With the cost of attending college continuing to rise year-over-year, it can be hard for college students to start saving money for during college into their budgets each month. In fact, college students aren’t the only group that struggles to save; according to a recent survey, 34% of all Americans have nothing set aside in a savings account.
But the earlier in life you get into the habit of saving, the more financially secure you’ll be. Most experts recommend that each of us set aside somewhere between 10-15% of our income each month. But for students with tight budgets, that’s not necessarily doable, especially for those who are getting an early start on paying off student loans. But saving anything at all, no matter how small, can help form a healthy saving habit and create a more secure financial future. Here are a few things college students should consider saving for while they’re still in school.
Building Up a Savings Account
The first step is to just get into the habit of saving anything at all. Of those who are between the ages of 18-24 years old, 72% have less than $1,000 set aside in savings. Meaning they have virtually no financial foothold as they leave college and enter into the next stage of their lives.
And getting started in the “real world” isn’t exactly cheap. There are new costs associated with finding a place to live, acquiring a professional wardrobe, and paying for other expenses such as groceries and utilities. And if you don’t have a job offer as you walk across the graduation stage, no savings means nothing to fall back on.
Even more, it’s important to start adding into a savings account for accidentals. No matter how much we plan ahead, unexpected events will occur. It’s simply a fact of life. And college students and recent grads are no exception to this. If anything, a savings account can be there to act as a rainy day fund in the case your car breaks down, you need to fly home in an emergency, or your job at your first company ends up going through a round of layoffs early on. None of these are out of the question, and it’s important to be prepared.
Saving for a Down Payment on a Starter Home
Most students tend to sign a rental agreement on an apartment rather than signing a mortgage straight out of college. In fact, the median age for a first time home-buyer is 31 years old. But though renting may be a smart decision early on, owning a home is a more financially sound decision in the long run. In fact, a recent report from Zillow shows that those with a mortgage spend less of their income on home payments than those who pay rent. Owning a home also means more control over your space, greater security, and more freedom to make decisions.
And while there are several metropolitan areas with affordable starter home prices, even below $100,000, competition for these homes is high. So it may be wise for young professionals to have more set aside for a down payment than just the average 5%. Additionally, there’s incentive to offer more upfront as a higher down payment can mean a lower monthly mortgage payment. And the earlier you start saving, the more you can have set aside to offer on your down payment.
Setting Up a Retirement Investment Account
It can be challenging for college students to fathom saving for retirement while they’re still in school. After all, retirement is around 40 years away. But those who have the foresight to begin investing into a retirement savings account while still in school have the opportunity to take greater advantage of compound interest.
Compound interest is essentially a way of making your money work for you. As more time passes, you can earn more interest on the money you invest. And on top of that, you’ll earn interest on that interest, hence the term compounding. This means the longer your money has been invested, the more opportunity the interest has to compound and build upon itself, leaving a bigger amount set aside for your golden years.
Though it can be hard to set aside a few dollars each month to save, it’s incredibly important to do so. Having money put away in savings means more opportunity, more freedom on lifestyle decisions, and a more secure financial future.
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