Pop quiz. How early is too early to start saving for college? For a home? For retirement? And what does this have to do with you saving money from your summer job? A great deal, it turns out. That summer job presents you with a perfect opportunity to learn how money works and how to invest it.
If you have reached this stage in your financial development, here are four things you should keep in mind as you start investing the money you made on your summer job.
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1. What are Your Savings Goals?
Before you can actually invest your money, you need to know what your goals for it are, according to CNBC. For example, maybe you need to save for a car or for college. That kind of goal will require a different timeline than investing your money for a home or retirement.
It’s okay if your investment goals address more immediate concerns, like getting a vehicle. Part of learning to take care of your money is learning how to have goals with different completion dates. This will be something you deal with all your life, so it’s better to develop the skills to handle that now.
2. Parental Influence:
How your parents have taken care of their money (or not) can have a big impact on how you see investing. It’s best to look at their financial habits to see what they did correctly and what their missteps were. If they’re open to it, you should even talk to them about this. It will give you insights into how they made their financial decisions, which may influence you on both a conscious and a subconscious level.
3. Bank Account Basics:
An article on Reuters suggests that teens who want to invest their money start by putting their money in some basic accounts, like a checking or savings account, depending on what their bank rules allow.
This is where your money and your investment focus should go first. It’s wise to put your money in these accounts and keep it there for a couple of years before you start some serious investing. By doing this, you’ll learn the basics of investing, especially if you use an app designed to teach you how to care for your money.
4. Future College Expenses:
College counts as a huge expense for most people, and with student debt rates soaring, saving for college while you’re young only makes sense.
Start by looking at the tuition for your school of choice. For example, if it’s $2,500 a semester, not including books, you need to decide how much you need to put away each paycheck to save for this and for how long.
If you work a job that pays $8.50 an hour and you save $6.00 from each hour, you’ll have about $4,000 by the end of the summer. That will pay for almost a year of school.
It’s important that you break your investment and savings goals down like this. Otherwise, you’ll have a shortfall when it’s time for your goal to be realized.
5. Retirement and Long-Term Goals:
Nerd Wallet assures young investors that it’s never too early to start saving money for their retirement. The earlier you save, the more money you’ll end up with, not only because you’ve been saving your money for longer, but also because you’ll enjoy the benefits of compound interest. In fact, saving for retirement is the best education in compounding that you can give yourself.
A little bit of money put aside over a very long period of time will net you a great deal. An initial investment of $1,000, plus about $100 a month invested over 40 or 50 years could earn you more than a half a million dollars. The majority of this money will come to you as a result of compound interest. Only about $60,000 of it will be money that you actually put in the account yourself over your years of investing.
It’s never too early for you to learn how to invest your money. If you have a summer job, then you have cash enough to save up for a car or a college education in the short-term or a house and retirement in the long-term. Your summer job savings habits could teach you about how to manage your money, as well as how compound interest works. In the latter case, if you master that, you could have more than enough money to enjoy your retirement years in style.
Davenport Laroche’s headquarters are strategically located in Hong Kong which allows investors to benefit from the busiest trading market in the world, China.