You're finally done with school for a while and have begun to earn some money instead of always spending it. While savings may not be on the top of your mind, it should be. Money that you save in your twenties has a long time to grow and with the power of compounding interest can become quite large in the future. Whether you decide to use that money to start a business, buy a house, or live comfortably in retirement, the earlier you get into the habit of putting some money away, the better.
Below are some tips you can use to maximize the amount of money you put into your bank or investment accounts.
- Write it down: In college it was acceptable to live paycheck to paycheck (or entirely off your parent’s generosity). Now that you’re on your own, one of the keys to sticking to a budget is committing to it on paper. There is a difference between not spending all your money and purposely setting money aside for future use. Everyone has a point of diminishing marginal returns between spending money now and saving it for later, but whatever that point is for you, make sure you’re setting a consistent amount per paycheck aside. One suggestion I’ve heard for those struggling to stay on budget is to take out the amount you’ve budgeted to spend for that month in cash. That way, when the cash runs out you know you’ve hit your budget. It’s much harder mentally to part with bills than it is to buy something with the swipe of a card.
- Take the Match: If you’ve managed to snag a full time job then it’s possible that your employer is offering you a 401k match program. Take the match. This is free money. Not only will your company be depositing extra cash into your account via the match, but the money grows tax-deferred, meaning you will not be taxed until you withdraw the funds later in retirement. If you really need the money later in life, you can also borrow against your 401k funds.
- Interest Rates and Inflation: It is important to realize that the interest rate you think you’re getting on your savings account, certificate of deposit (CD), or bond is not the return you’re actually receiving on your money. As the amount of currency in the economy increases, so does inflation, meaning that your gains are relatively worth less. In fact, if the inflation rate is high enough and your interest rate low enough you are essentially gaining nothing by leaving your money sitting in your account. The bank knows this of course, and adjusts interest rates according to inflation, (the “real” interest rate). Do your homework, and keep this in mind when deciding where to keep your hard earned coin.
- Build credit while you can: You might be wondering what place a spending vehicle has in an article on savings, but building credit is actually critical to saving money in the long run. You’ll want credit later in life (or even now) to buy a car, house, or any other sizeable bank-financed transaction. Unless of course you can pay for all of that in straight cash, it’s good to get a credit card while you have a consistent income (assuming you have one) so that you can secure a favorable credit limit. The goal here is to buy a durable good and pay it off slowly and on time. By doing this you can build a solid credit history and secure a lower interest rate when it comes time to take out a loan.
- Credit unions are your friend: They tend to give you better interest rates than typical banks, less and/or lower fees (which are always helpful when you’re just starting out), and favorable annual percentage rate of charge (APR) on credit cards. Mine in particular has the added benefit of only charging a 1% fee on all international transactions, making it an ideal tool for traveling abroad. Credit cards also have the added bonus of refunding fraudulent charges where a debit card does not. You can find credit unions in your area here.
- Know your loans: There is a small minority of students who are fortunate enough to graduate without debt, but for the rest of us, loan payments will soon become a part of our monthly “routine”. That being said, there are certain things you can do to mitigate some of the damage to your wallet. One of those things is loan consolidation, which is available for federally funded loans (I’m currently considering this option as we speak). Loan consolidation can result in a reduced overall amount of debt, and only having to worry about one loan payment makes it less likely that you’ll end up with late fees (not that you’d ever forget anyways).
- You don’t have to pay for it all at once: This is true for loans and any other transaction where you don’t have to pay the entire balance up front (which is everything if you use a credit card). The tradeoff between avoiding interest rates and having spending flexibility (and future savings accumulation) cannot be ignored or pawned off due to ignorance of other options. Just because you have the funds to pay off sizeable chunk of your loans doesn’t mean you have to or should. That cash could be used to fund other opportunities and get you through periods of unemployment, so you’re not forced to take a job you don’t like just to pay the bills. It’s also a consideration you have to make when determining whether or not to buy or lease a car, for example. It’s nice to own your ride, but leases tend to come with maintenance and give you more month-to-month flexibility.
- Don’t be afraid to negotiate: There are few things in life that are non-negotiable, and the ones that aren’t you can still try to finagle. Whether it’s overdraft fees or interest rates on your accounts, you won’t get what you don’t ask for. Banks today are a dime a dozen, and they heavily compete to house your precious earnings. If you don’t like what you’re hearing, switch banks, or at least threaten to.
- Hold off on health insurance if you can: Thanks to the Affordable Care Act, we all get to stay on our parent’s health insurance until we’re 26. If they’re ok with keeping you on the plan and/or the cost of your company plan is more than what it takes to keep you on your parent’s plan, then opt out of insurance at your full time job. Companies deduct benefits from your salary, and one easy way to save is to take more home each paycheck. However, if you do need insurance and are working a temp job (which usually won’t provide insurance) or on the job hunt, it might not be a bad idea to work at a local CVS or grocery store to be eligible for benefits. You can’t work if you’re not healthy, and without health insurance medical fees can make visits to the doctor unaffordable.
- Read your snail mail: This is something I haven’t always been the best at (that’s why they have e-statements and notifications), but it is important. Your bank, credit union, or other financial institution will periodically send things to you in the mail. These documents range from bank statements to changes in terms and conditions and *gulp* even fees. If you don’t read your mail, you won’t know it happened, and you’ll be setting yourself up for failure. Do yourself a favor, and sift through all the junk mail to make sure you’re not missing anything.
This isn’t by any stretch of the imagination meant to be an exhaustive list of guidelines, but they are easy to implement and can pay huge dividends if adhered to. Look out for the next article on digital tools you can use in conjunction with these methods to keep your life on track.
Are you a recent college graduate with some other money saving tips? Post them below. I'd love to hear them.
 A financial product with a set maturity rate that pays the owner an agreed upon interest rate in exchange for restricting withdrawing funds on demand without incurring a penalty. They typically range in length from one month to five years.
 The rate per annum at which your financial institution charges interest on your outstanding debt