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Thursday, 08 August 2013 16:31

Money Management 101: The College Years

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Congratulations Mom and Dad. You survived the teenage years! You and I both know, you deserve a damn medal just for that. You taught them what they need to know to thrive in the world, and now they are off to college. But did you teach them proper financial management? Managing a college student's cash flow is imperative to the habits they establish for life and keeps you away from having to have unpleasant discussions with them and bridging their shortfall.

Business people know that anyone can run a company without profit, but no one can run a company without cash. The same applies to life, and it is a great lesson to learn as they take their baby steps into the adult world. The overlying theme to success is to understand that Cash flow is king.

Here is the problem most young kids run into. An amount of money goes to their bank account every week or every two weeks. They pay whatever bills are due at the time, and see a significant surplus remaining in the account. Most treat it as extra spending money and do exactly that. They spend it. This is the ultimate in a false sense of security, because while they think that the “surplus” is spending money, it is actually money that must be used to pay bills that come due later in the month. Inevitably, when that time comes they are short of cash.

Here are 10 Easy Steps so that you new college students can prevent this from happening to you.

1. Create a realistic budget and stick to it. No exceptions.

2. Set up 3 online bank accounts (a Master, an Expense and a Savings account) and link them together.

3. Pay yourself weekly or biweekly. Wherever the money comes from, (employer, parents or school loans) deposit it in one of the online bank accounts; this is your catch-all Master account.

4. Transfer 10% of your income from the Master to the Savings account.

5. Transfer the money intended to pay bills to the Expense account. Here is where it gets tricky. For example, your rent is most probably due on the first of each month. If you are paid biweekly, transfer half the rent from the master account to the Expense account, and do the same with all your bills such as utilities, food, credit card payments, etc. If you are paid weekly, transfer a quarter of your monthly expenses to that account.

6. Pay all your bills by credit card whenever possible. This causes you to write fewer checks and makes record-keeping simple and centralized.

7. Pay all your bills online. Program your accounts to automatically issue payments two days before the bills are due. This helps you in two very important ways:

a. Your bills are always paid on time, which is the most important ingredient for a good credit score.

b. You avoid making the cardinal mistake of overspending and running short or “bouncing” a check.

Consider this example: You have paid your bills with physical (paper) checks, you mailed them on time, and you feel good about it. The next day you check your account balance and discover that you have more money than you anticipated. To reward yourself, you decide to spend it on things you enjoy. A few days later the bank calls you with an “insufficient funds” message.

How could this happen? Here is how. When you pay by paper check, the money stays in your account until the check clears, which could take from a few days to a few weeks. Online bill payment removes the money from your account on the same day the check is issued, thus eliminating any unpleasant surprises. It is fast, secure, automatic, and it is free.

8. Pay your credit card bills weekly. Programming your Expense account to pay a quarter of your credit card bill each week reduces the bank finance charges. More important, you eliminate any risk of a late payment, and your credit score rises.

9. After you have followed steps 3 through 5, you should still have the money you budgeted for fun.

10. Withdraw the full amount in cash. Use only cash for dinners out, movies, etc. This is your safety valve. You can order only as much as you have cash to pay for. Keep the credit card in your wallet and you will have no unpleasant surprises.

We must all understand that while saving money is important, establishing good credit is paramount. When my daughter was in high school, I got a joint credit card, which she shared with me. Initially I maintained control, and later supervised how she used it. As you might expect, she made some mistakes. When mismanagement or overspending was evident, I’d e-mail her a copy of the statement and ask her to justify specific expenses. Those were not happy days for her, but they provided a forum for accountability, discussion and education.

The bottom line is that mistakes will be made by children and adults alike, but they can all be corrected quickly and reasonably painlessly if both sides remain vigilant, loving, and unafraid to ask tough questions and take corrective action. Parents, this is your opportunity to teach your children important life skills for which they will thank you later.

This is my opinion. It worked for me and it can work for you. You just have to try it!

Chris Efessiou

About Chris Efessiou:  Chris Efessiou is an entrepreneur, business leader, educator, mentor, international speaker, radio show host, and best-selling author of CDO Chief Daddy Officer: The Business of Fatherhood  based on his own experience from raising his daughter as a single dad by applying his business knowledge to the business of parenting.  Listen to Chris’s weekly Radio Show Straight Up With Chris:  Real Talk on Business and Parenthood on Voice America Radio.  You may connect with Chris on Facebook, follow on Twitter and visit

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