An overview of savings accounts
Throughout your life, you’re told over and over again to save as much money as possible. When you’re younger, $100 may seem like you own the world but now $100 probably feels like you don’t have that much money. Growing a savings account during college is necessary to cover personal expenses, emergencies if they arise, and things like going out with friends or travel costs. According to a survey done by GOBankingRates with 5,000 adult respondents, about 58% of Americans have less than $1,000 in a savings account and 32% with no savings at all. These are quite alarming numbers to see because if something comes up that is a significant sum, such as paying for new brakes and car tires, these people will have no choice but to wait until their next couple paychecks or likely be forced to rack up credit card debt.
Emergency fund and tracking expenses
One way to negate this problem of increasing credit card debt where interest rates can be upwards of 20% per year is beginning to save for an emergency fund. An emergency fund is when an individual, or family, will save enough to cover three to six months of personal expenses. This number would include things like rent, utilities, food, household items, travel costs, and miscellaneous expenses. Things like those new shoes or concert ticket that has been on your mind for a while is not an emergency and the emergency fund is not meant for these type of expenses. If you’re reading this, you’re probably wondering how you will save $1,000 as a college student. This number can be attained by tracking your own expense categories over a period of time such as a month to three months. After you’ve tracked where your money is going to each month, finding ways to mitigate costs per category gets a lot easier. Cutting out a $10-20 meal going out to eat each week can save you over $200 in just a few months. Buying a $5 drink from Starbucks a couple of times a week can add up very quickly and you may be spending over $60 a month at just Starbucks alone. Unnecessary clothing costs like buying new shoes or a new jacket can easily add up to a hundred bucks in one sitting.
How can you save
Students can set up a high-yield liquid savings account such as a money market account or Certificate of Deposit (CD) that has a maturity of a year or less. These types of accounts depending on where they’re set up can earn around 1.5-2% yield versus 0.1-0.5% yield in a regular savings account. Although this number may not sound like a lot, it is compounding interest and the balance will build up over time and you will earn interest on the interest that has been previously accrued. Setting aside $25 a week into a savings account will grow to $300 in just three months. Another option students can consider is going to an ATM when you receive a paycheck and only spending the cash you take out for that month and saving the remaining balance. Once saving becomes a weekly or monthly habit, it only becomes easier to do and you will likely notice unnecessary spending go down even more.
Written by : Brad Kmiec, Student Peer Mentor