By Brandon Nguyen
Disclaimer: The writer of this article is not a professional investment professional. The content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice.
With newfound Christmas and Lunar New Year money, Barons can make reforming financial habits at the top of their New Year’s Resolutions. As inflation is making goods more expensive and the price of college is creeping up on many high school students, 2023 is the year to look at new money saving tips and ways to grow savings.
Getting a Job
While getting a job will be more accessible for juniors and seniors who are over 16, the process remains relatively straightforward. Students will reach out to local businesses and after being offered a job with proof, they can obtain a work permit from the front desk.
Currently, there is a labor shortage at many fast food restaurants, meaning a high demand for students who may be able to negotiate for higher-wages than before. Popular places are local fast food restaurants, retail stores, local cafes, and more. With a steady stream of income, getting a job will serve as a reliable source of income, but this tip is undeniably the most time consuming.
Important downsides are crucial to weigh, such as most employers wanting workers who can commit a consistent amount of hours, usually over 16 in a week. Furthermore, transportation is an issue with students who have not obtained a driver’s license, meaning they have to be driven to work every day.
Because of the time commitment and time it takes to obtain a driver’s license, students limit getting a job just to the summer. Job offerings accepting students can be found in the office on the job board. While the large time commitment may be a large downside, there are also untold benefits of getting a job aside from just a steady source of income.
Investments
Through a steady source of income, minors can make monthly investments that can result in large amounts of compound interest in the future. Money from savings can also be put into brokerage accounts.
Legally, minors cannot open a brokerage account on their own, meaning they require a parent’s permission to sign for them. Transfer agents cannot accept the signature of a minor to complete transactions, but students can have custodial accounts opened in their name. When the minor reaches age, theyget full custodianship and legal control over the account.
Through a brokerage account, students can have stocks and index funds bought in their name. The safest purchase is purchasing an “index fund” rather than an individual stock from a single company. Index funds are a portfolio of stocks that are well-diversified and are meant to follow the performance of a financial market index.
Over the long run, index funds can prove more reliable because they track the performance of a large sector of the market and don’t rely on any individual company for their performance. This means if one company in an index fund has a poor performance, it can potentially be balanced out by another company. This can mean a student can play a long-term strategy over 30 to 50 years investing in index funds and likely have higher rates of return than letting the money sit in a savings account.
The most popular index fund is known as the “S&P 500” which is a stock market index that follows the stock performance of the 500 largest companies listed on stock exchanges in the United States. Over many decades, the rate of return has been about 10.43% and may be attractive to students looking to keep their investments over many years.
Roth Ira
In addition to investments, working students can also open a Roth Individual Retirement Account (IRA). In a Roth IRA, people contribute after-tax income where the earnings grow free from taxes. Then after the age of 59 and a half, the money can be taken out tax free, often growing faster than a 401K.
However in order to qualify, proof of work must be shown and students need parental permission. Furthermore, for any reason in which the money needs to be withdrawn early, there is a 10% penalty.
Because Roth IRAs are so efficient at growing money, the maximum contribution amount is $6500 per year or $7500 for those over 50.
Spreadsheet Planning
A very common way to reform financial habits is to create a spreadsheet through Excel. Essentially, a spreadsheet allows students to easily categorize and list out all of the things they spent money on and allows for a lot of personalization.
These days, there are tons of Youtube tutorials and guides with free templates for creating a budget excel spreadsheet. The key part is being diligent and tracking all expenses so that reflection can be done. Then every week, financial habits can be tracked and reevaluation can be done if certain items were necessary or not to be purchased.
Conclusion
It’s never too early to start thinking about your future as financial security is the foundation for a less-stress life. It is estimated that the average college student spends $2,270 on living expenses and it is necessary to start building good habits that can carry over.
Furthermore, forming beneficial habits at a young age gives students the advantage to build compound interest in their investments over many decades or take financial, entrepreneurial risks that can pay off huge.
Whatever your path, it’s never a bad idea to review 2022 and start 2023 with new money saving tips.
