You scored a job or found ways to make some extra summer cash, and now you’re wondering what to do with all that money before the semester starts again.
While it might be tempting to spend it (after all, you’re no longer broke!), getting a head start with your finances can be the best overall move to make with your money right now. Before you know it, summer will be over, and you’ll have thousands saved up in the bank to show for it.
In that spirit, here are five smart money moves to make with your summer cash.
1. Create an emergency fund
As a college student, you likely don’t need a huge emergency fund. The typical recommended amount to save is three to six months of expenses, but starting at $100-$500 range is fine.
At this point, your car and any technology you own are likely your biggest liabilities that you need to plan on repairing or replacing. Having this savings cushion will lessen the blow when the time comes.
2. Save for specific goals
Maybe you want to save up for a down payment on a car, buy a birthday gift for a relative or friend, or take a long trip during winter break. All of these things are now possible to buy without a credit card.
Figure out the total amount each of your goals will cost and divide that by the amount of time you have to save. Set aside money from each paycheck to go toward these goals. Little by little, the meter will fill up, and you’ll be able to enjoy your purchases (or gift-giving) without the burden of debt.
3. Start saving for retirement
You might be laughing, but it’s never too early to start saving for retirement. The earlier you save, the easier it will be to retire on time (and with enough money to last).
For example, let’s say you’re 20 years old, and you contribute $100 per month toward retirement for the next 30 years. Assuming a six percent return on your investment, you’ll have a total of $100,451.50 by the time you’re 50. Not bad, right?
If you don’t have access to an employer-sponsored 401(K) yet, look into opening a Roth IRA on your own.
4. Start paying off student loan debt
Why should you focus on paying your student loans before you even graduate? Well, there’s this little thing called interest that you should know about.
Interest accrues on unsubsidized federal loans (and most private loans) while you’re in college, and this interest will eventually capitalize six months after you graduate. That means that thousands of dollars in interest will be added to your overall student loan balance, assuming you owe a decent amount in the first place. What might have been a $10,000 balance can turn into a $12,000 balance.
By making small monthly payments ($25-$50), you can start chipping away at this interest so it doesn’t overwhelm you later on. Take action now to give yourself some breathing room after graduating. You’ll need it!
5. Set aside money for fun
Assuming your “specific” savings goals aren’t focused on fun activities, like travel, set aside some of your money for fun nights or trips during the summer. We’ve covered a bunch of financially responsible money moves here, but they don’t mean anything if you’re not enjoying life.
The easiest solution is to include fun in your budget, whether it’s on a weekly or monthly basis. Give yourself around 10-20 percent of your paycheck to do whatever you like with while you don’t have too many financial obligations!
If doing all of this seems overwhelming, just take it one step at a time. Prioritize according to your situation. Doing something is always better than doing nothing.
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