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It IS possible to save while studying
It isn’t easy to save on a shoestring budget. But starting early brings its rewards.
Saving money every month all too often feels like you’re depriving yourself in the present – when in fact, you’re actually taking care of yourself in the future. Even students, famous for being permanently strapped for cash, can save something every month if they put their minds to it. So, how do you start saving money as a student?
Getting started
Start by searching for a student account that best meets your needs. Generally, student bank accounts have low maintenance fees, making them the ideal saving vehicles.
To start with, to save money you must handle it better. To do so, you need to draw up a monthly budget to keep track of the money that goes in and out of your account. Nowadays there are budgeting apps that link to your bank account, making your life a little easier.
Once you’ve paid for your student accommodation, bought food and books and attended to your other immediate needs, take the money that’s left and put it into your savings account. It’s best the decision you will ever make to secure your future. You can use the Nedbank Money app to open an account with access to the MyPocket savings wallet and start saving with as little as R1, and your money will earn you 3% interest per year.
You can create up to 10 pockets, so they help you name your goals and save for particular purchases. This also helps you manage your savings and investments according to short-, medium- and long-term goals.
Once you’ve saved at least R500, you’ll have enough to start a tax-free savings account, with better interest rates that help your money grow faster – tax-free!
What the numbers say
You will be pleasantly surprised to see the money in your savings account grow steadily over time, thanks to the magic of compound interest – the wonderful phenomenon of earning interest on your interest.
If you keep your money saved for as long as possible, without making any withdrawals but adding to your savings regularly, the interest mounts up. As a young person with many years of saving ahead of you, compound interest is the best tool to start creating wealth.
You’re not sacrificing the whole student experience, you’re simply giving up some luxuries to take control of your financial future
Let’s explore the power of compound interest in a little more detail. If you save as little as R100 a month, which is R25 a week, you will have saved R1,200 in a year. If you save that same amount every month – stashed under your mattress or in an empty coffee can – for five years, you would have saved up R6,000.
But if those R100-per-month deposits were going into an account that earns 6% interest (per year, compounded monthly) for this entire period, the total amount in your account when you made your 60th R100 payment would be around R7,270. That’s more than R1,200 in interest, or a 20% increase in your savings overall. The more money you can afford to put away every month, the greater the interest it will generate over the long term.
Freeing up enough cash to save
Firstly, it’s easier to put away savings every month if you aren’t paying off short-term debts. Debt is expensive – the same compound interest that grows your savings also grows debt repayments. If you can afford more than the monthly minimum payments and pay off a debt faster, you’ll pay less interest in total and have more money to save.
Your first step is to start saving for a rainy day – everyone should aim to have a savings fund that they can dip into when an emergency strikes. It could be sudden illness, or losing a job, or urgent car repairs – if you can build up a rainy day fund that is worth three to six times your usual monthly income, you can leave that money in reserve and then devote future savings to long-term investments that build real wealth.
To start saving now, you need to spend less of your income on goods or services that you don’t really need. Cutting back on luxuries and non-essential expenses is maybe the hardest savings sacrifice for a student to make, but without increasing your earnings, something has to give.
You can keep some in an emergency fund to be instantly accessible, but put the rest into investments that grow faster
Make your own coffee instead of ordering takeaway cappuccinos every so often. Cook your own food instead of going to cafes. You don’t really need the latest trendy sneakers. Buy cheaper brands. Live within your means.
If you’re already doing without all those luxuries and only spending on basic needs and fixed costs, and you still don’t have enough left to save, you could explore ways to increase your income. Can you manage a part-time job on top of your studies? Do you have a skill or a craft you could market, or teach to others?
Set realistic goals
The real trick is not to see yourself as a martyr – you’re not sacrificing the whole student experience, you’re simply giving up some luxuries to take control of your financial future. It helps to set clear goals that will keep you on this savings road.
If you start small but keep making regular deposits, your savings should grow to the point where you can keep some in an emergency fund to be instantly accessible, but put the rest into investments that grow faster.
Investing in listed stocks is one way to get faster growth – although you need to remember that this is never a no-risk investment. You should get advice from your financial advisor before starting a stock portfolio, to understand the level of risk you’ll be comfortable with, and also the term length: how long will you need to stay invested in stocks to make the returns you’re hoping for?
But when you’re ready to take that step, and you’re taking expert advice, being able to buy a chunk of shares instead of only one or two can be very gratifying. At the same time, it’s a sound financial move – but once you have savings to invest, you’ll find this is just one of your options.
Make the power of compound interest work in your favour by opening a savings account today.
