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When it comes to saving money, what is a good rule of thumb?
How do you invest as a college students?
What does good financial literacy for College Students (or College Grads) look like?
In this guide I’m going to show you everything they should’ve taught us in high school! I’m covering personal finance basics for my fellow college students, future postgrads, and any underserved communities who never were taught proper personal finances.
I’m gonna assume all y’all making that postgrad “base pay” of $15/hr, got hella student loans (or any debt), and have no idea what a Roth IRA is. Alright, let’s get started!
When it comes to saving money, what is a good rule of thumb?
1. Well, Spend Less on Stuff You Don’t Want!
Yeah yeah, this one’s hella basic but it’s a necessary first step. You need to keep track of what you’re spending your funds on. I know too many people who spend HELLA money and then are too afraid to check their balance. Don’t be that person.
And I’m not saying spend less money on Starbucks. If you’re in college or started your first job, you probably NEED coffee. It helps wake you up, feel good, and it’s a great way to start your morning. If you can’t live without coffee then don’t but you’ll need to cut costs on something else.
For example, I love In-N-Out double doubles, I’ll get animal style fries and strawberry shakes. But I don’t like buying new shoes. I could care less about the newest Jordan’s. So the money I save on some new sneakers I use on the things I actually want. Like that Animal Style Double Double with Chillies.
Tip: I’m not talking about saving money on Starbucks or going out to eat but find what is really costing you money that you could care less about. Are you spending a lot on car insurance? Shop around! Paying too much for a phone service, try adjusting your rate? Barely watch Netflix? Split an account with a friend!
2. Make a Budget
With that in mind, keep track of budgets. Money management and financial literacy for college students is important! Mint is a great app to track your expenses automatically. Simply connect your bank info to your account and it will instantly track your expenses for you. This is great for figuring out where your money is going.
Use Mint to Manage Your Budgets
If your bank isn’t supported by mint or you’re nerdy about Excel sheets, then you can try this spreadsheet that’s focused on changing bad habits.
It takes concepts from the SUPER helpful personal finance book I Will Teach You To Be Rich by Ramit Sethi. I highly recommend this book to ANYONE looking to jumpstart their personal finance game without getting worried about all the boring jargon.
Article to the actual spreadsheet linked below:
Regpag’s article on how to use his AWESOME (and free) Budget Template!
I'll send you an academic planner and more of these awesome articles!
3. Start an Emergency Fund ($500-$1000)
As you track your expenses, keep some money on the side. You can get fired tomorrow, have a medical emergency, or your reckless friend and his mustang may hit your car. Better to have a cushion that you can rely on for these circumstances.
There’s no “perfect emergency fund” amount but a solid $500 can definitely back you up. I personally have saved up more to help pay a month’s worth of rent, food and gas. As you increase your income stream, try shooting for a 6 month Emergency Fund.
With this whole pandemic mess, I would suggest being extra conservative and saving as much money as you can. If for some reason you’re balling, try shooting for a year in emergency savings.
4. Pay off your Debts:
Credit card, student loans, or whatever it is: PAY IT OFF!! Whatever has the HIGHEST interest rate (usually your credit cards) pay them off first! The interest on those loans will EAT at your earnings as the power of compound interest starts to work against you. Make a plan to pay it off!
How to pay off debt fast?
Who cares if you need to live at home with your parents, take a second job at In-N-Out or Trader Joe’s (they really be making $15/hr with benefits) or drive a 2006 Honda Accord 😭. If you have debt, the money you earn is NOT your money. So take control of paying it off.
Don’t know how to get started? Need Inspiration? Check this video out on how someone else payed off $96,000 in student loans:
5. Start building Credit:
Credit Cards are NOT evil! Stop listening to your Tia or Uncle who loves giving bad advice when it comes to financial literacy. For college students, Credit cards give us benefits like cash back, cheap/free flights rewards, and BUILD CREDIT. A good Credit Score is also HELLA important for buying cars, houses, taking out loans, etc.
I honestly think the Discover Student Advantage has lots of great perks! 1% cashback on EVERYTHING. 5% cashback on certain items like Lyft and Amazon every couple of months. Plus free Amazon prime for new members and give money credit for having a good GPA each semester/quarter! If you’re interested in getting the card then you can use my referral link and can both enjoy that $50 bonus, yessirr.
If you’re reading this “financial literacy for college students” guide, you probably just need something to slowly build credit, right?
If so, use the Capital One secured card. You have to pay a deposit in order to use it but it’s one of the easier cards to get approved for. If you don’t want to go that route, then their fee based card can also help improve bad credit.
If you have excellent credit and you want some simple cashback then this Quicksilver rewards card is dope too. Continue to make on time payments to boost your credit and apply for other cards with better benefits.
Pro tip: pay your credit card balance ON TIME by enrolling yourself on autopay!
How to Invest money in your 20s:
When it come to investing while your a college student (or college grad) I really don’t understand why they don’t teach us this ANYWHERE! When it comes to investing, the hardest part isn’t doing it, but it’s getting started. Like, how do you invest money in your 20s to begin with?? I got you with step one!
1. Open a Retirement Account (Roth IRA)
This is the easiest way to invest in your future and start building wealth. Your job can offer a 401k (fancy name for a savings account your job gives you) and you can open yourself up a Roth IRA (another fancy name for a savings account that you open yourself).
Both have their advantages but I’m going to focus on the Roth IRA. Here’s a link to more in-depth info on Roth IRAs but I’ll leave a summary:
Advantages of Roth IRAs
- You can withdraw the money you put in without ANY penalties. Very helpful if you need the monies ASAP for something like important like a medical bill or groceries (it be tough like that sometimes).
- There’s more in the article but this one was the important one!
But my quick summary of a Roth IRA works:
- You put in money that you already got taxed on (aka Post-Tax Dollars)
- You invest your money in an index fund or investment
- When you retire you’ll get to withdraw whatever money you put in and whatever money your investments made TAX FREE!
Why does the government offer such an awesome tax benefits with this Roth IRA savings account? Because they want YOU to invest into YOUR retirement so when you’re older, you’re not forced to work with that lower back pain you’ve had since you were 20 (y’all know who you are).
Quick Steps to Get You Started
1. Create a Vanguard Account
2. Open a Roth IRA
3. Invest in a Target Index Fund (fancy name for a diverse basket of stocks and bonds)
4. Aim to add at least $100 a month into the account (read up on dollar cost averaging) Link:
Dollar Cost Averaging Explained (Post)
I’d say open a Roth IRA either through Vanguard (a super reputable site with historically low fees) or Betterment (pretty much like Vanguard but it’s got a nice design and app).
I currently use Vanguard and will probably also use Betterment sometime in the future.
2. Start Investing by Matching your Company’s 401k Policy
If your job offers a 401k (or 403B for people who work at non-profits) and they say they’ll match whatever you put in, then DO IT! If they say they’ll give you $1000 for every $1000 you put in your account then PUT In $1000. Quick maths: $1000 + a free $1000 is $2000. That’s easy money. You want to learn how to invest in your 20s, then do that! That’s just FREE money you shouldn’t be afraid to match.
You’d be crazy not to do that so please take advantage of those nice job perks!
The bests way to invest money in your 20s
There are a million ways to invest money. You can save up and buy real estate, you can day trade by picking which stocks will do up in value. Hell you can even pick in on that food delivery startup your homies talked about during your last beer die session.
But out of all those ways, which one is the best? I’ve done all the research and cranked out the numbers for you below!
What to invest in???
Bitcoin!! Bitcoin!! All in on Bitcoin!!
Jk. Don’t do that. It’s too volatile right now. But if you want my opinions 👀 ….
Jk don’t do it unless you enjoy stressing at 2am. (update in 2021, if you want to invest like 5% of the cash you want to spend on investments then I see no harm in that).
First the basics: Stocks and Bonds
Stocks: portions of a company that can be bought. These are riskier but have a higher yield of return
Bonds: Loans that banks or the government gives out to other people with YOUR money. You’re guaranteed a return but it’s not a lot.
Still doesn’t make sense? Here’s a vid from Two Cents. They’re a couple with tons of reliable and accurate information.
Together their resumes includes being licensed investors, a CFP certification, and have expertise in running small businesses! Check them out if you want more in-depth info!
First I need to know something. Do you have $1000 or enough money to make monthly payments of $100 a month? If yes then you can invest in a Target Index Fund.
There are a TON of investments you can make. There’s whole books on them, but I’m going to cover the basics.
A Target Date Index Fund.
This is a fund filled with different stocks and bonds from other companies, government agents, etc. Imagine instead of having to pick and choose whatever stocks and bonds, some computer finds the ones that have a solid return. Basically it’s a one stop shop for all your investment needs.
Example: I want to retire at 65 so my target date index fund is Target Index 65.
By having different stocks and bonds in different companies, you’re actually diversifying your portfolio and mitigating, or reducing your risk. Meaning if one company goes completely bankrupt, you’re fine because you have money in other companies, bonds, and investments that are turning a profit.
Because of that diversity, you won’t have to stress so much on how your portfolio is doing thanks to the average performing well.
However, because this plan involves investing in the long-term, you have to be ready to ride the market during its lows and highs.
Remember, the market on average returns 7% over the long term according to historical records. Meaning that as long as you don’t take out your money and keep steadily investing in your portfolio, then you’ll be fine when it comes time to retire.
And if you invest in a Target Index Fund, as you get older, your portfolio automatically starts shifting to include safer bonds and less risky stocks. This is important, just in case the stock market crashes the day before you retire. By having more of these “safer” bonds, your portfolio will be fine, so you don’t have to worry about pushing your retirement back.
This can be seen right now. With the coronavirus hurting the stock market, everyone’s portfolio is hurting, especially those who were invested only in stocks, meaning they’ll either have to cash their retirement with less than what they hoped, or have to hold off their retirement until the market goes up again (which it has always done in the past).
So it’s better to buy and hold now, while you’re young, instead of trying to game the system picking whatever stock Elon Musk tweets.
If you do all of this right, you should retire with a cool $1,000,000. Now THAT’s a nice retirement. I’m travel to Japan with that kinda money! Catch me at the Pokemon center!
3. Pay off my Debt or Invest?
This question is complicated and really depends on you and your loans interest rates.
If your loans are at 4% then I recommend going 50/50 with your loan payments/investing. So whatever budget you planned to pay off your loans then use that budget to pay off half of your loans and the other half in your investments.
Any loans above 4% I’d focus 100% of my attention on paying those off. Why?
Investing historical has a solid 7% return rate (after inflation)
This means that my loans with anything higher than a 4% interest rate would also eat up my returns from my investments. Who wants to make less than 2% of 100 when 7% is a waaay better number?
However, the real reason is that instead of using compound interest to help you increase your wealth, it will actually be used against you. Crippling debt is never good so due your best to stay out of it.
4. What if having loans gives me anxiety?
If your mental health is struggling and you’re losing sleep worrying about that growing debt, then go full throttle and focus on paying off that debt ASAP. Never get paralyzed by the amount. Even creating the habit of making small weekly or monthly payments is better than letting it stack up!
5. Ask for a raise
Learn how to vouch for yourself and ask for a raise. Here’s a video that LITERALLY convinced me to step up my personal finance game. They LITERALLY show you the blueprint on asking for a raise. WHY WAS THIS NOT TAUGHT IN SCHOOLS??
I’m a big fan of Matt D’Avella by the way lool. But FOR REAL I can’t recommend reading or learning more from Ramit Sethi. You don’t even have to watch this entire video. His step-by-step advise on how to ask for a raise starts at 19:17 it honestly it’s INCREDIBLE!
6. Read other Finance Books an Blogs
Books I Recommend
Everything I listed here I learned from some dude with an MBA at an internship and this
$12 $9.00 book (it’s on sale lool lucky you) called I Will Teach You To Be Rich by Ramit Sethi. I can’t recommend it enough:
Want to learn how to finance a car? Or wish you knew how to bring up finances with your significant other? What about which Banks are the best and which ones will try to sleaze you out of your money like Wells Fargo? How bout the best ways to get out of almost any credit card fee?
This book taught me all of that and more!
Blogs I Recommend:
I grew up with instagram and would rather read a book with pictures than one as long and as boring as Warren Buffet’s Ground Rules. Like bruhh, I really can’t believe they’re recommending these boring ass books to us.
But you know who’s not boring?
The Personal Finance Blog instagram account! Each posts has a relatable lesson and story that gives you super valuable info on how to navigate your personal finances. This account (and their blog) really doesn’t miss when it comes to fun and engaging posts that ACTUALLY give ESSENTIAL advice!
There’s a lot of bad personal finance blogs and instagram accounts like Robinhood University, but I vouch for Jeremy and his Personal Finance Blog:
Financial literacy for college students (or college grads – shout out to the class of 2019!) doesn’t have to be hard. For my first-gen students out there, listen. Our parents may not have learned much about personal finances but that doesn’t mean we can’t break these generational curses.
Let me know if you found this helpful! Cheers 🍻
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Chris LanderosMy name is Christopher Landeros but you can call me Chris. I started this website after struggling to find relatable and relevant info for first-gen college students. I kept learning the ropes and was wondering why there wasn't a resource to show you how to practically navigate college. So here I am, creating the most in-depth content for College Lighthouse.
I'll send you an academic planner and more of these awesome articles!