My sister and brother both attend college and this week they received their tuition refunds. Since my mother has told us numerous times that paying for college is our responsibility, we’ve tried to get as many grants and scholarships possible.
While I attended college on a mix of financial aid grants and scholarships, so far my siblings have been able to pay without resorting to loans (learning from my mistakes has some benefits).
Whenever I received money while attending school, I was in the habit of saving some of it and spending the rest frivolously. Looking back, I wish I had been more prudent with my money. It would’ve put me in a much better situation and I could’ve taken significantly less loans out.
That being the case, I wanted to share some better ways to use your tuition refund, or any other windfall.
Start or build up your emergency fund
If you haven’t done so already, establishing an emergency fund can be a smart move. Just because you’re in college doesn’t mean you won’t have emergencies. Keep your money in a high yield savings account to help it gain interest while you attend school.
Many college students have low necessary expenses, so even a small tuition refund can be a big help. Each semester, you can grow the fund with your refunds. An added bonus is that, when you graduate, you’ll have a bit of cushion to help you transition to the “real world.”
Pay off your credit card debt
I listed this second because I think an emergency fund is vital. If you’re like me, however, you probably have a couple of credit cards with balances on them. Instead of waiting, use the refund to pay down your debt. I’m all for using the debt snowball method, as knocking out those low balance debts can be a huge boost.
Unless you have a regular source of income and can handle them responsibly, you should then hide your credit cards. If you’re looking to build your credit history, consider setting up a small recurring payment ($40 or less) and pay it off every month.
Invest your money in an IRA
If you’ve saved some money and have no debts, you’re in a very good position. You should consider putting some of your tuition refund away in a Roth IRA. The benefit of a Roth IRA is that, while you pay taxes on the money before you put it in, you can withdraw funds without taxes or penalties once you’ve reached age 59-1/2 and held the funds in the Roth for at least five years.
I don’t think many college student get this much back, but I should mention that the annual contribution limit is $5, 000 ($6, 000 if you’re 50 or older). Since you’ll be starting young, you’ll also gain the advantage of compound interest. Let that compound interest to work in your favor by investing for your long-term future.
Set aside some money for fun
You’ve worked hard, so it’s not a bad idea to splurge a bit. Remember, though, to set a limit and keep it. For example, put aside some money in a savings account for a summer trip. That way you can have a wonderful experience to remember without worrying about debt. It’s really up to you as to what you consider fun.
Any other thoughts?
My view is that you should do whatever you can to establish good habits as early as possible. After you graduate, you’ll be thrilled that you started off on the right foot. If you’re still in college, you should apply for as many scholarships and grants that you can. Sure, it takes some work, but it’s well worth the effort.
For those of you that are out of college, if you could go back, what (if anything) would you change?