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Money Matters

Money-strapped students can still save

Dear Money Matters,
How can a 20-year-old college student who makes $10 an hour and has a car payment save money?

Dear Cathlyn,
The situation you're in -- let's call it "monetary simplicity," which sounds much better than "poverty" -- does have one advantage. You don't have the burdens of credit card payments, a mortgage and other trappings of financial maturity.

So you have few liabilities, and you have one important asset: an attitude that will put you far ahead of most of your peers. There isn't exactly a line of 20-year-olds stretching around the block who are more interested in saving rather than spending.

And in fact, there's a lot you can do to start saving. Here's a checklist of ideas that may help:

  • First, lose the notion that an effective savings program requires big bucks. One of the unfortunate money habits many of us have is to think in grossly overblown proportions -- that the only way to amass significant sums of money is to set aside huge amounts. Not so. I used Bankrate's savings calculator and figured that saving a modest $50 a month at 5 percent interest for five years produces more than $3,400. Not a bad piece of change for the equivalent cost of a couple meals out.

  • That, in turn, illustrates that big savings can derive from relatively modest means. Examine your spending habits and determine where you can cut back and by how much. You can easily free up $50 just by eating at home or in the dorm a couple of times more every month.

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  • Another potential drain on the money you have to go around comes from our dear friend the ATM. Convenient they may be, but these oft-insidious devices can be all too tempting a source, enticing you into accessing and spending money you might otherwise do without. Try to resist making too many ATM trips. On top of that, be sure to record what you take out (something that many of us repeatedly fail to do).

  • Another thought comes from a well-worn financial maxim: Pay yourself first. What this means is, rather than paying all your bills first and hoping against hope that there will be something left over, make savings your first step. Not only does that push your savings up to the top of the priority list, it gives you a clear view of what money remains. That can often provide adequate discipline to spend wisely to ensure that you meet your obligations.

  • Finally, if you lack the fortitude to stick with a savings plan, consider putting things on autopilot. Arrange with your bank to transfer automatically a set amount every month into the savings vehicle of your choosing, such as a money market account. That puts your savings plan on a systematic footing that doesn't require that you physically cut a check every month.

-- Posted: May 20, 2002

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