- Set aside your savings first: Your savings are the first “bill” you should pay each month. To make sure you don't inadvertently use your savings, it is wise to open a savings account and transfer your savings into it as soon as you get paid. Setting up an automatic transfer with your bank is the best way to do this.
- Compound Interest: The other advantage of opening a savings account is that these accounts typically earn compound interest, which means that interest is calculated on the original amount and on any interest it has accumulated. The more often the interest is compounded, the faster your money grows. The yearly rate at which interest is compounded is the Annual Percentage Yield (APY).
- Keep track of your savings: Use your budgeting spreadsheet or app to keep track of your savings.
- Set financial goals: While it is always advisable to save “for a rainy day,” big-ticket items and experiences also become possible with planning and goal setting.
Setting Financial Goals
To give your savings effort extra heft, consider setting financial goals to ensure your savings plan will give you enough money to use when you need it. For example, while studying abroad you may want to travel to other locations, how do you pay for those expenses? Setting up a savings plan with the study abroad trip in mind is the way to achieve the overseas airfare goal. Once you figure out your goals, you will be able to calculate how much you will need to attain the goal and then further calculate what you will need to set aside each month. Online savings goal calculators can help automate this task.
- Determine what your goals are!: Make a list of your goals—large and small. Don't worry about costs right now.
- Categorize your goals by the time you think it will take to achieve them:
- Short-term goals you will achieve within a year. This could be purchasing a piece of furniture or moving out of the dorms and into an apartment.
- Mid-term goals you will achieve within one to five years. This could be financing the travel and living expenses for a quarter- or year-long study abroad.
- Long-term goals you will achieve in more than five years. This could be purchasing a car or a condo. This could also be the beginnings of your plan for retirement.
- Use a financial goals worksheet to map out your savings plan: during your college years you will probably be thinking about saving income from simple sources like part-time and summer jobs. Many of your short- and mid-term goals can be achieved from those sources. Over time you will probably get more sophisticated with your income sources: stocks, bonds, money market accounts. Those sources will make attaining your big-ticket mid- and long-term goals a reality.