Saving and Investing
For the majority of people, the way to gain financial security is by saving and investing. As a college student, these are likely topics that are not on your radar at this moment in time. Saving is a key principle! If you make saving a habit, even if it’s a small amount, you are building a foundation for financial success.
Here are some tips to get you started
- Pay yourself first! You’ve probably heard this before. This means that for every paycheck you receive, you commit to putting an amount (even a small amount) aside in a savings account. The most effective way of doing this is by having your paycheck directly deposited into an account and then set up an automatic transfer, with your financial institution, into a separate savings account.
- Keep track of your saving. People who track their savings tend to save more because it is always on their mind. With online and mobile banking, as well as a variety of apps, there should be no excuse not to know exactly how much money you have.
- Set Goals. Setting financial goals is a key component of staying on the path to getting what you want. As a student, you may have very limited financial goals, but this is the perfect opportunity to practice the process. Think of this scenario: You are periodically putting money into savings from your summer job in order to pay for personal expenses for the coming school year. How do you know if it will be enough to meet those expenses? By the beginning of the school year?
For more on financial goals
As you get older there may be long range financial goals that you begin to save for. Below are some tips to keep in mind for when you are able to invest in your long term financial goals.
- Plan. As with anything, planning is a way of figuring out what you want, when you want it and setting goals to achieve it.
- Understand the time value of money /compound interest. This is the principle that a dollar today is worth more than a dollar in the future, because the dollar received today can earn interest up until the time the future dollar is received. Albert Einstein called compound interest “the greatest mathematical discovery of all time”. The longer the time frame you are able to invest, the more you are able to increase the income potential of your investment.
- Discover how much waiting to save and invest could cost you with the U.S. SEC compound interest calculator.
- Understand your objectives. As a rule, the shorter your time frame for investing, the more conservative you should be. For example if you are in your twenties and trying save for a down payment on a house, you are going to want to put your money in a vehicle that ensures the least risk of losing your principle investment. For retirement savings, starting young allows you to save for a longer period of time and allows for time to make up for potential loses.