So now that you’re old enough to have a part-time job and earn your own cash, what good options do you have for your money?
You’ve finally gotten that job as a waitress, a lifeguard, or maybe just cleaning up horse manure at a local farm. Whatever it is, you’re no longer dependent on your allowance to buy that new Katy Perry album. With all your excess cash, you might even buy six copies. Why not?
Here’s a better idea: save. “There’s no easy time to start saving, so do it now. Putting away just $5 a day when you’re young could make you a millionaire someday, if you save smart,” says Beth Kobliner, author of “Get a Financial Life: Personal Finance in Your Twenties and Thirties.”
Making money work
Savings options are plentiful, if you look. Banks offer savings accounts, checking accounts, money market accounts, and certificates of deposit, while brokerage firms offer money market funds. But that all seems like a hassle. Why can’t you just stuff your extra money inside your old Nike? The answer is simple.
“Your shoe doesn’t allow your money to work for you,” Kobliner explains. “Money in the bank pays interest. That one percent or two percent you get from the bank may not look like a lot, but it gives you a chance to keep up with inflation ... and the interest rate on your shoe is zero percent.”
Savings accounts also earn called compound interest. For example, if you have $500 saved in a two percent interest rate account, you would earn another 10 dollars (by multiplying $500 times .02) in that first year just by putting your money in that bank. The $510 in will then gather its own interest over the next year, making your money actually grow.
“You really want to make your money work for you,” says Kate Trombitas, formerly a financial counselor to students at Ohio State University and now vice president of Financial Education at Inceptia. “So take advantage, even though interest rates are fairly low right now, of any kind of interest rate you can earn on your money. It’s free money, if you think of that. Why wouldn’t you?”
Shop around for account
You have to decide what type of account you’re looking for and which type of financial institution—bank, credit union, etc.—would be best to partner with. You can narrow your search by using Bankrate.com, a website that allows you to look for the best rate available for each account type. If your local bank isn’t on the site, call and request a quote. Shop around and compare.
Kobliner suggests finding an account that won’t charge for checking or monthly minimum amounts and also offers free-access ATMs near your daily route.
Once you’ve chosen the right account, it’s time to set it up. You will need proper identification—often a state-issued driver’s license and possibly your birth certificate. If you’re under 18, you’ll have to open the account with signed approval from one of your parents.
Sooner is better than later
“I’d tell a freshman or sophomore to start saving right away. You’re not really going to miss that money,” says Marlena Hensley, who attended Art Institute of Pittsburgh and opened her savings account in 2004. “If you just put it away, when it comes time to buy a car or pay for college, you’ll have it there and you won’t have to worry about scrounging around for anything.”
The sooner you start, the more you’ll have when you’re ready to buy what you really want. “[Students] should save from every paycheck and, if possible, a minimum of 10 percent,” says Stephenie Rulli, creator of Generation Millionaire, a service that seeks to empower young adults in their financial decisions. “The best way is to direct deposit to your savings account—that way you aren’t tempted to spend it, and you never miss it if you don’t see it.”
So go for it. Seek out an account that’s right for you, set it up, and start pouring in money. Five years from now, you’ll laugh that you ever thought to buy six copies of one album.