Budgeting & Saving

Part of any sound financial plan involves creating a realistic budget and sticking to it.  When thinking about a particular purchase, try to distinguish between your needs and your wants.  Do you really need it?  Are there other less expensive options?  If you don’t need it and you can’t afford it, don’t buy it!

To get your expenses under control, try using a Monthly Budget Worksheet.  Consider how you can increase your income and decrease your expenses.  Try to balance your budget and save the surplus!

It is also important to save for the future.  Ideally, you want to save enough to cover at least three to six months of living expenses in case of an emergency.  This can help you overcome setbacks such as losing a job or being hit with large unexpected expenses.  Your emergency savings should be separate from the savings you have for other items such as the money you may be setting aside to buy a car or fund your retirement.

The earlier you start saving, the better, due to the power of compound interest.  You earn compound interest when the money you save and the interest it earns is left in the account so that the added interest also starts to earn interest.  This means you earn interest on top of interest which can enable your money to grow exponentially over time.  The growth may be slow at first, but over the years it can really add up.  In fact, compound interest has been called one of the greatest mathematical discoveries of all time!

To estimate how quickly your money can double with compound interest use the Rule of 72.  For example, at a constant interest rate of 6% it takes approximately 12 years for your investment to double (72/6 = 12).  You can also use a free app on your phone or online financial calculators for other types of calculations.

When saving and investing always consider the potential risks. Generally, the higher the potential reward (i.e. the interest rate or the amount you may gain), the higher the risk that you may lose money.  When saving for items you may need to buy in the next few years you may wish to consider saving the money in an FDIC insured account with your bank or credit union.  FDIC insurance protects deposits placed in checking accounts, savings accounts, money market deposit accounts, and certificates of deposit from losing value.  However, FDIC insurance does not cover other financial products and services that banks may offer such as stocks, bonds, mutual funds, life insurance policies, annuities, or securities that may be intended for longer-term financial goals and may potentially lose value.

Check out these helpful resources:

Creating an Effective Budget

Your Spending, Your Savings, Your Future: A Beginner’s Guide to Financial Readiness

40 Money Management Tips Every College Student Should Know

How To Save For Your Future – A Guide for Financial Security

It’s Never Too Early – or Too Late – To Save

Some short videos on saving money as a college student.

More information is available at www.cashcourse.org.

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