Financial Literacy

The first step in creating a budget is to identify how budgeting can help you. There are many personal reasons to create a budget. Some common, overarching benefits include:

• It reduces your anxiety levels regarding financial matters.
• It identifies where funds should be going versus where they were actually spent, and demonstrates the importance of maintaining a balance between earning and spending. 
• It helps you make sure your expenses are covered.
• It helps you create plans to reach your financial goals, like saving money for future expenses, traveling for spring break, or even a future home purchase.
• Short-term and long-term financial goals help create a framework conducive to financial success.
• It helps you develop a sense of control over your money.
• It can contribute to your credit worthiness.

Action item: Make a list of your personal reasons for creating a budget.

Establishing and incorporating your academic and personal goals with your financial goals is extremely helpful. Understanding your academic and personal goals helps you identify the benefits to saving, and the long-term impact of poor money management. Most college students have academic goals of graduating within four to five years and establishing a career or continuing education in graduate school. Personal goals for college students or recent graduates may also include purchasing a home, a vehicle, or incorporating travel into their lifestyles.

Financial goals help you reach your academic and personal goals. For example, a short-term financial goal is to put a certain percentage of each paycheck you earn into a savings account to be used after graduation. Another short-term goal could be to use a certain percentage of each paycheck you earn toward your academic bill, thereby reducing the amount of loans you borrow. An example of a long-term financial goal is saving toward a down-payment on a house. For those not employed, a great goal is to use the OU payment plan to pay your balance over time rather than charging it to a credit card.

Example academic goals

1. Work additional hours on breaks or save enough to reduce the amount of student loans you take each year by $1,000.
2. Complete an internship and attend job fairs in your field to gain employment following graduation.

Example personal goals

1. Build your professional wardrobe before or shortly after graduation.
2. Purchase a reliable car with a down-payment of 20%.
3. Take a vacation to a location you have always wanted to visit.

Action item: Make a list of three academic and three personal goals you want to achieve.

It’s important to create a functional budget, one which makes sense to you and allows you to have a life, without overspending, and while working toward your academic, personal and financial goals. In order to create such a budget, you must understand your money, where it comes from, and how you use it. The money you include in creating a budget can come from several sources. If you’re employed, your paycheck is certainly income you use for your expenses.

Some funds, like your financial aid, is applied to your expenses, like tuition and housing, without coming through your bank account. You may receive a gift card or cash as a gift, and while it may be unexpected or infrequent, it still counts as money you can budget.

You might be surprised at how much money you spend the week after you receive a paycheck. Tracking daily spending provides you with an understanding of where your money is going, and your priorities. Perhaps you spend $100 per week going out with friends, $30 on gas for your car each week, and the rest of your paycheck toward car insurance and your cell phone bill. Your spending habits in that scenario indicate your priority is on having a good time right now, rather than looking forward to your personal goals you want to achieve in the future. Applying a budget to the example means considering your academic and personal goals, and changing your spending habits to meet them. For example, instead of spending $100 on social activities each week, take advantage of some free campus events and put $50 of that money into savings for your professional wardrobe, or future travel.

Action item: Track your spending for one week and find out where your money goes.

Creating a budget might sound overwhelming, but there are many resources available to help you in the process. Visit Federal Student Aid to get assistance through each of the following steps to help you set up a budget and manage your finances:

• Determine a time span for your budget – will you budget by week, month or year?
• Choose a tool to help you manage your budget – use pen and paper, a spreadsheet or an app.
• Review your monthly income – identify your income by including all forms of money received.
• Identify and categorize your expenses – tracking your expenditures is really helpful.
• Save for emergencies – start with $1,000 then work toward six months-worth of expenses.
• Balance your budget – make sure you’re making amounts equal to, or more than, the amount you spend.
• Maintain and update your budget – not every budget will work for you forever, so revisit it often.

The information on this page was adapted from the U.S. Department of Education’s Office of Federal Student Aid. Visit Federal Student Aid for more tips and tools about budgeting.

Also known as a credit score, your FICO score can range from 300-850; the higher the score, the better, as a higher score indicates a stronger measure of creditworthiness:

• 740+ = excellent
• 720-739 = very good
• 690-719 = good
• 660-689 = average
• 640-659 = poor
• <639 = need help

These scores are generated by three major credit bureaus (Experian, TransUnion and Equifax), and are based on information in your credit report.

Your credit score is typically determined by:

• payment history (35%)
• amounts owed (30%)
• length of credit history (15%)
• number of types of credit (10%)
• new credit (10%)

You can achieve a high credit score by maintaining a long history of paying bills on time each month and maintaining a low amount of debt. FICO scores are used to determine whether or not an individual is eligible to be approved for a loan, in determining an interest rate, and goods and services such as a cell phone.

Credit inquiries can impact an individual's credit score. Inquiries known as "soft hits" do not affect the credit score. Soft hits include inquiries made by an individual, such as requesting your own credit score; inquiries made by insurance companies and employers are also considered soft hits. Inquiries known as "hard hits" may affect the credit score. Hard hits include inquiries by lenders, such as credit card companies or banks, inquiries made by apartment complexes, and inquiries by retail establishments.

Did you know?

• One late payment can lower your score by as much as 100 points.
• You can challenge inaccurate information on your report.
• The total credit you have is less important than your total available credit.
• Debit cards will not repair or establish credit.
• You can request a free credit report once a year at AnnualCreditReport.com.

Credit scores are calculated by using information regarding the individual's past history, amount owed, length of credit history, types of credit in use, and new credit.

The largest component of your credit score (35%) is made up of your past history. Late payments cause your score to lower and take approximately 24 months to restore from just one late payment, so it’s important to pay your bills on time.

The next largest component of your credit score is the amount of money you owe. For example, if you have one or more credit cards that are at their maximum balance, it lowers your credit score, so make sure you’re keeping your debt as low as possible. If you already own a credit card, pay off your balance each month, but don’t close the card. The length of your credit history makes up 15% of your credit score, so showing healthy financial habits of paying off your credit card balance each month actually improves your credit score. Credit cards are considered revolving accounts, whereas auto loans or mortgages are considered installment loans.

The types of credit in use makes up 10% of your credit score and having too many revolving credit accounts lowers your score more than installment loans. In some instances, moving your revolving debt to installment debt is better for your credit score.

The last 10% of your credit score is made up of new credit, therefore opening up multiple new accounts in a short period of time can lower your credit score. If you must open a new line of credit or take out a new loan, do so in a timely manner.

Student loans can serve to improve credit scores. Student loans are treated as installment payments, so when monthly payments are made in full, and on time, the credit report reflects that payment on a continuing 30-day basis, and communicates to future lenders you can be trusted to handle money responsibly.

Conversely, defaulting on a loan (failing to make an on-time, full payment) can damage a credit score, which can affect your ability to gain employment, housing and loans. If you are unable to make a monthly payment, contact the lender to request a forbearance. Maintaining communication and making payment arrangements with a lender can often avoid a negative impact to your credit report.

A forbearance is granted by a lender in certain circumstances and puts loan repayment on hold. Borrowers should note, however, even when a forbearance is in place, interest continues to accrue and you may be required to make payments for the interest only. Students enrolled and attending classes at least half-time are deferred from making payments to their loan principles and interest, although interest continues to accrue for most loans. If you’re granted a forbearance or in deferment, it will not harm your credit score, so it is important to remain in contact, not avoid, lenders if you’re struggling to make payments.

If you’ve borrowed student loans, you can view your loan history and loan details at studentaid.gov.