It’s smart to give your finances a head start. Even if you’re still in college and working toward your degree, it’s never too early to think about investing.
Establishing good financial habits before you leave school will help you make your dreams come true in the future.
Wage growth has been slow in the last several decades. Even if you can get a good job right out of college, chances are good that you’ll still have student debt to pay down in addition to saving for large purchases, like a car or house.
If you’ve been thinking about investing, then you’re already in the right mindset. Here are some basic investment tips to get you started.
Start Investing Early
Most people will tell you to start saving early. While it is important to have an emergency fund, it’s also important to start investing your money.
The money you save in your savings account will be there when you need it, but it’s not going to grow and help you support yourself in the future.
The earlier you start investing, the better. You can put a little bit of money into investments and watch it grow year after year.
If you wait until you feel you can “afford” to invest, you won’t be able to really get the most out of your money. College students can get to $1 million by around age 82 by investing just $6 a day!
Build Healthy Financial Habits
To make room in your budget for investing, you have to let go of the need to have new clothes and electronics constantly.
Our consumer-centric culture tells us that we need more, more, more all the time, but that’s not really true. You can enjoy life without spending hundreds of dollars on the latest shiny object.
Think of easy ways to make your money go further and start building healthy financial habits. Good habits include shopping secondhand, making meals and coffee at home, and budgeting every dollar.
Getting used to a more practical lifestyle is easier if you start in college!
Index Funds & IRA Accounts 101
So where should you start investing your money?
While it might be tempting to invest in startups with cheap stocks in hopes of finding the next Apple, it’s much safer and more reliable to choose low-risk options like index funds and IRA accounts.
Index funds are a great introduction to the stock market because they combine a portfolio of “safer” stocks and you don’t need to choose anything individually. These are based on the S&P 500 and generally offer slow, steady growth for long-term investing.
An IRA (Individual Retirement Account) is a retirement savings account that grows throughout your career. There are two types of IRA, with the traditional IRA deferring taxes until withdrawal at age 59.5 or later.
The Roth IRA allows greater access to the funds but does require that taxes are paid in the year the funds were deposited.
When you have more income later in life, you can choose to gamble a bit more, but starting in these funds early makes the most sense for students. Ultimately, you want to go for diversification.
Don’t wait too long on any one strategy—diversify as soon as you can while making smart choices.
And the most important point: start investing and don’t stop! Make it a financial habit, right alongside budgeting. It’s important for your future!
Fantastic Resources to Learn More
Learning about investing can be intimidating and overwhelming, especially if you’re busy with school.
The good news is that there are a lot of great investing resources out there that can break down complicated topics and help you become more confident in your financial skills.
Some great choices include:
- The Motley Fool
- The Plain Bagel (on YouTube)
- Oblivious Investor
- The Big Picture
Explore lots of different resources and find the ones that help you gain more understanding. There are tons of experts offering tips for free!
Take a Finance 101 Course While in College
College will help you build skills for your career, but it’s also a great time to focus on life skills. You can take practical courses in college, like Finance 101, to help prepare you for the real world.
If you’re like most young adults, then you’re probably a little bit nervous about doing everything for yourself when you move out!
Lots of people don’t even think about investing until years after they’ve graduated. You’re already ahead of the game because you’re thinking about your finances and investing.
You don’t have to start big—just start!