In Q&A #4, we look at how college students save money easily without feeling broke or making huge lifestyle sacrifices simply adopting one powerful “One-Step Plan” for saving and investing.
Question:
How Can College Students Save Money?
Obviously, it would be ideal to graduate college with some money in the bank.
That way, you could move to a new city, put a deposit on a car, and buy nice clothes for work.
Or maybe, just so you have options available besides moving back in with your parents.
But graduating with money in the bank isn’t that easy, nor very common these days.
Between student loans, paying rent, and affording “necessities” like food and textbooks, every penny seems to count a little more when you’re a student.
For that reason, it’s not practical to lay out a wild budgeting plan to help college students save money.
The key is this:
Set yourself up to become an “Automatic Millionaire” by saving (preferably investing) 10% of every dollar you make. Find a way to live on 90% of your income.
Not Here To Read; Just Give Me The Resources
- Book: The Automatic Millionaire: A Powerful One-Step Plan To Live and Finish Rich
- Book: Dave Ramsey: Total Money Makeover (for students with college debt already)
- Podcast: EP15: Eliminate Debt and Reach Financial Goals w/ Travis Jennings
Answer:
Lessons From High School
I like to tell people I learned 3 things in high school:
- How to lift weights
- How to save money
- How to BS papers so I would get a passing grade
A weird trio of “skills” to emerge with for sure, but after being a teacher for 4 years, I can explain exactly why 2 of those 3 things have stuck with me.
In the case of #1, my favorite high school PE teacher (the person to whom I dedicated my first book) showed me CrossFit and taught me how to lift weights.
In the case of #2, my high school personal finance teacher taught simple tactics for saving and investing that he had actually used, making the material interesting through logic and personal experience.
Even the bonehead kids (me) listened to him because it was clear he knew his stuff.
That’s what great teachers do. They practice what they preach and find ways to engage their students.
The “Automatic Millionaire”
Just save 10%
Back to lesson #2, I left that personal finance class with 1 money-saving lesson that I’m passing on here to help college students save money.
That lesson is simple:
Become an “Automatic Millionaire” by saving (and investing) 10% of every dollar you make.
Sounds simple, right? It is.
But it’s also incredibly effective for saving money without feeling like you’re making a huge sacrifice.
Do The Math
Take a job that pays $55,000 (after taxes) per year. Hopefully, with a college degree, you’ll find a job that fits that description.
If you were paid every other week, that would mean a deposit of about $2,292 into your bank account every 14 days.
If you were following the “Automatic Millionaire” savings plan, you’d simply take 10% of that (in this case, $229.20) and deposit it into a separate account or investment product.
That leaves you with roughly $2,062.80 every 2 weeks to pay your bills and entertain yourself.
Crunch The Numbers
Take the $55,000/year salary, meaning roughly $4,580/month.
If you saved just 10% of that $4,580, you’d be saving $458/month ($5,496/year).
Now pretend you get savvy and start investing your 10% savings each month.
If you banked $458/month every month for 30 years at a 6% return rate, you’d end up with $448,033.16!
Okay, so maybe you’re not a millionaire in this scenario.
But that’s just one example, and if you got good at investing, you could surely make more.
Either way, that’s still a lot of money for someone making around the median American wage!
Crunch The Numbers (for College Students)
Let’s use a college-specific example.
Pretend you make $700/month working a part-time job while in college.
If you committed to this approach, you’d agree to save $70/month ($840/year).
We’ll assume you aren’t investing yet and just depositing that money each month diligently.
If you banked just $70/month every month for 48 months (4-year college degree), you would graduate with $3,360.
With this money, you can get your own place, put some money down on a car, or move to a new city to start your adult life- all without a major financial sacrifice!
Life Lessons
Finances are funny, as they tend to mirror the timeless lessons and principles of life itself.
In this case, making very small investments over time pays off.
There is a reason Einstein called compound interest the Eighth Wonder Of The World.
I haven’t read the actual book version of The Automatic Millionaire, but you can find that here.
2 Biggest Keys For College Students
The 2 biggest hang-ups people have with saving money are:
- Not following through or sticking to the plan
- Feeling like it’s a huge sacrifice and giving up
Key #1: Make it automatic and don’t make excuses.
The easiest way college students save money with this plan is to make it automatic.
That might mean:
- Transferring the money before you do anything else (including paying bills)
- Opening a separate savings account and having it automatically transferred each month.
- Using your checking account to pay bills and your savings account for your “Automatic Millionaire” fund.
Key #2: Commit to learning to live on 90% of your income.
It doesn’t matter if you make $5,000/month or $500. You can still use this system and benefit from it.
But the most important thing you must do is to make an agreement with yourself that your 10% savings is untouchable.
How will you learn to live off $4,500 or $500? I don’t know exactly that answer. It’s your job to figure it out.
Some Tips:
- Reframe your 10% deposit as if you are paying yourself, not taking money away.
- Quantify the amount of money you are depositing. Is it 5 fewer trips to Starbucks per month? 1 less night out partying?
- Set a goal. When will your 10% savings be available to you? After you graduate? 5 years after? Estimate how much you’ll have accumulated by then.
When you think about it, 10% isn’t that much of a sacrifice.
And trust me. Actually, trust the math- it will be worth it in the long run.
If you’d like to receive a free copy of last week’s College Savings Newsletter with $99+ in discounts on college life “necessities” like food, textbooks, and clothing, click here.
For more answers to popular College Q&A Questions, click here.
