The Student's Guide to Money Management - Saving and Investing

Start saving regularly for short-term needs.
It's just a fact of life that some months will be more expensive than others - you can't predict emergency medical expenses, last-minute travel plans, or an unexpected car repair. Work on building an emergency savings to cover those kinds of additional expenses.

Financial experts often recommend an emergency savings funds of three to six months' living expenses for working adults, but it really depends on the individual's circumstances. Students who still live with their parents can be safe with much less than that. If you have relatively few expenses outside of your education costs, $1000 is probably a good emergency savings goal for a student with no dependants.

But, it will take time for you to save that much. A credit card can be used for true emergencies until you have enough saved to fall back on, but only if you have to. Then pay the balance off as soon as possible!

You can save for whatever you want, but make it a priority to save an emergency fund so that you won't be forced to put emergency expenses on a credit card and run up debt. Once you have an adequate emergency fund, you can start saving for the fun stuff, like gadgets, fashion, and spring break.

Save whatever you can. More is better, but it's still worth doing even if you can only come up with $25 a month. The key is to do it regularly. You probably noticed that savings was listed under your expenses under the budgeting section. It's important to commit to pay yourself every month. It's very difficult to just save "what's left over" at the end of the month, because there may not be anything left if you don't budget for it.

Keep your savings in a separate savings account. A checking account is for spending, so it will be more difficult to actually save if you keep your savings with your spending money. Use an FDIC or NCUA-insured financial institution to be sure your cash stays safe.

If you're really disciplined, you may be able to put away more than what you'll need in the immediate future. Consider putting the extra savings into a bank or credit union Certificate of Deposit (CD). CDs are just as safe as a savings account, but CDs pay better interest than a traditional savings account.

The catch is that you can't withdrawal the money early or you'll pay a penalty, but this situation can be avoided with careful planning. You'll decide on the term (the length of time before the money is available penalty-free) of the CD when you buy it, so choose a term that matures when you plan to use the cash. CD terms are generally from three months to several years, but it depends on the issuing financial institution.

Think about investing for your future.
Investing for retirement or any other needs in the distant future may be the last thing on your mind right now; you might feel like you have plenty of time to worry about that after you start your career. And that's just the point - unlike the vast majority of the workforce, you have valuable, precious time on your side. Time is your most valuable asset when it comes to investments, so it's financially more rewarding to start as soon as possible.

Investing is not for the vacation you want to take next year or the car you want to buy when you graduate; investing is for long-term financial goals, such as buying a dream home, paying for your future children's college tuition, or funding your retirement.


It may be a little early to invest at this point in your life, but it's not too early to position yourself so that you can start sooner than later. Before investing, get your financial house in order:

• Pay off expensive debt first, such as credit cards and personal loans. "Good debt" like low-cost student loans and mortgages are okay, but cautious investors sometimes choose to eliminate these debts before investing at all.

• Save three to six months of living expenses in an emergency fund. Investments will fluctuate in the near-term and you don't want to be forced to cash in when the market is down if something comes up.

• Save for near-term discretionary spending so you don't put those purchases on credit. This is for the fun stuff, like vacations, big TVs, and other things you want.

• Start researching the different investment options once you get your debts under control and enough cash saved. There are many choices for investors - stocks, bonds, mutual funds, real estate. And there are different ways to set up your investments - regular accounts and tax-advantaged accounts.

The thing to remember is that investments are not a get-rich-quick scheme. Some like to say that investments are part of a plan to get-rich-slowly. But not every one makes money on their investments; many have lost everything they have with the wrong investment. Careful research is important.
I'm not going to get into the details of investing in this article; there is not enough space for that in this introductory article. But I do want to tell you how important it is to use investments as part of your overall money management plan. We'll cover more on investing in an upcoming article.

Good habits now will stay with you for a lifetime.
Good money management now will pave the way for a solid foundation and help you avoid many of the financial pitfalls that can trap young adults long after graduation.

If you're new to handling your own finances, don't ever get discouraged and think that you're not good with money. Money management is a learned skill, one that you will need to meet your financial goals through every phase of your life.

Every body makes a bad money decision now and then, but the key is to limit those bad decisions. So if you make a mistake, don't beat yourself up about it, but learn from it. With practice, your skills will develop and you'll continue to make better financial decisions as different situations come up.

You already understand the basics of the most important aspects of good money management - budgeting, debt control, saving, and investing. Take charge of your finances and develop good habits that you'll profit from.