How to save money for future investment?
Saving for your future in college at a time when you are likely to get student loans and on a tight budget can seem like an impossible feat. But college is actually one of the best times to form responsible savings habits that will benefit you long after graduation. Here are six strategies to help you start saving.
1. Save early and often.
When you are young, you can take advantage of years of compound interest. Compound interest is when you earn interest on the money you have saved as well as the interest you have earned. (Check out the SEC's compounding calculator to see how compounding works.)
2. Set up an automatic payment for yourself.
Think of savings as another monthly bill to pay; you are only paying yourself instead of someone else. Commit to saving a certain amount (even a few dollars) each month. Then set up an automatic transfer to a savings account so you're not tempted to spend the money.
3. Create an emergency fund.
Your first savings goal should be to establish your emergency fund to cover unexpected things like car repairs, medical bills, and the like. Your emergency fund will prevent you from charging unplanned purchases to a credit card and going into debt. Financial experts generally recommend saving up to three months of rent and expenses, but even one month is a good start.
4. Set some long-term and short-term savings goals.
While you may not be ready to start saving for retirement or a home, you will want to save for other things in college. Once you have established your emergency fund, begin to identify your goals and how long it will take you to reach them. For example, you might want to buy a new phone in six months, study abroad in two years, or start graduate school in six years. Some people open a separate savings account for each goal.
5. Make your savings difficult to access.
You will most likely be tempted to steal your savings account for non-emergency purchases, but try not to. The longer your money stays in the account earning interest, the faster it will grow. Some financial experts suggest keeping your savings in a completely different bank, in an account that is not connected to your checking account or easily accessible with a debit card, so you are less likely to withdraw or transfer money.
6. Choose the right type of savings account.
Savings accounts have different interest rates, service fees, and rules, and some are better for long-term savings than others.
A regular savings account generates the lowest interest, but offers easy access to your money. You can withdraw cash with a debit card and transfer funds to your checking account. A regular savings account is the best for an emergency fund, because you want to be able to withdraw money easily and without penalty.
A money market account generally earns more interest than a regular savings account, but it also has higher balance requirements, ranging from $ 500 to $ 10,000. You can usually access your money with a debit card and write checks from the account, but if your balance is less than the minimum, you will be charged a fee.
A certificate of deposit (CD) generally has the highest interest rate of all savings accounts, but it also has more restrictions. Basically, you cannot withdraw money from a CD for a certain period of time (called a "term") without a penalty. Terms vary from three months to five years, with the longest terms paying the highest interest. Minimum balances range from zero to $ 2,500. CDs and money market accounts are best for saving money that you don't plan to use for several months or years.