By UnigoDeveloping good money management skills early on will enable you to prepare for future life events like buying a car or a house, or saving for a goal like a dream vacation. Managing your money poorly can affect your credit score and lead to financial instability. The sooner you learn and begin practicing healthy financial management skills, the better your chances of future success. Create a monthly budget Start budgeting while still in college. To begin, track your monthly spending. It is impossible to set a budget or change spending patterns if you do not know where your money is going. Once you have an idea of what you spend each month, set up a simple budget that includes a target amount of money to save on a monthly basis. Budgeting apps may help make this process easier for you. Most of budgeting is about prioritizing and making choices. Differentiate between needs (school books, winter coat) and wants (concert tickets, restaurants). Is it worth buying coffee every weekday, or can you brew coffee at home each morning and save money? Over the course of the year, the money you save on coffee could be put toward larger, more meaningful purchases, like a vacation. By thinking this way in college, it will be easier to stick to a budget once you are truly on your own and have additional expenses to pay, such as rent, utilities, insurance, student loans, and car payments. Use credit cards wisely While it may be tempting to use a credit card to buy now and pay later, you may end up paying a lot more later on. Remember that a credit card does not equal free money. When you use a credit card, you are borrowing money that needs to be paid back — potentially with interest! There are also late fees if you do not pay on time. If you feel confident that you can use your credit cards responsibly, it is sometimes better to use credit cards instead of cash. Not all credit cards are created equally, though. When choosing which cards to apply for, be sure to compare annual fees, interest charges, and other important details. Building your credit rating A primary benefit of credit cards is their ability to help you build a good credit rating. By obtaining a credit card, using it wisely, and paying it in full monthly, you can create a solid credit history. Credit card companies track your history and supply this information to other credit card companies and lenders. A good credit rating will help you when you try to secure a loan to buy a car or a house. Check out this article for tips for building a good credit history. Credit cards vs. debit cards Do not confuse a credit card with a debit card. A debit card is simply a card linked to a checking account that takes money directly out of that account. A debit card can only be used if there is a balance in the account to draw from, and can be convenient to use when you do not want to carry cash. Pay off your student loans on time and as quickly as possible Recent college graduates may want to put off paying their student loans until they are making more money, but this can be a big mistake. The longer you wait to begin repaying your student loans, the more you will pay in interest. Not paying your student loans or paying them late can negatively affect your credit rating and have a serious financial impact on your future — you could end up not being able to secure a home loan or you could even have your wages garnished. Make sure you have a full understanding of your student loans and repayment requirements. Read all of the paperwork. To figure out how much to pay back each month, talk to a loan specialist or use a repayment calculator. Remember, the more principal you pay each month, the faster you are reducing the balance and the less you will pay in the long run. If you have loans from more than one lender, consider consolidating and refinancing them into one loan. Before you consolidate private and federal student loans, review the benefits of your federal loans. If you earn less than $60,000 per year, you may be able to receive a tax deduction for some of the interest paid on your student loans. Saving for the future The old adage about saving for a rainy day is good advice. Prepare for the unexpected — from losing a job to a sudden rent increase to an unplanned medical issue — and have savings available for such emergencies. Try to build up your “rainy-day fund” to cover at least three months of spending. It may feel like saving is nearly impossible on a starting salary given all of your expenses. Make paying your student loans, credit card balances, and other bills a priority. Whatever is left can be used for discretionary items. As you advance in your career, you will be able to spend more and save more. Smart financial choices as a young adult will enable you to have more of the things you want — and need — in the future.