Happy Friday, y’all! If you’re lucky, Friday also means payday – which I figured is a great opportunity to talk about one of the most important money management habits you can adopt in college: saving. (This post is the second part in my money management series. If you missed part 1, which was all about budgeting, you can read it here.)
Honestly, saving as a college student doesn’t seem super necessary. We all basically have just enough income to get by, so why would we set aside any of that money when we could use it on late-night pizza or a round of drinks with friends? Well, my economics major is coming out in this answer, and my answer is something called “compound interest.”
The moment you start saving, you start earning interest on your savings. And that interest earns interest. It’s weird to think about retirement and sending kids to college as a college student yourself, but there are all sorts of fun graphs on the internet that show just how effective starting a savings account early in life can be.
And on a personal note, having savings is important because, as I’ve realized: when it rains, it pours. This summer, over the course of a 24-hour period, I experienced both a computer breaking and getting diagnosed with pneumonia. In one day, I had to purchase a new laptop and pay the co-payments for an urgent care and emergency room visit. That’s a lot of money, and if I didn’t have savings for rainy days like these, I could have been in a lot of financial trouble.
How Much Should I Save?
Essentially, there’s really no one-size-fits-all method to determining how much you should save. It requires an assessment of how your income stream works and what you can feasibly save while still purchasing the essentials. I’m going to talk about two different saving methods here, one of which I’m using currently, and one of which I plan to start using once I have a “big girl” salary.
The way that I save now is a result of separating my income into two sources: primary and secondary. The primary source is how I pay for my rent, groceries, etc. It’s what I use when I budget. The secondary source is from my “side hustles” – my work as an independent contractor, tutoring, and blogging. With my “side hustle” income, I save 50% of that income. Right now, that’s what’s most feasible for me.
However, once I have a job that pays me more regularly, I’m going to start saving 10% of my total income. That’s the usual suggested savings rate and allows you to set up a really solid savings account for the future. So if you’re in a position to start saving at that rate now, go for it.
Ultimately, how you choose to save your money is a result of sitting down, looking at your finances, and seeing what you can set aside as savings. Yes, it may mean you go out to eat a little less or buy Starbucks a little less frequently, but I promise, it’ll all be worth it in the end. You’ll get to use that money for something really cool – I’m using that money to go to South Africa after I graduate. And at the end of the day, I’ll give up a couple extra lattes for something as cool as that.