Building Wealth in College

• Part One: Building a Foundation
• Part Two: Investing in the Future

Part One: Building a Foundation

Creating and Sticking to a Budget

When you have a solid budget, you have a strong foundation for effective money management that helps you pay your bills, avoid debt and potentially identify opportunities for savings.

A great place to start is by tracking your income and any expenses, like rent, utilities and groceries, so you know exactly how much money is coming in and going out of your accounts every month. Keep in mind that many banking apps can help you visualize your cash flow, as well as show your spending by category – making it easier to understand where your money is going. Pay special attention to any recurring subscription payments, as these seemingly small monthly costs can add up over time.

Check in on your budget regularly to adjust for any changes in income or expenses – a good practice would be to revisit at the beginning of each semester, or any time you have a significant change in income or expenses, like a new part-time job or a change in housing.  

Lowering Your Expenses

Being a student often comes with perks, including access to discounts and sometimes even free campus services. Taking advantage of these, along with staying conscious about your spending habits, can help you save money and reduce expenses. Common benefits to explore on and off-campus include:

• On-campus benefits:
  • Student health services
  • Recreational facilities and fitness classes
  • Free or discounted student programming, like plays, musicals and movie screenings
• Off-campus student discounts:
  • Laptops, computer accessories and common computer software
  • Local restaurant, coffee shop and retail stores

You can also look into getting a membership at certain grocery store and shopping chains, which could allow you to earn rewards and discounts on purchases. And another way you can save money in college is by shopping second-hand for things like clothes, textbooks and dorm essentials. There may also be online marketplaces – either through social media or an internal school app – where fellow students can sell used items to one another.

Finally, when it comes to buying groceries, expenses can rack up quickly. One suggestion is to plan your meals in advance and choose recipes with whole foods and similar ingredients – this can help you stay fuller, longer and reduce your grocery bill.

Opening a Checking and Savings Account

If you don't already have a checking and savings account in your name, now is the time to create one. Many banking institutions offer accounts with no monthly fees, often created specifically for students. Keep in mind that some financial institutions offer hybrid accounts that combine checking and savings, which can include features like paying you interest and offering online bill pay.

While a checking account is ideal for daily transactions such as paying rent and other bills, a savings account is a great place to save for larger purchases and build your emergency fund. Aim to gradually save up three to six months of living expenses, as this can keep you covered in the event you lose your income for a short period of time. It may seem like an uphill battle to allocate funds to a savings account as a college student, but every bit helps. Consider setting up automatic transfers that periodically move funds from your checking account to your savings account to accelerate your savings over time.

Building and Managing Your Credit Wisely

Without a strong credit score, it is much more difficult to qualify for loans, rent an apartment or even secure manageable interest rates. Your credit score tells banks and lenders how creditworthy you are through your history of timely payments and other factors – so by establishing and building a credit score, you put yourself on the right track for a sustainable financial future.

A great place to start is opening a student credit card. These cards are designed for people who have little to no credit history and can help you build your credit as you establish positive payment history. Plus, some cards allow you to earn rewards on purchases. As you start using credit cards, remember to keep on top of your spending to avoid any debt and subsequent interest payments. A good rule of thumb is to treat your credit card exactly like a debit card and only make purchases you can afford to pay off at the end of each month.  

It's also worth noting that opening multiple credit cards is not necessarily ideal or helpful to your credit situation. Every card you open after your first one may impact your credit score, so be aware of your credit situation before doing so.

Staying on Top of Identity Theft

Unfortunately, college students tend to be prime targets for identity theft because of their often clean credit histories. To offset your chances of being a victim of identity theft, be sure to check your credit report annually to catch any suspicious activity. You can also consider using an identity monitoring service to add an extra layer of protection for your personal information.

Part Two: Investing in the Future

Boosting Your Savings

Once you have an emergency fund, it’s time to take your savings one step further. There are a couple options that can help you grow your money over time:

• High-yield savings accounts offer better interest rates than traditional savings accounts while still allowing you to withdraw funds when needed. They’re a great place to park your savings and watch them grow over time.
• Certificates of Deposit (CDs) typically offer a higher fixed interest rate, with the agreement that you will not withdraw for a specific period of time. CDs may be useful if you have money you don’t need immediately, such as next year’s tuition.

Starting Small and Investing Regularly

Investing a little each month (even just $20 or $30) into the stock market can help you build your investment knowledge and potentially compound your funds. And while you may be tempted to try to “time the market” by waiting to buy stocks until the market is at a low point, it’s important to get started regardless of what the economy is doing. Even for experienced money managers, timing the market perfectly is nearly impossible. Remember this popular adage: The key is time in the market, not timing the market.

Index funds, a type of investment that tracks the performance of a specific market index like the S&P 500 or Dow Jones, are a great way to begin investing. It’s not necessary to have prior investment knowledge to utilize them, and they typically have lower management fees, which makes them a cost-effective option for long-term investments. Plus, they spread out risk across a wide range of stocks – giving you a diversified portfolio that can better withstand market fluctuations.

Opening an IRA

Individual Retirement Accounts (IRAs) are designed to help you save for retirement throughout your working years. The earlier you start investing in an IRA, the longer you can use the power of compounding to max out your account. There are two popular kinds of IRAs to consider while you’re in college:

• Traditional IRAs: These accounts typically offer you a tax deduction for your contributions, while deferring any taxes on profits and dividends until funds are withdrawn (typically during retirement). This means more of your money stays invested and grows over time. You can also deduct your contributions from your taxable income, which saves you money on taxes now.

• Roth IRAs: While there’s no immediate tax benefit for saving in a Roth IRA, you won’t pay any taxes on withdrawals made in retirement. Note that if you make income above a certain threshold, you might not be able to put money into a Roth IRA.