Time is on your side for financial success, especially if you start saving for college now.
By Jenny Hoff
If you’re heading to college in the fall, you’re probably already getting in the mode of either saving money to pay off your loans or figuring out how you’re going to earn money while also taking on several classes. The good news is if you are thinking about your finances right now, you’re ahead of the game. You can start planning early and learn how to avoid making common college mistakes that can lead to insurmountable debt and financial stress. Here are some ways you can get a head start on financial stability.
Take advantage of the economic environment.
If you’ve driven around Austin lately, you may have noticed a huge percentage of stores and restaurants are hiring, with starting rates much higher than the minimum wage. For many small-business owners, one of the biggest problems they are facing is finding good employees. Which means it’s a great time to be looking for a part-time job. If you have an idea of what you want to study in college, this may be a good time to both earn money and get in some experience in your field of choice, since there is such a demand for entry-level positions.
Open a Roth IRA and contribute to it.
One of the first lessons that should be taught in high school is the power of compound interest. You have a huge advantage if you invest money into the stock market when you are young. If you open a Roth IRA through a company like Fidelity or Charles Schwab, you can contribute up to $6,000 per year after taxes into the account. When you take that money out in 30 years, you pay no taxes on what it earned.
For example, let’s say you figure out a way to contribute the $6,000 allowed every year for 10 years (from 20 years old to 30 years old), contributing a total of $60,000 over that time period and then never invest another penny. When you go to take that money out 30 years later, your $60,000 will have turned into about $500,000. And you won’t have to pay any more taxes on that amount. It is the closest you can get to producing money out of thin air, so take advantage of it if you can. Your future self will be extremely grateful.
Harness your current skills.
Are you a good pianist? Charge $40 per hour to parents eager to get their kids musical instruction. Are you great at math or writing or science? Offer your tutoring services for $25 per hour. Maybe you love mowing lawns or gardening. People are willing to pay big bucks to offload those chores on eager workers. Join Facebook groups in your area, get on the Nextdoor app and market your services so you can put more hours into your college studies while still making great money.
Avoid credit cards; opt for prepaid cards instead.
You need to consider credit card purchases as a rare event instead of your go-to source of money. Countless people have left college not just with a degree and massive student loans, but also thousands of dollars in credit card debt, making their first venture into adulthood stressful and scary. Whatever you put on your credit card you should pay off in full every single month to avoid mounting debt, accumulating interest and bad credit scores. A great way to avoid overspending is to use prepaid cards or debit for purchases so you won’t get any surprise bills in the mail that you can’t pay.
Learning some basics like budgeting, investing and saving can set you up for success the day you graduate. How much you eventually earn isn’t as important as how you use the money you earn. Plenty of high-wage workers end up in debt because they never learned basic money management. Give yourself a money crash course before starting school and you’ll ace your financial future no matter what career you decide to pursue.