How to Save for the Future

Saving money during college sets you up for a sound financial future, but it isn’t always easy. Making student loan payments and having a limited budget may make saving while in school seem unrealistic. However, with some practice and discipline, you’ll be able to put away savings each month for your future money goals. Here are six pieces of advice to help you start saving money today. 

1. Save early and often

When you’re young, you might not have a lot of money to put towards savings and investments. Yet, saving early can allow you to take advantage of years of compound interest. Each year that your money is in a savings account or Roth IRA (individual retirement account), you can potentially earn interest or a return on that money. Furthermore, compound interest occurs when you earn interest on the money you've already saved as well as on the interest you've earned. Essentially, the principle of compounding is earning “interest on interest”. (See the SEC's compound interest calculator to see how compound interest works.) Although this method takes patience, saving early and often can set you up for future financial success. 

2. Set up automatic transfers—to yourself

When you create a budget, you should think of your savings as another monthly bill. Just like you would plan for expenses like rent or electric bills, you should budget for your savings. Try committing to saving a certain amount each month, even if it’s only a few dollars. Then, you can automate your savings in the settings of your online bank account. This way, you won't be tempted to spend the money in your checking account. Making your savings automatic allows you to have a little financial cushion without having to spend time actively managing your savings. 

3. Create an emergency fund

If you don’t already have an emergency fund, your first savings goal should be to create one. Many people choose to hold their emergency funds in a regular or high yield savings account. Therefore, if you need to pay for car repairs, medical bills, and other unexpected costs, the emergency savings are easily accessible. To be ready for an emergency, you should make it a goal to put aside three to six months worth of rent and expenses in your fund. If you make a plan to save money each day, it can help ensure you’re covered in a crisis without causing an extreme change to your daily life and available cash flow. 

4. Establish some short- and long-term savings goals

While in college, you might not be ready to start saving for retirement, but you might want to save for other things. Once you've established your emergency fund, you should identify your financial goals and how long it will take you to reach them. For example, you might have a short-term goal of buying a new phone in six months. You also might have long-term goals of studying abroad in two years or starting graduate school in six years. Defining your goals can give you a clear picture of how long you will need to save to achieve your goals. Some people may even open a savings account for each goal to keep track of each goal’s progress separately. 

5. Make it difficult to access your savings

Throughout your college career, you might be tempted to rob your savings account for many reasons. Perhaps you needed to use your credit card a few more times this month and borrowed from your savings to avoid credit card debt. Maybe you loaned money to a trusted friend and he or she will pay you back next month. Whatever the reason, try to avoid spending your savings on anything other than its intended purpose. The longer your money stays in the account earning interest, the faster it will grow. To keep your spending habits from getting the best of you, consider keeping your savings at a different bank than your checking account. Making your savings difficult to access means you’ll be less likely to withdraw or transfer the money.

6. Choose the right kind of savings account

Savings accounts have different interest rates, service fees, and rules. Some accounts are better for long-term savings than others. Becoming knowledgeable about the kinds of savings accounts can help you reach your goals faster.

Regular Savings Account

A regular savings account earns the lowest interest but offers easy access to your money. You can withdraw cash and transfer funds into your checking account. A regular savings account is best for an emergency fund because you can easily withdraw the money without penalties.

Money Market Account

A money market account typically earns more interest than a regular savings account. However, money market accounts may have a higher balance requirement, ranging from $500 to $10,000. You can typically access your money with a debit card and write checks from the account. If your balance goes below the minimum, you'll likely be charged a fee.

Certificate of Deposit (CD)

A certificate of deposit usually has the highest interest rate of all savings accounts. Yet, it also can have more restrictions. Mainly, you can't withdraw the money in a CD for a certain period of time (called a "term") without a penalty. Terms can range from three months to five years, with longer terms paying the highest interest. Minimum balances range from zero to $2,500. CDs and Money Market accounts are best for saving money you don't plan to use for several months or years.

In college, having a savings plan and practicing financial discipline may not be the most glamorous lifestyle. Yet, college can be the most formative time for your finances.  College is a great time to solidify responsible savings habits that will benefit you long after you graduate. Following these six ways to save, you’ll find that saving money for the future doesn’t need to be a grand act. It can be as simple as enrolling in automatic savings or shopping wisely at the grocery store. It doesn’t matter if you start with $5 or $500; getting into the habit of saving will benefit you greatly in the future.