• Explore ways to make extra money and save your earnings.
• Create a budget and keep track of your money.
• Explore online savings accounts and stocks to earn higher returns.
• Take advantage of your 401k if your employer matches contributions.
Saving money is one of the most important first steps to building wealth. Savings give you the freedom to live your life the way you want. It’s the difference between going to see a show with friends or staying in for the night. Saving part of your income now enables you to live comfortably later, and retire when you want.
Earn More to Save More
Of course, to save money you need to earn more than you spend. If you’re still a student, there are flexible ways to make money while you’re in school. You may want to drive for Uber during your free time, or find odd jobs through an app like TaskRabbit or on campus. When I was in school, I worked as a math tutor to earn extra cash and saved money from my paid summer internships to live off of during the school year.
Tools to Help You Save
Creating a budget and keeping track of your spending will ensure that you don’t overspend or dig yourself into debt. You can use sites like Personal Capital or Mint to keep track of all your budgets and expenses in one place. If you do all of your banking with one company, you can use your bank’s online account or mobile app to monitor your spending and earnings.
Ways to Invest and Get Greater Returns
Unfortunately, savings accounts don’t provide very high returns these days due to the low benchmark rates set by the federal government. The interest rates on savings accounts with local bank branches are so low that it’s not even worth the effort of creating an account. Chase, Citi, and Bank of America all offer 0.01% APR, which means you earn just one penny on $100 of savings after one year. Online saving accounts, like those provided by GS Bank and Synchrony Bank, currently provide higher rates (around 1.05% APR) – better, but still relatively low.
If you put your money in the stock market, on the other hand, you can receive much higher returns. The S&P 500, an index of 500 stocks that together are a leading indicator of the U.S. economy, has historically returned around 7% annually. Beware, though, that putting your money in the stock market carries a greater risk, as the market can move up and down. It’s best to buy in when stock prices are low.
One simple way to invest in the stock market is to sign up for a free Robinhood account and buy SPY (SPDR S&P 500 ETF Trust). It’s a stock that combines the various companies in the S&P 500 into one single fund. If you bought just SPY alone with your savings and allowed that to sit in your account, you would have a diversified stock holding that you wouldn’t even need to manage.
Take Advantage of Your Employer’s 401k Plan
Your employer may offer ways for you to save for retirement, such as a 401k plan. A 401k allows you to save and invest a portion of your paycheck. Plus, many employers will match your contribution up to a certain percentage of your salary. It’s like getting free money!
For example, let’s say your salary is $50,000, and your employer matches your 401k contributions up to 5% of your salary. If you contribute 5%, that would be $2,500 of your own. Add your employer’s 5% match, and your 401k doubles to $5,000.
To take maximum advantage of this benefit, you should always contribute into your 401k up to the amount that your employer will match. Don’t leave money on the table! On the other hand, we typically recommend holding off on contributing more than the match amount until you pay off your student loans.
It’s up to you to decide how you want to invest your money, but the most important thing to do early on is to establish some savings. Not only will this allow your money to grow for a longer period of time, it will also give you the freedom to live your life confidently and comfortably.
- Explore flexible ways to make money and save a portion of your earnings.
- Create a budget and keep track of your money.
- Look into online savings accounts and invest in stocks to earn higher returns.
- If your employer matches 401k contributions, take full advantage by contributing the full percentage they match.
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