Why should I save?
You need to save money to ensure that you are able to afford important things in life like a home or a car. Saving is also important for your long-term financial security in the event that you encounter any health problems, and for your retirement.
How can I save?
A basic rule of thumb is this: save what you can. Even a little bit here and there can add up over time. Especially, as you save in your younger years of life, you will have more later on given the power of compound interest.
What is a savings account?
A savings account is something your bank will offer you. It typically pays a modest rate of interest.
To illustrate how interest can benefit you, consider this example:
Imagine you place $100 every month in a savings account paying 2% interest per year.
By the end of the first year, you will have the $1,200 you deposited (12 times $100) plus the interest you have earned. You will have over $1,213 in your savings account.
Be sure to make sure your bank is FDIC insured. This means that even if the bank runs into trouble, your small savings will be safe.
What is debt?
Debt is money you borrow today and pay back tomorrow. For instance, going to college may require you to spend money you do not have today in the hope that you will land a job tomorrow that will pay you more than you would have otherwise made. Be prudent when taking on debt as it can pile up quickly and the interest charged on it can often dramatically raise the total amount you owe.
Consider this example.
Imagine you borrow $1,000 at 6% interest.
You will owe $60 a year in interest in addition to the amount you initially borrowed.
That is because $1,000 X .06 equals $60.
Imagine it takes you 5 years to repay the debt.
You will owe the initial $1,000 plus the interest that accumulated each year.
The cumulative interest owed could actually be a few hundred dollars.
That’s quite a lot of interest to pay on an initial loan of $1,000.
How much money should I be willing to borrow for college?
You should borrow prudently, which means that you should only take on an amount that you feel you can reasonably expect to pay back over time. College can be a great investment, but only if you make the most of the opportunity to learn what you need to learn to have a successful job and career path. You will need to make a good income post-college to pay back your debts.