We’re taught over and over to “prepare for our futures” and “start saving early,” but what does that really mean? Everyone wants to give you financial advice without ever telling you where to start. Well, here’s your beginner’s guide to saving and investing.
Now, you may or may not already have a credit card. This is a tool and a resource that can be useful or incredibly harmful, depending on your spending habits. Although building your credit is important, this is your warning now that you can become a reckless spender quickly if you don’t utilize self-control. Credit cards, if you are unfamiliar, are a way to pay for an item and then you pay the money back to the bank. Along the way, when you make payments on time, you will build your credit. There are many options for credit cards. There are cards specific to student users, and there are cards that offer you rewards for travel or other expenditures. Always be aware of the annual fees, your credit limit (so you don’t exceed it), and your ability to pay back any money you spend. Forbes has a list of the top student cards, which are all relatively easy to sign up for!
Another opportunity to save is to put your money into a high-yield savings account. Rather than a traditional savings account, which typically has a low interest of how much you’ll earn back on the money in the account. A high-yield savings account has a higher percentage, which will increase your savings at a quicker rate than a traditional account. Once again, beware of any fees that may not equate to the rewards they provide. This is an excellent chance to have a savings account that earns a bit more money back a year! Typically, we just let our savings grow very slowly, but this offers a quicker pace to that growth.
Finally, if you are ready to step it up another notch, you can open up a Roth IRA. If you have no idea what this is, it’s essentially an investment account where you put in your pre-tax money and invest it in stocks. This allows your money to grow and serves as a retirement savings account, typically. This account is for long-term savings; taking out money early may result in penalty fees. However, the sooner you invest the money, the more time you give that money to grow. You may not have to have thousands of dollars to invest now, especially as a college student. But investing extra funds leads to long-term savings. You can sign up with Fidelity, Charles Schwab and others to create your account (it takes less than 15 minutes!). When you set up your account, you have to transfer funds into the account. But you need to remember that to actually create earnings, you need to invest the money. There are good beginner stocks that focus on the top 500 companies in the market, like VOO, but there are plenty of opportunities to look into other stocks that fit your goals. It is a step in the right direction and a chance to get ahead of your retirement plan.
All together, a system that works for me is to split my check up between my checking and savings accounts, and then a smaller contribution to my investment account. A common recommendation is 10% of your paycheck to your savings, but if you can afford a higher split, your future self will thank you. If your check is directly deposited into your various accounts, it allows you to not have to worry about the manual effort of separating the money. You don’t need large amounts to make a difference in your savings; something is better than nothing.