about potential tax benefits related to higher education. It is important to note that there are eligibility restrictions and we strongly suggest visiting the IRS website directly for the most comprehensive information about tax benefits for higher education.

American Opportunity Credit

• This is a credit of up to $2,500 per eligible student based on Qualified Education Expenses paid during the tax year. The American Opportunity Credit can only be used for up to four years per eligible student.

Lifetime Learning Credit

• This is a credit of up to $2,000 per eligible student based on Qualified Education Expenses paid during the tax year. The Lifetime Learning Credit does not have a limit on the number of years it can be used per eligible student.

Tuition and Fees Deduction

• This is a deduction of up to $4,000 from your Adjusted Gross Income (AGI) based on amounts paid for Qualified Education Expenses. This deduction can be claimed for multiple students and the maximum deduction in a tax year is $4,000.

Student Loan Interest Deduction

• If you are a student making payments on an education loan that is accruing interest, you may be able to deduct some or all of the interest you paid that year from your taxes.
• Your parents may be able to deduct some or all of the interest they paid on their loans, taken on your behalf, if they still claim you as a dependent. The current limit is $2,500 per year, subject to income restrictions.

What are Qualified Education Expenses?

When filing taxes, you should know what counts as “qualified” and what doesn’t. This can be confusing because the definition of “qualified” is contextual. For example, the IRS may have a different definition of “qualified” than a 529 plan or other education savings plan provider.

What does the IRS count as Qualified Education Expenses?

• Per IRS guidelines, the expenses that you paid directly (or with a loan) for tuition, fees, and other related expenses count as qualified education expenses.
• The IRS website states that the following expenses do not qualify: room, board, insurance, medical expenses (including student health fees), transportation, and personal/living/family expenses.

What are Credits and Deductions?

Credits and deductions are two different ways to reduce your tax liability.

• A deduction reduces the amount of income you have that is subject to tax. The actual benefit is tied to your tax bracket. In other words, if you are in the 25% tax bracket and have a Deduction of $1,000, your benefit is a $250 reduction in your taxes (25% of $1,000.)

• A credit on the other hand reduces the amount of income tax you have to pay in a 1:1 ratio. In other words, if you have a $1,000 Credit, then your benefit is a $1,000 reduction in your taxes.

As a general rule, you should seek out credits before deductions, since the benefit is usually larger (i.e. to your advantage).

Additional Resources and Information

The information provided here is taken from the IRS website and is intended solely as a guideline. Because tax laws are constantly changing, information found here may change. For the most up to date and comprehensive information, we strongly suggest visiting the IRS website, or consult a tax professional should you have specific questions. 

http://sfs.harvard.edu/taxes

http://www.irs.gov/Individuals/Education-Credits

IRS Publication 970 (Tax Benefits for Education)

http://www.irs.gov/Individuals/Qualified-Ed-Expenses