Financial literacy can make a big impact on your life and your future success, paving the way to achieving your most desirable goals. Learning how to properly save money as a college student is a major part of that journey, and the hardest part is figuring out where to start.
Don’t Budge on a Budget
Budgeting basics allow you to have a clear picture of how your income matches up with your expenses, a crucial part of responsible money management. Wells Fargo helps simplify the matter with their blog “Budgeting for college students”.
- Keep track of expenses. Good budgeting means being honest with yourself about where your money goes each month. Before creating a budget, keep a spending log for a month or two where you record everything you spend money on and the amounts. This will help you figure out a more accurate baseline for what to set your budget limits to and where you can think about cutting back. There are lots of free budget apps available to make creating and sticking to a budget simpler than ever before.
- Love it and list it. Making a list of your income and expenses is key to having a fully realized picture of your financial security. It is helpful to start by considering your monthly income. Include what you earn from a job, federal Work-Study, financial aid and scholarships. You may want to include a line item pertaining to any assistance typically given by family members, such as an allowance. If you have any side jobs, such as babysitting or similar work, you may wish to make note of an average monthly income brought in from that.
- You then will need to list your expenses based on your spending log. It’s helpful to separate your expenses into categories, such as housing, food, entertainment, education, etc. If you have assistance from family members or others with some of these categories, you may wish to make note of what is being covered versus what is your remaining responsibility.
- It might be helpful to you to use this information to see how much you need to cover your expenses for each quarter, including visiting home, class materials and groceries. If you have money remaining, it is a good idea to consider saving a good portion of it to cover potential unforeseen expenses. If it seems like you will be low on funds before the end of the quarter, look at your spending log again and see areas where you can cut back. Maybe cook a few more meals a week at home or curb an expensive Starbucks habit. Purchasing or renting used textbooks instead of new ones is also a good way for college students to save.
- Flexibility is essential. Expenses will fluctuate over time, especially as inflation rises nationwide. Make a point to revisit and revise your budget periodically, especially in the wake of major changes like a rent increase or tuition grant.
(Adapted from CNBC article “Quick tips to help college students start saving money”)
- The sooner you start saving money – preferably in a dedicated savings account – the better off you will be. This is primarily due to the concept of compound interest, meaning your interest begins to earn interest. Even if you have a lower interest rate, your money will grow over time, so someone who starts saving at 22 is in a better position than a 32-year-old just starting to save.
- It doesn’t have to be a big chunk that you put away every month. Find some ways to save by looking at where you can afford to spend less. Cut down on discretionary spending and do your best to follow the 50/30/20 rule. This means 50% of after-tax income goes to necessary items, 30% to simply wanted, fun items and 20% into your savings account. If you don’t have much income to speak of, give up small daily items and put that toward savings. It’s not much, but it will build up over time, and the important thing is to train yourself to the healthy habit of saving.
- Automate your savings. You can set up monthly or weekly contributions to your checking to savings account or alter your direct deposit settings so that a portion of your check goes to your savings account. It makes it easier for you to remember to save.
- Consider using a round-up savings app such as Acorn. These apps round up your purchases to the nearest dollar then take that remainder amount and deposit it into your savings account or put it toward an investment account as you designate. These apps allow you to build up savings and/or investments over time without having to worry too much about it. They may require a small monthly fee, however, so take note of that before signing up.
Forming solid money habits now will make it easier to manage larger financial challenges after graduation. Happy budgeting and saving!
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