Happy Monday, friends! Today we are excited to share with you a guest post from Kevin over at Graduating From Debt. Kevin has a heart to see kids get and stay out of debt through their college years. He tirelessly teaches and encourages young people on how to get through college without debt, or pay off college debt, both on his blog and through frequent guest posting in the PF blogging world. Please welcome Kevin, and if you are interested in guest posting for The Frugal Farmer, we’d love to have you. Start by reading our Guest Post Guidelines here. (Add thundering applause here. 🙂 )
Most college students think of nothing but surviving the next class or perhaps getting a part time job to tide them over the semester. Investing is often the farthest thing from a 20-something undergrad’s mind, especially since many college students think that they do not have enough money or the financial smarts to invest in anything. However, college is actually one of the best times to invest, no matter how meager the contents of your bank account is. Here are the top 3 reasons you should start investing in college.
Less financial responsibilities mean more freedom to invest in stocks you like.
Most college students are young and unmarried. A majority have their parents paying their college tuition for them. If you belong to this bunch you are more likely to have some disposable income, especially if you are working and going to school at the same time. Experts say that investing when you are single is one of the best financial choices you can make since you can take more risks and you have more disposable income to spend on yourself.
Bigger risks usually lead to bigger financial returns, and you have the luxury of taking these risks because you do not have to think about mortgages or your kids’ school fund just yet. You also have more freedom to shop for investment opportunities and grab the ones that you really like.
Money invested is a good source for emergency funds.
Most college students get out of college knee-deep in student loan debts. In fact, the average college student has $25,000 of student loan debts that he/she will need to pay off in the coming years. The bulk of a person’s paychecks a year after college usually goes to paying off these debts. Some students even go into more debt just to pay off their college loans. Having money invested during college can help you pay the loan off faster.
The ability to pay off your loans, especially if you have high interest credit card debts, can free you up financially so that you can turn your attention to saving up for more important things, like a house or your retirement fund. Having money invested is also a good assurance that you have financial security in case emergencies arise.
Most college students get married a year or two out of college, so this means more financial responsibilities on top of paying off their college debts. The money derived from successful investments can help lighten the load. Having money in your bank account is simply the practical way to go after college, since you will likely be spending a couple of months job hunting if you are not currently employed. Knowing that your investments are working for you is also a good assurance that you have another source of income aside from your job.
Investing in something forces you to save.
Most students graduate from college with empty bank accounts and the misconception that serious earning starts when they land jobs. Serious earning can be started at any age, as long you know how to save. Saving for a savings account during college, even if you are only able to set aside 5% from every paycheck, will give you significant increases four or five years down the road, which is probably enough to tide you over as you hunt for a job.
Investing in College does not have to be something so major that you get intimidated at the thought of putting your money out there. Start with something small, but choose your investments wisely so that no matter how small your investment is, you can still see it grow. Working students can take advantage of the company-offered 401K, for example.
Experts recommend that students take advantage of these options and to invest in them as much as they can, since this is virtually free money that they can enjoy later on. They can even convert these into Roth IRA later and just let the investment grow without having to pay tax. There’s a multitude of low-risk options out there that are tailored for college students such as low-cost index funds, bonds, and saving accounts with minimal deposit fees. One place is Glenmore Investment. With all these options there is no excuse for not investing your money, even if you’re still in college.
My name is Kevin Watts and I am the creator of Graduating from Debt. I was like millions of recent college graduates in heavy debt with very little hope. With the right attitude and discipline I took control of my financial picture and now I can say proudly that I am debt free.
One of the biggest for me is when you invest in college you are investing early in life which means you dont have to invest as much as a person who waits until they are in their 30-40s. Makes such a big difference with compound interest.
I agree the earlier the better. Plus if you start early you can learn from your mistakes. Like old saying goes make money work for you and work for money
These are all sound reasons. I know this is a skeptical view, but I wonder if the students that have money to invest because their parents are paying for college value money or pay as much attention to finances as those that are paying some or all of their schooling.
I agree with your view. I had a colleague of mine who at 18 got 10,000 inheritance and he invested all of it into Lehman Brothers stock before the crash. Needles to say he lost all of his money and learned a valuable lesson.
These are great tips. If I didn’t have to pay for 1/2 of my own college I for sure would’ve started investing in college. Instead, I graduated with about $15k in loans, but got those paid off within 1.5 years of graduating. I can now focus on investing for the future, even though it’s 5 years later than I would’ve liked.
I had a very similar path. I had to take out loans my last years in college and it put me in debt. But I managed to pay off my loans pretty quickly and now I started investing.
These are great suggestions Kevin. I’m a big believer that young people should begin to invest as soon as possible. Time really becomes the biggest part of the investing equation in determining how much an investor’s portfolio can grow.
The sooner the better. Not only does money work for you invest you can also learn from your mistakes.
Investing while you are still in college can definitely be rewarding! I didn’t do it, but if I could “do it all over again” it would be nice to have a nest egg (however small that egg may be) in stocks for when I graduate.
I wished we all had that “do it all over again” button in life lol.
I think starting as early as you can is a great approach. If nothing else, it helps to get all your mistakes out of the way early so that you have more investing years ahead of you to correct for them. You can work part time and put your earnings in a Roth IRA, which is incredibly easy to open up. Definitely a worthwhile pursuit.
Great tips, Kevin. I think developing a saving (and thus investing) mindset is so critical. For whatever reason, young people seem to view it as something they do when their older. I don’t know how many “older” people I know that wish that had started investing in their 20’s. Time does make a difference.
I think it’s because we live in world where instant gratification is king it is hard to teach these values. As a person looking for a job in the 08-09 crisis after graduating I had to confront the realities of our economy and it forced me live a more frugal life.
The big problem with investing in college (and grad school) is that even if you’re debt free, you usually don’t have much in the way of extra money laying around. But if you do have enough to invest, I would strongly encourage starting early.
I agree investing is the next step after avoiding debt. Ideally avoiding debt and investing is the key.
I wish I had invested the money spent on stupid stuff in college, like going to the casino and buying a 10 disc CD changer. I would have had no idea even how to think about doing that at the time. My daughter will at least know it’s an option.
It’s also not just a monetary investment, but one that will open options for you in life that will give you psychological stability.
I think a key here is that you mention people get married just after college. Many go further and begin buying things they can’t afford and supporting new family members (children!). I think these create as many issues as student debt….
We lived in a wealthy neighborhood for awhile. It seems that the wealthiest among us often wait to get married, have kids and buy lots of stuff. Most of our friends that had kids my children’s age were older than us by 5 – 10 years.
I wish I would have invested in college, but I was too busy creating debt, not money!
We didn’t really save or invest when we were young….but we didn’t go into huge debt either. I wish we would’ve started investing in our 20′ but we got a late start!
Saving is one of the best ways to go but if you can’t do that Government student loans are a good second choice since they card much more favorable interest rates.