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Don't make your pockets hurt! Here are some easy ways to start saving

Learning how to be financially responsible early on can help you down the road when it's time to make expensive purchases, such as buying a home or getting a car. – Photo by Pixabay.com

Most college students don’t start thinking about their finances until they graduate and begin working full-time. Although talking about money is hard, understanding the basics of managing your finances early on in your career, rather than later, is essential for avoiding bad spending habits that could negatively impact you down the road.

If you have no idea where to start, no worries! Here are some ways you can start saving to make sure your pockets always stay full:

FIRE Movement 

FIRE stands for Financial Independence, Retire Early. This is a movement dedicated to extreme saving and investing that would allow people to retire earlier than the expected age of 65. Some people may even dedicate up to 70 percent of their earnings to savings so that they will be able to live off their portfolios. 

Millennials have taken a particular interest in the FIRE movement — their choice to save a majority of their yearly income when they enter the workforce can result in having a retirement fund worth approximately 30 times their yearly spending (which is usually 1 million dollars), according to Investopedia.

It can be especially difficult to accrue wealth when the stock market falls, so having a saving-oriented mindset in the long-term will ensure that you are prepared for when an unplanned expense arises.

If you want to learn more about FIRE as well as get other financial advice, I’d recommend watching Graham Stephan on YouTube.  

Having an emergency fund 

This is one of the most important pieces of advice concerning financial planning, but it can be difficult to convince college students, people who are often young and unconcerned about their own mortality, to open a rainy day fund. 

That being said, it's incredibly worthwhile. Only 39 percent of Americans can afford a $1,000 unexpected expense — one medical emergency, accident or family/personal crisis is all it would take for most people to go into debt trying to get their lives back on track. 

If you're not sure how much to save, my advice is to contribute an amount of money each month to an emergency fund until you have reached at least one full month’s worth of salary. That way, if you were to lose your job tomorrow, this would make sure you could still pay rent and eat at the same time. 

Being smart with debt 

Sometimes, we need to go into debt. This especially applies to college kids, who need to take out student loans to go to school. Student loan debt can be a huge source of stress, and could easily multiply when compounded with mortgage debt or credit card debt, leaving some choosing to ignore their debt (which is probably the worst thing you could do).

Although "debt" sounds scary, believe it or not, not all debt is bad, and there's actually "good" debt. Good debt is any sort of loan that is at a lower interest rate, which usually includes things like student loan debt and mortgage debt. Meanwhile, bad debt, like credit card debt, is any sort of loan with a ridiculously high interest rate. 

If you're to trying to climb your way out of debt, I suggest paying off any debt with higher interest rates first. Only buy things you can afford so you can be on time with debt payments. A large part of your credit score is based on your ability to make payments in a timely manner and consistently, so paying your balance on time will help improve your credit. 

Quick tip: Open up a credit card in college so you can start building good credit. This way, by the time you want to buy a car or be approved for an apartment, you have something positive to show to the banks if you need to take out a loan.

50/30/20 Rule

Although this is a traditional method for dividing up your salary, I think it’s a wonderful way to get started if you're not sure how much to save. Special shoutout to Elena Taber for talking about this on her YouTube channel and for making amazing financial videos (which pretty much got me interested in finance in the first place). 

Basically, when you look at your after-tax income, you should allocate 50 percent for spending on personal needs, 30 percent for wants/miscellaneous expenses and 20 percent for savings and debt repayment (here’s a handy calculator to do the math for you). 

This means half of your income should go to covering your housing, utilities, food, transportation, insurance and other basic living expenses you cannot help but avoid. Thirty percent can go towards spending on luxuries, like entertainment, eating out and other extra things that you enjoy.

The final 20 percent is where you would start building that savings fund, start saving for retirement (take the employer match for your 401(k), I'm serious), and paying off debt (remember: high interest stuff comes first!). 

Saving only 20 percent isn’t exactly the type of aggressive saving that FIRE people would follow, but it’s still a responsible money management system.

I know all of this can seem a little overwhelming at first glance but financial literacy is no joke. Falling asleep when your teacher is talking about interest rates may have been okay in school. But actually losing opportunities because you’re being consumed by debt is not something worth living through.

Learning how to manage your money as soon as you can is imperative, because just like bad interest, bad habits compound and can cause severe financial detriment for you in the future. So, save yourself the trouble and do your research!


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