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America Saves Week: Saving for Emergencies in College

4 Mar

AmericaSaves-Leaderboard-728x90-static-rainyday.jpgEmergency savings aren’t for fun. When you don’t need it, you look at a nice sum in the bank that you could be using for something fun. When you do need it, you’re going through some sort of financial crisis and probably won’t be patting yourself on the back for being prepared.ASW Emergency 2 TXT.jpg

As a college student you might not have a lot of spare money sitting around, but having some cash set aside is a lot more pleasant than having to ask the Bank of Mom & Dad for funds because you weren’t prepared. Even if you need to ask for some help, you can save a lot of pride if you let them know you’re able to contribute toward whatever emergency you have.

So how much money should a student save for emergencies? There’s no answer to cover everyone other than “it depends”. The best advice is to anticipate what types of emergencies you may need it for. Things like blowing the transmission in your car, unplanned travel to be with a friend, embarrassing personal health situations, or minor legal issues (like tickets) can all be things that you might feel weird asking your parents to help cover. Even asking for help with reasonable things like food and rent can be uncomfortable if they know that you blew the money you were supposed to use.

A good goal is to save around $500 somewhere where you can’t spend it easily, but can access it when you absolutely need it. That might not cover everything, but it’s a good start on most minor situations you will find yourself in.

How do you get that $500 saved up? Here are three ideas:

  1. If you work, funnel a little bit off each paycheck or from your tips to slowly build it up. Just be sure to keep the money safe from yourself so you don’t use it for impulse purchases. If you treat your emergency fund like a bill and pay yourself first, you won’t miss the money.
  2. When your disbursement comes from extra scholarship, grant, and loan money, take out the $500 then and set it aside.
  3. Save up those mini-windfalls you might get from birthdays, tax returns, and holidays.

It might seem like $500 is a lot to save. But it will feel like even more when you have to pay it in a pinch and don’t have it. Whatever your goal is, set it and get after it. Consider making a pledge to save with America Saves Week as extra motivation to get started.

And remember…

Emergency savings are for emergencies!

America Saves Week: Pay Off High Interest Debt

3 Mar

In 2012, 71 percent of students who graduated 4-year colleges took out student loans. Debt isn’t fun, but education is one of the better reasons to take on debt. While you may not enjoy paying back student loans there are some steps you can take to save yourself some money and make your payments hurt a little bit less.

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  1. Prioritize high-interest debt: While Federal Direct student loans are capped at 6.8%, private loans are not. Even worse interest rates? Credit cards. If you have credit card debt, prioritize paying it off before your student loans. 6.8% interest is no fun, but credit card interest rates 20% and higher can be crippling.
  2. Income based repayment: If you qualify for an income-based repayment (IBR) plan, do yourself a favor and apply for one. Generally if your debt is higher than your income you will probably qualify. Even if you are able to make your payments without much issue, an IBR can still save you money. How you may ask? If you keep paying the same amount you did before, you can target your payments toward either your highest interest or smallest loans depending on which repayment style fits you. Not to mention, if you are one of the approximately 50% of people who work in public service, you can qualify for loan forgiveness after 10 years.

Pick your payoff: There are two main methods for paying off debt when you have multiple balances to pay. The snowball and the avalanche method.

The snowball method entails taking the extra money you have and paying off your smallest debts first while paying the minimum on the rest. Then once that is taken care of, you roll that payment into the next smallest and knock off your obligations one-by-one. This is best for those who like the reward of seeing their different loans disappear the quickest and can help you stay on track easier.

The avalanche method is similar to the snowball where you make minimum payments on all loans but one. The difference is that you target the highest interest rates first. While you may not experience the visual rewards of seeing the small debts disappear quicker, you will save the most amount of money in the long run this way.

One way to not repay is by spreading out the extra you pay to all debts and pay a little bit additional on everything each month. This provides neither of the advantages that the avalanche and snowball method have while still costing you the same amount. You get less savings than the avalanche, and less of the reward that the snowball offers.

America Saves Week: Student Savings at Tax Time

2 Mar

As you’re filling out your taxes, there are a couple of tax deductions that being a college student may have made you eligible for. If you have received either a form 1098-E from a student loan lender or a form 1098-T from your school, be sure to have these on hand when you complete your taxes before April 15th (or hopefully sooner).asw-taxes-txt

1098-E: Given to you by your educational loan borrower, this Student Loan Interest Statement shows how much interest you paid on your student loans in the prior year. If you have been making student loan payments and paid over $600 in interest, you can expect to receive a 1098-E. You will receive one from each different borrower that you have educational loans through allowing you to deduct up to $2,500!

1098-T: This form is a tuition statement supplied by your university for your taxes. It will show qualified tuition and related expenses, scholarships and grants you have received, whether you have been enrolled at least half time, and if you are a graduate student or not. Entering this information into your taxes can allow you to claim the American Opportunity Credit or the Lifetime Learning Credit. You may not receive a 1098-T if all of your tuition and expenses were paid for via scholarships. To find your Purdue 1098-T, log into your myPurdue account! Full instructions are available here.

Once you file your taxes, be sure to file your FAFSA before March 1st for the Purdue priority filing deadline!

America Saves Week: Thinking About Retirement in College

1 Mar

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If you’re in college your retirement might seem like a long way off. And it probably is, assuming you aren’t one of the very few people who become a wildly successful professional athlete and strike it rich early.

Unless you are currently swimming in cash as a college student and free of taking out educational loans, it probably isn’t realistic to be saving for retirement until you get your first post-college job. While now may not be the time to start investing into your retirement, here are three tips to remember as you’re setting up your career, and the rest of your life.

asw-retirement-txtMinimize Debt:Saving for retirement is a lot harder if you’re paying several hundred per month against debt. So think twice (or three times) before accepting the full amount for educational loans that are offered to you and ask yourself if you really need all of it. Once you start working, make a plan to pay down your debt as soon as possible.

An increasingly popular choice for graduates today is to head back to the parents’ nest for a year or two to save money for life on your own. Keep in mind that living with your parents only helps if you use it as a springboard to save, not as an opportunity to free up more spending money.

Career and Employer Choices: When you’re looking into employers and eventually weighing (hopefully) several employment offers, consider more factors than just the dollar signs on the salary. Once you’re off your parents’ healthcare plan on, or before, your 26th birthday you’ll need your own plan, which can be costly if your employer doesn’t offer one.

Additional non-salary factors to consider are moving expenses, cost of living, vacation, and retirement options. Retirement plans where your employer matches your contribution guarantees you a 100% return on investment, not an easy feat investing your money elsewhere. Also keep in mind if you are part of the nearly 50% of Americans who think that Social Security payments will be important in your retirement that they currently average about $14,000 per year.

Start Saving Early: Within your first month of getting paid you might find yourself wondering how anyone can spend this much money, and then within a few weeks wonder where it all went.

A great strategy to start saving early on is to have money automatically deposited into a savings account. It is much easier to adjust to having less right from the start than to save what you have left.

To emphasize the importance of saving consider this scenario of two employees at the same company.

Alice is 25 and starts contributing $100 every month ($1,200 per year) toward retirement. Alice plans to retire at 65 so she has 40 years to save. Sheila also contributes $100 every month, but she waits until she is 30 because life was just too hectic to start saving earlier. What’s the difference in retirement savings at 65? Alice will have saved $310,000 compared to Sheila’s $206,000 – or a difference in over $100,000. Why does this happen? The miracle of compound interest that you once learned about in math class.

Five years is the difference between surviving and thriving in retirement. Your youth is an investing advantage you will never get back.

Remember that it is important to save up for both retirement AND a regular savings. The savings account is there for you when you need money for big purchases, to handle emergencies, etc. without having to use credit cards and lose money on the interest.

It is important to avoid a mindset of “I’ll start saving when…” It will never be a better time to start. So take the America Saves Week Pledge and start today.

America Saves Week: Make Your Savings Automatic

27 Feb

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Saving money can be hard to do after taking care of bills, groceries, and general living expenses. This is even harder when your idea of saving money is by counting what’s left over in your checking account after paying those monthly expenses. It’s likely you will probably just spend what’s left on a treat for yourself the next month.

ASW Automatic Savings txt.jpgWhile this saving method might work for the rare individual, for most of us we really don’t think about our spending as long as our account stays above a certain number we’ve arbitrarily designated.

The easiest way to create savings and counter our instinct to spend without worry? Save your money automatically.

Saving your money automatically, or as some call it “Pay Yourself First”, is a way to siphon off part of your paycheck every time you’re paid and put it into a savings account before you do anything else. The concept is simple and doing it is quite simple too depending on if you are paid via direct deposit or paycheck. Note: Both of these methods require opening a second bank account if you don’t already have one!

  • Direct Deposit: Let whoever is in charge of your payroll know you want to add an account for direct deposit. You will need your savings account’s routing number and account number to do this.
  • Paycheck: When you go to deposit your check, you will have to let the bank teller know you would like to deposit some into your savings and the rest into checking. It may not be “saving automatically” this way, but it’ll work better than the old method.

Now that you have started saving you’ll soon join the less-than-50% of Americans who can survive for more than one month off their savings. The key to this is not only putting money into savings, but not pulling it out right away. A savings account does no good if you can use an app on your phone and be 3 clicks away from having it right back in your checking account.

Don’t make it easy to steal from your savings!

If your savings are just a few clicks on an app from being transferred and spent, consider either making it more difficult to access or making yourself wait three days between any plan to withdraw and actually doing it. This should help limit knee-jerk reactions to withdraw and give you time to properly plan how to use your funds.

While saving money isn’t the most intrinsically rewarding thing you can do, you’ll be glad one day that you put away a small portion of your pay rather than making a couple of extra fast food runs a week.

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