How to Approach Investing as a College Student
Check out this article to learn how credit cards, budgeting, and investing can build the foundations of success for yourself in college and beyond.
By Jacob Stellick — March 10, 2023
One of the most glaringly obvious things absent from high school and college classrooms is the instruction of personal finance to students. The importance of personal finance and understanding what that means for current situations and how it sets students up for their futures cannot be understated. Having a grasp on credit cards, budgeting, and investing can build the foundations of success for yourself in college and beyond.
Choosing a Credit Card:
One of the first things a college student will likely run into during their first days at college is a representative trying to get them into a credit card. One of the first things to look for is a card with no annual fee. While the appeal of a fancy metal card with all these perks is high, the cost of having these cards is just as high. A card like the American Express Gold costs two hundred and fifty dollars annually.A card without an annual fee is a card you can open and keep forever. Eventually, a card with an annual fee may make sense once you are in the workforce and are traveling more frequently, but for your first card as a college student, a simple and uncomplicated card is the best choice. Getting a card from companies like American Express, Chase, or Discover will often provide better rewards and benefits than cards that credit unions or banks offer. These cards often provide little to no bonuses, especially compared to credit card companies cards.
For the same reason, getting a card from stores like Kohl's or other stores is not the best choice as a first card. While the benefits from those stores may be high, those benefits will end when you exit the store. A card with benefits or cash back that can be earned everywhere will serve you far better than one that applies only to one store.
Creating and Understanding a Budget:
While a credit card will help you spend money, budgeting will ensure that you are not spending more than you have and can help you track where your money is going. A budget does not have to be this beautiful excel spreadsheet. It needs to help you track where your money is coming and going. While in college, a part-time or full-time job can help you pay for tuition and anything else you might want to do. Calculating how much you make will be your first step in creating a budget. Using tax software that is available online, you can find out what your net income is after taxes. You'll want to list all of your fixed and variable expenses. These can be things such as groceries, a gym membership, utilities, and phone costs. Variable expenses are those expenses that will not be a constant month over month.Now that you've calculated your income and sorted your expenses, you can calculate your budget surplus or deficit. The next step is to choose a period to structure your budget. This may be weekly or bi-weekly. These time frames will be more simple to track, especially if you are starting on your budget. To calculate your weekly budget, for example, deduct your general expenses from that number, such as rent, insurance, phone bill, and anything else that you know the expense cost ahead of time. Then, divide the remaining income by the number of weeks in the month. This gives you the total your budget will be working with each week.
Once you have that number that you will be working with each week, you can begin to set goals for your budget. It is essential to have a mix of both long and short-term goals. This will help keep you on track with progress. Budgeting allows you to take a hard look at where your money goes at any time. If you find yourself low on funds after you've calculated the fixed expenses you have, you need to take time and look at the rest of your costs and ask yourself how they can be trimmed. After looking at your expenses, you can focus on goals to begin saving or reducing costs.
Investing as a Student:
No person is born with an innate ability to understand investing. While some people might be lucky enough to have investors in the family that can bring them up to understand the world of investments, many people do not know what they are doing. Educating yourself when you are young is one of the most valuable things you can do for yourself. As a student, education on investments may seem like something you do not need to worry about, but long-term compounding of assets can make more than a little difference throughout your life.Small savings add up over time, and starting at a younger age can make huge differences. If you save $100 per month starting at age 18 and use an average rate of return of 5%, by the time you are 45, that investment will be worth $68,704. If you move the age of when you start to just 25 with the same parameters, your investment by the time you are 45 will be worth $41,375. After just a few years of putting off investment, the difference in your assets will be $27,329. That is 40% less than you would have if you started seven years later than at 18 years old. Reading books like "The Intelligent Investor" by Benjamin Graham and researching different types of investments can help build your understanding of the world of investments and set you on the path toward success.
While high school and college may fall short at times of telling you how to manage your finances, resources exist that can help you work to keep yourself educated and informed. From credit cards to learning about investing, understanding personal finance can help you to build the foundations for success for the rest of your life.
Jacob Stellick
A Chicago native, Jacob Stellick graduated from Wisconsin Lutheran College after studying finance and accounting. After graduating, he moved to Wauwatosa, Wisconsin. His free time is spent studying history, traveling, and continuing to follow his passion for photography.
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