It can be hard to start saving for the future when the future seems so far away. But even if you know that saving your money is an essential part of providing stability for your future, how can you start saving when all you really want to do is spend? And if you’re a student, how can you possibly set aside money when you aren’t always receiving a steady income?
It doesn't take a lot
What many people don’t realize is that you don’t need to have a lot of money in order to begin saving! They key is to start small and work your way up. You don’t need to wait until you graduate and enter the work force, you can start today!
Instead of ordering a pizza every Friday night, try to order one every other Friday. Take that pizza money and put it into a savings account.
A lot of students are work-study eligible, so maybe you already have a job. Try taking a small portion of your paychecks and saving it for your future. When you start your first job after graduating, there’s a good chance your employer will have retirement plan options. If so, start putting some money in your retirement plan as soon as you can. Even if you can only contribute $10 a week or $50 a month, it is going to slowly add up. If your employer doesn't offer employee retirement plan options, you can also look into opening your own Individual Retirement Account (or IRA).
“Free money”
Have you ever heard of something called “free money”? It actually kind of sort of exists! It’s otherwise known as compound interest – and it’s a way to build up that $10 a week over time without depositing thousands of dollars a month. When opening a savings account or starting a retirement account, you’ll notice that the financial institution will tell you what the interest rate is. Basically, when you open a savings account of some sort, the amount your deposit or contribute (often known as the “principal”) will earn interest – which increases the value of your savings. Then, you’ll earn interest on both the money you’ve saved and the interest you earn, too! This is what’s known as “compound interest.”
So, let’s say you’ve started your new job and have invested $1,000 (your principal) in a retirement account that earns 5 percent (interest rate or earnings) once a year (the compounding frequency). After a year, you’ll have $1,050 in your account (your original principal, plus 5 percent or $50). In two years, you’ll have $1,102.50 in your account (an additional 5 percent – or $52.50 – of the $1,050). When it comes to compounding interest, the expression “time is money” is literally true. Your account will continue to grow regardless of the amount of money you have available to deposit every month.
Save and spend
Just because you should start saving now doesn’t mean you can’t or shouldn’t spend money on the things you need (or even want) right now. The key is to save and spend wisely. And to help you do that, consider setting up a plan for your savings. This helps you determine what it is you really want to spend your money on. Once you understand your spending habits, it becomes easier to say no to the stuff you don’t need. If you’ve already entered the workforce, consider getting your paycheck deposited directly into your bank account(s). You’re usually given the option to have your check direct deposited into different accounts – which means you can automatically send a portion of your check straight into a separate savings account every time you get paid. By doing this, you’re essentially paying yourself first. Your present self may not like it, but your future self sure will thank you!
Elise Romero rel="noopener noreferrer" is a member of the Eastern Mennonite University Class of 2017.