Very few college students think to start saving money right away, especially those who are living in the U.S. as international students. The money you've been saving up to this point has generally been for college, and now you're in college.Money is tight for you compared to what you'll be earning after graduation, making you think carefully about things like your spending and credit card usage. So why save money right now?
The money you save now has immense power for retirement — because of the math we'll run for you in just a moment. If retirement feels too far off for you, that nest egg you're building will still be helpful for your next step, whether that's a wedding, a down payment on your first home, or moving expenses as you relocate to your next job.
The bottomline is that saving money while you're in college is a smart move. The trouble is, most college students aren't sure how to do it. That's what this article is all about. Read on to find out how to actually save money while in college and set yourself up for a successful financial future.
But First, Let's Do the Math
It's no exaggeration to say that the money you save between 19 and 25 can make a huge difference in your retirement schedule. Let's run the math on three examples, each assuming a moderately conservative 5% yield:
A student who saves no money during college has $0 available upon graduation at 23, and no head start on retirement savings.
- A student who saves just $50 a month has $2,600 available upon graduation at 23, and that fund will be worth $22,000 at retirement age.
- A student who saves $100 a month has $5,300 available upon graduation at 23, and that money will be worth $43,000 at retirement age.
What's more, a student who continued that $50 monthly savings habit until retirement would amass $113,000 by retirement age from that one fund alone. Compound interest has immense power, especially when you start as young as possible. But how can you get started?
Your Step-by-Step Guide to Saving While Still in College
Step One: Set Up Infrastructure
College is a complicated time with lots of distractions, demands, mistakes, and periods of confusion. Saving successfully begins with making savings as easy as possible.To that end, you must set up:
- A savings account with as high an interest rate as you can find that carries zero fees.
- A way to transfer money from your checking account to that savings account easily, ideally using your phone.
International students may need to take additional steps if you're using accounts indifferent countries, and be sure to speak to your parents or an accountant about tax liabilities.
Step Two: Optimize Student Loans
In terms of saving money during college, there are three kinds of student loans:
- Student loans that don't accrue interest until you graduate.
- Student loans that accrue interest lower than the yield on your savings account.
- Student loans that accrue interest equal to or higher than the yield on your savings account.
Most loans will be the third type. In those cases, borrow only what you absolutely need and decline the remaining funds. If your loans are the first or second type, though, borrow the maximum. Still only spend what you absolutely need. Then, put the rest in your savings account and let that money work for you. For all three kinds of loans, if you have money that you'll need later on, put it in your savings account, so it's earning interest until you spend it.
Step Three: Analyze Expenses
Now comes creating a budget that lets you live your life while saving for the future.That starts with listing your expenses. You can use pen-and-paper, a spreadsheet, or one of many budgeting apps to complete this step.
Start by looking at your bank statements for the last few months and finding out how much you've been spending. If you're already in college, this is all you need to begin. If not, go through those expenses and make changes based on what will happen while you're in school. For example, your rent will probably change as you move to school. Be sure to include a realistic listing for fun, including a separate savings stream for adventures during vacation.
Once you have a clear idea, go through your expenses, and look for ways to cut back.Don't get too lean — college is a time for fun and study — but consider cutting back on subscriptions, music services, and some of your dining out to make extra room.
Finally, add 10% to your estimated monthly expenses to make room for emergencies and other unanticipated costs.
Step Four: Estimate Income
Now that you know how much you're spending, find out how much you're earning. You probably won't be able to pinpoint your exact month-to-month income, but write down your best prediction for all income streams. Some examples include:
- Pay from a part-time job
- Pay from gig work like Grubhub, Uber, or tutoring Allowance from parents or other family members
- Disbursements of your student loan money
- Disbursements from your college savings funds
- Passive income sources
Write it all down, and total it up. Then, subtract 5% to 10% to account for dips in your income. Again, you can use whatever tool you're happiest with.
Step Five: Find 10%
By now, you have lists for your income and your expenses. Now, add an expense called"Long-Term Savings" equal to 10% of your income. You'll find one of three things is happening:
- Your Income Might Exceed Your Expenses. If that's the case, congratulations! Set up automatic deposits of your 10% to your savings account, and have fun with the rest.
- Your Income Might Equal Your Expenses. You're technically good to go, but consider looking at your expenses and finding ways to widen your margin by $100 or so.
- Your Income Might be Lower Than Your Expenses. It's time to fix that. Go back through your expenses and find new ways to save money, or figure out how to increase your income. Keep at it until your budget works out.
In all three cases, remember that full-time students often have free amenities that could replace or reduce some of your expenses. Gym memberships, Internet access, and Netflix subscriptions come standard for some schools. You can also qualify for student discounts on a wide range of things. These are good places to find those small extra savings if you need them during this step.
Step Six: Write it Down
A goal you don't write down isn't really a goal. It's a dream. Now that you know exactly how much you want to save every month, write it down someplace you'll interact with it regularly. Studies show this helps people reach all kinds of goals.
You might also want to write down some other goals based on your income or expenses. Any line item you feel like you might need extra motivation on, write down your goals for that as well. It's a small push in the right direction, but every push can help.
What you've done so far is an estimate. It will come close most months, but once in a while, it will be way, way off. Here's what to do in both those cases:
If you have a good month from overtime pay, or from birthday gifts, or tax refunds, or summer full-time work, or any other source, split the extra money into three groups. Put one-third into your savings. You won't miss it. Put one-third aside in a short-term account for emergencies. Spend the final third frivolously.You've earned it. This strategy works well, not just in school but for your entire life.
If you have a bad month, first, don't panic. Lots of people give up on budgets and savings the first time it doesn't work well. Remain committed to the overall plan, then figure out how to survive the month. Find the money in your emergency fund, or earn it by taking on extra gigs, or ask your parents for a little help. Just stay on target.
Are you saving money while in college? What systems are making it work for you?