College students often fall under a common stereotype: broke. Taking 15 or more credits a semester leaves little time for paid work.
“Personal finance is 99% behavior and 1% actual money,” said Jonathan Maynard, a financial analyst from Connecticut. “Save first, spend later. Build that habit young, and you’ll be better off than 90% of Americans.”
Maynard is an experienced professional in his field who has helped many students and others with their finances, including giving his own TED Talk.
Maynard recommends William Paterson students follow these steps to spend their money responsibly:
Spending habits:
Develop habits, no matter the amount of money you have, save and stay consistent.
“The biggest thing is habit building… even if it’s small dollars,” Maynard says. “The way the order of operations really should work is you should save first, then spend your money.”
Repetition is important, and building good habits can help with finances and everyday life. For example, one may need to build the habit of getting up for class and going to class on time.
Saving is also one of the most important things a college student can do. Everyone has a different situation, and as Maynard says, “Every Penny counts.”
“Your emergency fund as a college student should have three months’ worth of expenses in it. That means if your essential bills—like rent, car payments, insurance, groceries—add up to $500 a month, you should aim to have at least $1,500 set aside.
It doesn’t have to happen overnight, but the sooner you build that cushion, the better. Life happens—maybe you lose your job, unexpected costs pop up, or you need to cut back on work hours to focus on school. Having that money set aside gives you flexibility and keeps you from falling into debt.”
Credit and how to use it?
Maynard says that students should “only get a credit card if they have a consistent income—and pay it off in full every month.”
A credit card is not free money; using one is borrowing from banks and credit unions that let the user have their money. Many adults fall into an endless loop of paying the minimum every month and going into more and more debt.
“If you don’t pay on time, or at least the minimum, that will hurt your credit,” Maynard said.
Credit cards often have something called an annual percentage yield, where every month interest is charged on the money that is used.
For example, if someone spends $100 on a credit card in one month, the interest on that 100 could be 30%. So when interest occurs, the person now owes $130 on the $100 they borrowed. This continues every month, if a payment is not made on the $130, then interest will occur on the higher amount.
This is called compounding interest and what puts millions of Americans into debt every year. This is why paying off a credit card every single month in full is of the utmost importance.
“Figure out which type of person you are—there are credit card people and non-credit card people,” Maynard says.
Credit cards are not for everyone, some even see them as dangerous. Though this is true, using a credit card responsibly and paying it off every month can raise your credit score and benefit students in the long run with mortgages and even car loans.
Investing:
What it is, how it works, and why a student should do it.
At its core, investing is putting your money into assets that have the potential to grow over time. “A stock is a piece of ownership in a company where you share in the future profits, cash flows, and dividends,” Maynard said.
Unlike keeping money in a savings account, where interest is minimal, investing allows the money to work, growing over years or even decades.
When talking to Maynard he says, “Investing is a long-term proposition—it’s not a casino.” This also includes investing in individual stocks that a student may pick individually.
Of course someone might have some luck and the company can grow, but if that company goes out of business, the person could lose all of their money. That is why Maynard recommends investing in index funds, “You can’t beat the market—so be the market,” he says.
An index fund is a collection of stocks bundled together to reduce risk and maximize growth. Instead of investing in one stock, which can fail, invest in 500 of the best stocks, which are automatically diversified across multiple industries, making index funds a safer option for beginners.
The biggest advantage of investing young is compounding growth— the idea that investment will multiply over time. Even if a student can only invest $50 a month, that money, when left untouched, could grow into thousands by the time they retire.
“A Roth IRA is one of the best ways for young people to start investing. Future you will thank you,” Maynard said.
The bottom line? The earlier you start, the better, by focusing on long-term investments and saving constantly. College students can set themselves up for a financially secure future—without needing to be experts in finance. As Maynard puts it, “Just be the market.”
