Don't Break the Bank: A Student's Guide to Managing Money (16 page)

•
Review credit card and bank account statements as soon as you receive them to check for unauthorized charges.
If your statement is late by more than a couple of days, call your credit card company or bank to confirm your billing address and account balances.

•
Be cautious about opening any attachment or downloading any files from e-mails you receive, regardless of who sent them.
These files can contain viruses or other software that can weaken your computer’s security.

•
Forward spam that is phishing for information to
[email protected]
and to the company, bank, or organization impersonated in the phishing e-mail.
Most organizations have information on their Web sites about where to report problems.

•
If you believe you’ve been scammed, file your complaint at
ftc.gov
, and then visit the FTC’s Identity Theft Web site at
www.consumer.gov/idtheft
.
Victims of phishing can become victims of identity theft.

Keep an Eye on Your Credit Reports

People often don’t even realize they’ve been the victim of identity theft until they apply for a loan or credit account and someone checks their credit—and suddenly something strange pops up on their credit report. This is why it’s important to check your credit report regularly and watch closely for any accounts or activity you don’t recognize. See Chapter 8 for more information about credit reports and how to check yours.

Part IV

Being Financially Responsible

Saving money may not be the most exciting thing to do with your cash, but it’s a smart thing to do—and it is usually the only way you can afford to purchase big ticket items. So in the end, saving money can really be lots of fun! There are many ways to save, along with options of where you put your savings. We’ll share some ways to make your savings grows quickly and tricks for making it easier to save.

A big part of becoming an adult is taking responsibility for yourself—and that includes being responsible for your own finances. You need to learn how to handle your money in a smart way, starting with creating a budget and sticking to it. We’ll show you how to make a simple budget, and we’ll discuss why it’s important to know the difference between needs and wants. To make things easier, we’ll give some tips on how to save money on common expenses.

Chapter 7

Saving for a Rainy Day

One great thing about making money is being able to buy things and do fun things you want to do. But it’s also important to try and save money for an “emergency fund” for unexpected expenses—or even to save up for a bigger goal, such as buying a car or going on a vacation. Saving money isn’t always easy, especially if your paycheck never seems to go far enough (even many adults have that problem!). But if you get into the habit, pretty soon you will start saving money without even missing it.

The Importance of Savings

Creating a savings fund is important for many reasons. It can provide a “cushion” or lifeline that can help you get through an emergency or take care of an unplanned expense. It can also allow you to try and attain a goal or work towards a major purchase. And it gets you into the habit of saving and putting away for a rainy day, which is smart financial thinking that will serve you well throughout your whole life. Plus, having your own money is the key to becoming independent and self-sufficient.

Definitions

A deposit is money you put into a bank. When you take the money back out later, that’s called a withdrawal. Interest is a fee paid for borrowing money. When you take out a loan, you usually have to repay the amount you borrowed plus interest. With a savings account, the bank pays you interest because it is basically using your money while holding it for you.

Where to Put Your Savings

Savings Accounts

When you were little, you may have had a piggy bank where you put extra change or your allowance. Now that you are older, you need a better place to stash your savings. Probably the best option is to open a savings account at a bank. This way, your money will earn interest while it’s sitting there. See the section on earning interest in Chapter 5 for more information about that.

It’s common to open a savings account along with a checking account, so you may want to open both types of accounts at the same time. You will use both of them, but in different ways. You should be putting money into both your checking and savings accounts regularly—if you have
direct deposit,
you can have a certain percentage disbursed to each—but you should only be spending from checking. A savings account is there to… SAVE. Whether it means saving up for a car, part of your education, or a new computer, you should not use your savings account the same way you use your checking account. Maybe a better way to think about your savings is as your own personal safety net. A savings account (with money in it) is a good thing to have should trouble ever arise. Meanwhile, the longer you keep it in there, the more interest you will earn.

Investment Account

You may also want to put your savings into some sort of investment type of account, such as a money market or CD. These will allow you to earn interest, but the big catch is that you usually cannot withdraw or access your money for a certain period of time. (However, that may be a good thing if you fear you may be tempted to spend your money if it is too easy to access.)

Opening a Savings Account

It’s very easy to open a savings account. You just go to the bank of your choice (be sure to bring along some ID) and tell them you’d like to open an account. You’ll need to fill out some paperwork, and, depending on your age, your parents may also need to sign some papers.

In the past, when you opened a savings account you would get a small booklet (called a “register”) where you could keep track of your transactions—what you put in or took out of your account. This register looked somewhat like a passport, which may have been why these accounts were sometimes nicknamed “passbook” accounts.

These days, banks really encourage you to do everything online. So there’s really no need to write everything down in your little booklet because you will probably be able to see your balance and all of your account activity online.

The
FDIC
(or Federal Deposit Insurance Corporation) is an agency of the federal government that insures your bank account, covering your deposits (up to $250,000). So even if something were to happen to the bank, you wouldn’t lose your money.

How to Start Saving

One way to start saving money is to figure out something that you currently buy that you can survive without (or at least cut down on). For example, if you usually buy lunch, try packing your lunch a few days a week. Then take the money you would have spent on lunch and put it right into your savings account.

Another popular choice for this strategy is coffee (or any of those pricey caffeinated drinks). If you have a latte habit, try doing without it for a while and banking the money you would have spent at Starbucks. You probably didn’t realize how much you were spending on coffee—but it will sink in once you have a nice stash of cash accumulated

      
Tip:
Use an online budgeting site like
Mint.com
that lets you track specific expenses, such as your coffee habit or your mall shopping excursions. You will be able to see exactly how much money you have spent on each thing so far this month or this year.

Take Baby Steps

When you first start saving—especially if you have a large goal in mind—it can be tough to get motivated because it may feel like you’ll never reach the finish line. The key is to start small and focus on little milestones—say, each time you manage to sock away $25. Or you may simply want to set a goal of saving something every week, without the pressure of setting a specific dollar amount.

“When I was saving up for my first computer for college, I estimated that I would need about $1,000 for the one I wanted. I then divided up the number of weeks in the summer and knew how much I needed to put away each week to reach my goal. It was hard, and I did have to turn down doing things like going out to the movies with friends, but I was able to reach my goal with a little bit of discipline. I also do silly things to me remember to save. For example, I print out a picture of what I’m saving for and wrap my check card in it, so that every time I go to buy something I see my savings goal and think hard about the purchase I am about to make.”

~
Lindsay Long, Austin, Texas

If you were to put 50 cents every day into a jar, at the end of a month you’d have $15. At the end of a year, you’d have $180—that’s like free coffee for three months, or the entire box set of your favorite TV show on DVD, or even a tablet computer. The key to saving small change, though, is to not dip into it. This is the beauty of a piggy bank: there’s space to put the money in, but it’s very difficult to get it out.

Get Your Family (or Friends) Involved

Just like getting in shape, savings can sometimes be easier if you aren’t doing it alone. Try getting your family involved. Come up with a way that all of you can save. You may even want to make it into a friendly competition—see who can save the most during a certain period. (Because your family members will probably have a wide range of incomes and available money, you may need to do this based on a weighted scale or a percentage of total income.) Or you can enlist friends to be your “savings buddies.” To get them on board, remind them of something they’d really like to have but can’t afford right now—this can be their goal of what they can splurge on, once their savings reach a certain amount.

Save It Before You See It

If your pay is direct deposited, your bank may offer an “automatic savings” option where a certain portion of your paycheck is automatically routed into a savings account. If not, look into any other options that may allow you to stash part of your pay before you get the money in your hands.

Keep (and Stash) the Change

Here’s a trick that will help you save change, which can then add up quickly. Whenever you pay for something with a bill—whether it’s a dollar, five dollars, or whatever—take the change you get back and put it in a certain pocket. When you get home, put that change in a can or change jar, and deposit it in the bank once a week. You’ll be surprised at how quickly it adds up! Tip: Some banks also allow you to do a similar thing when you purchase items with your debit card—the bank will “round up” the amount and put the difference in your savings account.

Cut Expenses to Save Money

The less money you spend, the more money you can save. So by cutting your expenses, you can easily add to your savings painlessly without even noticing any difference. Later in this book, we will talk about budgeting and tricks that can help you spend less.

It may seem like your “future” is light years ahead, but it’s never too early to start saving. Cutting back on one ordered pizza a week or a new sweater can help you put aside small amounts of money into a savings account. If you save just $10 a week throughout high school, you’ll graduate more than $2,000 richer. That amounts to two years of books for college!

~
Jackie Warrick, President and Chief Savings Officer at CouponCabin.com

Start small and simple, and learn to automatically put aside a small chunk of allowance money every month. Even if it’s just $5 a month, the idea is to learn to save a little on the side every time you get your hands on money. Open up an online bank account, like one at SmartyPig or Ally Bank, so you can earn interest on your savings. Earning interest is like earning a little bit more money just for having money safely saved in the bank. Once you get a part-time job and earn more money, put a little bit extra towards your savings to help your money grow more. Save every month and save automatically, and you’ll find yourself with a nice nest of money (and an awesome financial habit) once you hit your 20s.

~
Justine Rivero, Credit Advisor at CreditKarma.com

Chapter 8

Don’t Spend It All in One Place: Creating (and Sticking to) a Budget