The new year is here for college students! If you’re a freshman, getting adjusted to your new life may feel overwhelming. But with new beginnings come new opportunities, like getting smart about your finances now to build up your wealth in the future.
While college students get a bad rap for wasting money, you can stash away a considerable amount of money if you avoid the “lifestyle inflation” that comes with newly-independent living. Here are some tips:
- Live frugally: Get familiar with your new neighborhood and take advantage of free and cheap events around town. Your college or university usually has free events going on every week, plus club-level sports teams you can join.
- Be wise, not cheap: Yes, you can get a package of ramen for a ridiculously low price, but your health is more important than saving a couple bucks. Shop the outside walls of the grocery store (where the produce lives) and find fresh foods on sale.
- Learn the art of negotiating: Connect with your network and see if you can get some of your supplies, like textbooks and furniture, at a bargain by buying used or trading.
- Get a part-time job: Build your resume, gain skill, and make money with a part-time gig. You can do it during the semester or even get a paid internship or full-time temporary job during school breaks.
- Put money aside: Make the most of the money you save by both building up an emergency fund and contributing what you can to tax advantaged accounts like a Roth IRA. Time is a huge asset when you invest, so use compound interest in your favor and grow your wealth.
Educational Tax Credits
Speaking of tax advantages, you (or your parents if you’re their dependent) may be able to claim education tax deductions and credits. Some big tax credits you may be eligible for include:
- American Opportunity Tax Credit (AOTC): You can get a tax credit for eligible educational expenses during your first four years of college for up to $2,500 per student. This is a refundable tax credit.
- Lifetime Learning Credit: This tax credit can help with tuition related expenses for up to $2,000 per tax return, provided you’re enrolled at an eligible educational institution. Unlike the AOTC, there is no requirement that the credit is taken for the first four years of college and you don’t have to be enrolled at least half time. Please note: You may qualify for both, but you can only claim one on your taxes.
As far as deductions, you may be eligible for the Student Loan Interest Deduction. Unlike other loans, you may be able to deduct your interest from a qualifying student loan. And if you received a scholarship, make sure you understand if it qualifies as tax free. Generally speaking, the scholarship has to be used for educational expenses at a qualifying institution to be considered tax free.
Don’t worry about knowing these education tax benefits. TurboTax will ask you simple questions and give you the tax deductions and credits you’re eligible for. Are you headed to college soon? What are some of your money saving tips?