By Denver Ellison
As college students, we find many ways to blow through our money. We like to use our funds for new clothes and going out to eat with our friends. However, many finance professionals believe college students should recognize the importance of saving. Not only will it help us to be more responsible as young adults, but it will also help us build our retirement funds. Here are some of the main reasons why college students should have a savings account and practice saving portions of their income beyond simply having enough left over to pay the rent.
Prepare for Emergencies
Many of us like to think that we are invincible and that nothing bad will ever happen, but that is rarely the case. Cars break down. Parking tickets are common. And tires go flat while you are on a road trip. It’s much better to have money saved up for these bizarre events, rather than to scramble for the money when these things happen, said Matt Goren, who teaches personal finance at the University of Georgia.
Savings Creates Peace of Mind
When the money starts to dwindle in your checking account, there is peace of mind when you have money stashed away. If you don’t save and blow through the money in your checking account, anxiety can be intense when you are left with no money at the end of each month. The stash in your savings account can serve as a buffer to keep from hitting zero.
Goren said the money in your savings account should be used to create a realistic threshold for our available funds.
“Zero should not be your threshold,” Goren said. “Going back down to nothing isn’t good. Go back down to your huge buffer. If you ever go below your buffer, the goal is to get back up to your buffer.”
Money Is Easier to Accumulate Over Time
We may think it will be easier to save money once we are grounded in our careers. This is mostly because the money that we have during college is usually a minimum wage salary or the money our parents sends us. But, if we start saving small amounts now then we may not be as stressed and pressured to save money as we get older. Swarn Chatterjee, an associate professor in financial planning, housing and consumer economics at UGA, detailed how saving small amounts when we are young builds up as we get older.
“It is easier to prepare for retirement or your other goals if you start early than if you start late,” Chatterjee said. “Because, if you start late, you have to save more every year. If you start early, even saving a little bit accumulates over time.”
The Power of Compounding
The money we leave in our savings accounts doesn’t just sit there collecting dust. It collects something far more interesting – interest. Every dollar we save collects interest, so those small amounts we tuck away each paycheck can turn into larger amounts as time goes on. Chatterjee, explained the power of compounding.
“So, you save, you earn some return or interest on that investment, and then, in addition to your savings, the interest that you earn generates more interest and more returns,” Chatterjee said. “It creates a rolling effect where it keeps accumulating over time.”
Remember all of these reasons to save before you spend your next paycheck on new summer clothes. Although, it’s nice to spend the money we have, it is even nicer to understand that through disciplined saving habits we don’t have to be broke college students forever.
Denver Ellison is a journalism major at the University of Georgia’s Grady College of Journalism and Mass Communication.
