Putting money away so that you have it available for future use is something that most people agree is a good thing. It’s good to be prepared for the unexpected, and it’s good to prepare for things like buying a house one day and eventually retiring. There are two main ways of putting money aside for the future - saving and investing.
When you’re in college, saving and investing might feel like the last things you want to do with your money. Budgets of college students are notoriously tight, and there isn’t always a lot left over after normal weekly expenses. Saving money can feel like a waste when there are things you want to spend money on right now, and investing can seem like the type of thing that only older people do.
But there are plenty of reasons why you should think about saving, investing, or even both while you’re in college. It might not seem like it now, but putting money aside from an early age can have huge benefits down the road.
What’s the difference?
Both saving and investing entail putting aside money right now so that you have (more of) it later. I know most people are familiar with the general concept of each, but let’s take a closer look.
Saving money typically involves opening up a savings account at your bank. These accounts earn interest at pretty low rates, usually around to 0.01% per year. In exchange, you have pretty easy access to your money. You can withdraw it from the account whenever you want - it’s never tied up and unavailable to you. Savings accounts are great if you’re looking to create an emergency fund to cover expenses in case you lose your job later on. But a drawback of a savings account is that your money will lose value over time due to inflation, which is typically more than the interest rate you earn from your savings account.
Investing is different. When people talk about investing in college, they’re usually talking about opening a brokerage account either with your bank or with an app like Robinhood and buying things like stocks and exchange-traded funds. Your money is still pretty available, though you’ll have to sell any investments you have to withdraw cash. As a result, you may have to wait a few days to get your money. Other investments, like in a friend’s company, can lock up your money for longer. In that case, there’s a chance you may get 20 times what you put it, or you may get nothing.
That said, low risk investments like exchange-traded funds usually increase in value in the long run - but that isn’t to say that they won’t decrease in value from time to time, like during a recession. However, the stock market has returned, on average, 10% per year over the past 50 years, despite multiple economic downturns since - and that’s far better than any savings account.
Should I save or should I invest?
Only you can decide which is truly right for you, but there is a general rule of thumb. It’s good to have an emergency fund that can cover at least three months worth of expenses. You can put that in a savings account if you want to, and it’ll probably give you some peace of mind. However, investing will almost always be a better option if you’re thinking about the long term. If you’re saving up for spring break, a savings account is fine. But saving for retirement? For a house? For a car after you graduate? You should be investing those savings so that they’re growing and compounding constantly. As long as you’re long-term focused, downturns in the market won’t hurt you.
So to answer the question, you should probably be both saving and investing - but as a college student, it may be a good idea to put a little extra emphasis on investing. By investing your money, you’ll earn more over the long term, and you’ll be more likely to set yourself up for success when it comes time for big purchases and your eventual retirement. Plus, it’s harder to spend money that’s already been invested, so you can also look at it as a way of keeping your hands off your savings.
How to start saving and investing
Again - it’s no secret that there isn’t always a lot of money to go around while you’re in college. From tuition to textbooks, meals, and drinks, saving and investing might not seem like they make a lot of sense - no matter how important people say they are.
But like anything else, saving and investing in college starts with baby steps. You don’t have to save or invest hundreds of dollars at a time. Try starting small, with just a few bucks here and there. You might be surprised at how quickly things add up.
Fizz is here to help too. Fizz is a debit card that helps you build credit, but it’s more than just that. With a Fizz card, your purchases are paid off daily and you won’t have to worry about overspending. This gives you a better handle on your finances and more of an ability to budget for saving and investing. Plus, with your Fizz card you can earn cash back at merchants on campus and around the country. You could take that money you earn and save it or invest it - all at no extra cost to you.
Fizz is changing the game and helping you get ahead on your finances in more ways than one. So download the Fizz app today!
Sam is a Kenyon College alum and is head of content at Fizz. He's been a go to personal finance resource among his peers since getting his first credit card during his sophomore year of college. He hails from Washington, DC, loves all things aviation, and currently lives in Los Angeles.