Four of the Smartest Personal Finance Moves College Students Can Make This Year

 

  1. Focus on doing really well in your degree program.

     The cards are largely stacked against today’s graduates. Your degree will be worth less than it would have been worth 10 years ago. The pool of competition is getting better every year. And there are fewer available jobs due to the current economic situation. There’s a good chance you’ll be entering the workforce during the slow slope back into economic expansion. And because of that, the best possible thing you can is to make sure you’re valuable to employers. Choose a degree program in something that’s in demand and offers student loan forgiveness.  Nursing is a fantastic example. And make sure you do really well in school. Be better than your competition. Focus on learning retention, not just numerical grades. 

 

  1. Consider investing–purchase a low-cost index fund.

     To get started in investing, it might help to first explain a couple of basics about the market itself. Think of it as a large network of big companies, such as Walmart, Amazon, Apple and General Electric. Every company has a value: a numerical score based on how profitable it is. Based on those values, each company is given a stock price. That’s how much money a tiny part of the company is worth. People can purchase these shares of stock, which means they’ll have some sway over how the company operates. And when the company makes money, they will too. If you bought a share at $4 this month and the company’s value rose over two years, the value of your share would rise to $8. You could hold onto that share, or you could choose to sell it to another buyer for $8. And if you did that, you would have made $4. This is why people only invest in companies that they believe will do well over time. And that’s the stock market: it’s a bunch of people buying and selling shares of stock based on what they think those shares will be worth in the future. The stock market is a complicated machine, and it would take a lot of equally complicated math to calculate its entire value. So instead of doing that, we use what’s called an index. An index takes (what it believes to be) the most important companies in the market, and it produces one clean number based on the values of those companies. In theory, that number mirrors the entire market’s value. The Dow Jones Industrial Index and the S&P 500 Index are the most well-known, but there are others around the world that measure other markets. And just as you can invest in individual companies, you can also invest in those small segments of the bigger market. 

     There are two major ways to invest like this. They’re called index funds and mutual funds. Both are low-risk options that will be very likely to make you money in the long run. An index fund is a bit like betting on the market itself. By purchasing a low-cost index fund, you’d be putting a tiny bit of your money into all the companies within that index. The S&P 500 index, for example, would put a little bit of your money into their 500 companies. Individual stock prices may go up and down, but the market itself usually turns a profit regardless. You won’t get rich using a low-cost index fund, but it’s a safe route into personal investments. If you’re considering opening one, use Vanguard, since it doesn’t charge extra entrance fees. You could also consider a mutual fund. A mutual fund takes a little bit of your money and puts it into companies that a professional investor thinks will do well. This involves a bit more trust on your part. Investors are gamblers, and the list of companies will always be changing. If you’re considering this option, be wary. And only invest a small amount of money. Make sure it’s an amount you’re comfortable losing. Remember, you’d be betting on the market doing better later than it is now. It’s not a short-term thing. 

     Consider Tim Farrelly, a freshman at American University. He opened a mutual fund this past fall, and he’s seen a pretty good rate of return on his investments. “In October I invested $3,000 from my savings account. I wanted to get a jumpstart on moving some money around, and I thought a mutual fund would be a safe way to do so.” And he was right: that number has grown to $3,300 (a profit of 10 percent) and it’s only been six months. “Based on what I’ve seen so far, I can’t wait to see what that number is going to look like in six years!”