In my first year of college, I knew a freshman who started the school year with $10,000 in his bank account thanks to his parents. I, on the other hand, started with zero dollars. It wasn’t that my parents didn’t want to give me a running start. Rather, they simply couldn’t afford to do so.
I’m not sure how much the other student had in his bank account by the time he graduated, but I ended up graduating college with $10,000 in mine! I started with zero dollars and ended with $10,000 in just three years. How did I do it? Through saving and investing.
I worked throughout college and was able to save a lot, since my tuition and school-related expenses were covered by financial aid and scholarships. So I invested what I earned into mutual funds and watched my money grow.
The whole experience of starting at zero and ending with $10,000 taught me a lot. Here are my top investment tips for college students.
Cut Down the Cost of College — Easily Apply to Scholarships Today >>
Money Works If You Put It to Work
According to a recent study conducted by Georgetown University, over 70 percent of college students work while in school. Most of them are probably using the money earned to pay for living and school-related expenses. But if you happen to have money left over, I encourage you to save it.
First, put any money saved into a dedicated savings account. You shouldn't use this money for anything else — not for shopping, not for vacations. Nothing. Once it reaches a certain amount, invest it.
Being a natural saver for most of my life, I knew I wanted to maximize my dollar earnings. By simply reading up on finances, I learned that investing in stocks is a great way to get a return on your money. However, there are risks attached to investing in individual stocks. So I decided to put my money in mutual funds, where the risk is minimized because of diversification.
Different brokerage firms have different investment minimums. For example, T. Rowe Price requires you to invest with at least $2,500 when you open a mutual fund account that isn't for retirement. Meanwhile, Vanguard's minimum is $3,000 for most non-retirement funds. I started investing money into a T. Rowe Price mutual fund during my sophomore year of college.
By the time I graduated, the return on my investment was something like 25 percent.
I had put in about $8,000 of my own money, and the rest came from the increase in value of the mutual fund. I learned that money works if you put it to work. Had I kept my money in a regular savings account the entire time, I would’ve earned only a couple hundred dollars. But by investing it, I gained $2,000 extra.
These results are not guaranteed for everyone, though. The stock market fluctuates each day, and it’s hard to predict what your returns will be in the future.
Learn How to Invest Confidently — Download This Free App >>
Growing Your Nest Egg Will Help Big Time
That $10,000 definitely came in handy once I graduated college. As I navigated the post-college job hunt, I used this investment to help me fund some important expenses. I purchased the furniture for my first apartment using this money. It also helped me pay some bills while I got settled into my first full-time job. Thanks to my nest egg, I didn’t need to borrow or go into credit card debt during those first few months after college graduation.
It’s a very simple lesson: If you start saving early and stay disciplined about not dipping into those savings, your wealth can grow quite nicely. In return, that money will come in handy when you need it most.