Educated savings tips

If you’re just starting school don’t worry about building a nest egg. There’s plenty of time to catch up. Graduating debt free should be your top priority.

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photo by Better Than Bacon
It’s unlikely this year’s new crop of university students are thinking much about money. If anything, they’re trying to figure out the best way to spend it. But, what many may not realize, you can have fun and make good financial decisions, too.

Many students will generate income from a part-time job, a co-op or even a scholarship. While those funds can take the sting out of the expenses that pile up in school, you might also find yourself with a few extra dollars in your pocket. But before you decide what to do with that extra cash there are two important questions to answer first: what are your saving goals and what’s the best way to achieve them.

For some students that goal might be a European vacation, for others it might be simply getting out of school debt free. Having a goal makes it easier to keep on track because it gives you something you can visualize. When you have a goal in mind build a budget to save for that goal.

For most, going after investment returns shouldn’t be the top priority, says Geoff Hahn, a CFP with Investment Planning Counsel. One of the better options for students might be putting money away in a high-interest savings account, he says. Returns will be low, but making money isn’t the point.

“It’s not so much about the return, but about having a plan and a goal,” he says. “The real lesson here is that they get educated in how to start financial planning and they’re preparing themselves for a future of saving.”

Learning to budget is another important skill to master when you’re young. “A lot of kids end up in debt by the time they graduate,” says Marcy Ages, a CFP with T.E. Wealth. “Students are often new to the financial game. They’re away from home for the first time, they have money to spend and they’ve never done this before.”

Most students won’t earn much during the year; it’s in the summer when they have four months off school, where they’ll make the most cash. Money-minded students will likely want to save those dollars to help them pay for rent and expenses they’ll incur during the school year.

So what’s the best way to protect your hard earned cash? Hahn suggests playing it safe. A high interest savings account or a GIC are the best options. It’s likely you’ll need to access those funds during the year, or will use it to pay down debt once university is over. “Money has to be immediately accessible,” he says.

If you do want to go the GIC route, keep it in a tax-free savings account, says Hahn. While the interest on the investment won’t be much, you might as well make sure you don’t have to pay any tax on it. Every little bit of extra money helps.

It’s also a good idea to set up a pre-authorized payment plan so that every month a certain amount of money goes into that savings account. “It’s the easiest way for everyone to save,” he says. “You don’t miss the money. It just comes right out of your account.”

Students shouldn’t worry too much about investing. It’s unlikely you’ll have enough to start building a nest egg anyway. And that’s OK, says Ages. The priority should be paying down debt, so when you leave university and get a full-time job, you’ll be able to start investing for retirement instead of paying off loans. “A lot of kids end up being in debt by the time they graduate,” she says. “So their first concern should be making sure they’re not.”

If you can save a little, stay in the black and stick to you budget, when school ends you’ll be ready to earn some real returns. “Take responsibility of your finances during school,” says Hahn, “and you’ll feel better about yourself at the end.”

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