Why would you want money you can't access quickly? Simple: It tends to generate a higher rate of return than a checking or savings account. You can't just cash out of these things quickly, and in some cases, there are penalties for withdrawing too early if there is a fixed date on that investment.
This ranges from your stock/investment portfolio to even shoes you're trying to flip for a profit online. What is the opposite of this? It's called "illiquid assets," and this is the type of money that you can't access so easily. You need to be able to either write a check or pay someone via payment apps like Venmo, PayPal, and Apple Pay. This is for your day-to-day cash but also unexpected costs that may come up. That's like your checking and savings accounts. Liquid savings, in the simplest terms, means money you can access anytime. How can you save and invest?įirst, even if you don't have a lot of money to invest, it's important to split your savings into two distinct buckets - liquid and illiquid. Even if you only increase it a little bit each month or every few months, it will add up. Then, check back in with yourself regularly (like you are your own financial advisor) and see if you can increase what you are saving. Set up an automatic transfer of a set amount each month, and you'll be surprised how fast it grows. That means you will be ready for emergencies when they inevitably arise and you'll be able to afford more of the things you want. "Having money set aside allows for more choice." "The more you save, the sooner you reach financial flexibility," McClanahan said. Whatever you can - $25, $50 or $100 - a month. What's important is that you start saving some money. However, I knew that I would be able to use the rules of thumbs with a grain of salt since it didn't fit my situation," said Carolyn McClanahan, founder and director of financial planning at Life Planning Partners. "When I was in med school, I was spending 95% on needs, 5% on wants. If you are a college student with a job or internship and you aren't able to save in this ratio right now, that's OK. This is where 50% of your income goes to necessities (such as rent, student loans and other bills), 30% goes to wants (such as that new pair of shoes or that spring break trip) and 20% goes to savings. You need to make saving a habit and keep it going - and growing.Ī simple way to do it is to use the 50-30-20 rule. It's not enough to just try to save or save when you get around to it. By not investing right now, you are basically letting that money slip away.Ī lot of people already have an intuitive sense of what to do with money, but they may not know or utilize the tools that can help grow that money exponentially. Now, imagine that over 20, 30 or 40 years. Your original $1,000 is now worth $1,170. If you make 5% the next year, that's now 5% of $1,113, which is $56. Here's an example: Let's say you invest $1,000 in a stock and it goes up 5%.That's $50. It is what people mean when they say "make your money work for you." This is done through the magic of compound interest! That means the money that you will be making when investing will grow exponentially based on the earnings made previously. What that means is that the earlier you are able to start, the earlier your money grows. There's a saying in the investing community: "The best time to invest was yesterday. More from College Money 101 : An easy guide to help college students set up their first budget How college students can start investing - and making - money How I learned about investing in stocks - and you can, too Now, no one is saying you have to become an expert, but you have to know the basics, and it's important to start while you're still in college. That dictates many of the choices you make, from where you live to what you'll buy.
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Love it or hate it, you need to know about money and how to invest it.
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