Making Your Money Grow in College: Investments and Savings for Your Future
53% of college students feel that they aren’t prepared to manage their money. How can you be ahead of the game and secure a financially fit future?
You graduated, and your future is at your fingertips. Now you are looking at colleges or entering the workforce, but is that all you can do to secure a financially fit future? The good thing is that you don’t have to be a genius to make your money grow wisely. All you need is to know the basics, be prepared, and be consistent in your decisions will help you form a financially fit foundation to secure a financially fit future. The most important aspect is identifying opportunities and educating yourself so you can capitalize on all your investing and saving options.
Let’s look at how you could take your first steps into investing and saving:
When you allocate or distribute your buying power to financial products (investing), the goal is to increase the amount of money you issued initially. Some financial products you may invest your money in could be stocks, bonds, or property. The general act of investing your money to make even more money is risky. What makes it risky? Depending on where you invest, for instance, buying a house, the value of your original investment may increase or decrease over time. The return on investments varies depending on the level of risk, but they tend to work together: low risk may mean a low return on assets, and a high-risk investment may mean a high return.
A couple of examples of some low-risk investments are high-yield savings accounts and certificates of deposits (CDs). Many don’t typically think of bank products, such as these, as investment avenues, but they are lower-risk and safer resources to make your money work for you. High-yield savings accounts provide up to 20-25 times higher returns than a regular savings account. CDs tend to accrue more interest than a standard savings account.
As you may already know, traditional saving accounts help you house your money in a safe place. Savings accounts are typically used for items you need in your immediate future or used as an emergency fund. It’s the lowest-risk opportunity to help your money grow, and it provides you with the flexibility of withdrawing your funds at any time.
The critical commonality between investing and saving is compound interest. While both help make your money grow, investments can provide more of a return with higher compounding interest rates and a higher level of risk than traditionally saving. Regardless, compound interest works with time to help your savings and investments grow, similar to the snowball effect where the snowball grows the longer it rolls. The amount of time you’re investing your money truly helps your investment to grow over time.
Consider Sarah and Bobby, who both just graduated from school. They invested $50 a month at a 5% compound interest rate with an initial investment of $100. Bobby began investing $50 a month when he was in college, around 20 years old until he was 65 years old. Sarah started investing the same amount when she was 30 years old ($50 per month) until she was 65. By the time Bobby was 65, he had earned over $96,000, while Sarah earned over $54,000. The extra ten years made Bobby over $42,000 more than Sarah when investing the same amount at the same rate.
Unsure how to be like Bobby and invest early? Waldo State Bank provides calculators as a quick tool to help you gather initial information on investing. Visit our Investment Center to learn more about investment avenues and contact Brent, our Personal Financial Representative.