Learning how to budget expenses and set aside savings can be critical skills for young adults. However, many college students find that they don't know how to properly manage their finances.
With the Covid-19 pandemic ongoing, it's more important than ever for young adults to understand their personal finances.
I spoke with fellow students from Carnegie Mellon University to hear about their experiences saving money, investing and cutting back on their expenses.
Here are three ways these college seniors are taking control of their money.
1. Opening a Roth IRA
In order to start saving money for retirement, Dillan Gajarawala decided to open a Roth IRA.
Gajarawala chose a Roth over a traditional IRA because he can "put in post-tax income now, then take it out in retirement tax-free," he says. This is advantageous if you think you'll earn more money in the future compared to the present, since you can take the tax hit now while in a lower income tax bracket.
2. Learning the basics of investing
For Stephanie Tam, investing in the stock market for the first time felt daunting, especially because she didn't have a lot of money to start with. But her research led her to apps like Robinhood and Acorns, which require no minimum, or a just a few bucks, to get started.
Tam also researched fractional shares, which allow investors to purchase pieces of stocks so you don't have to afford a company's entire share price. For big-name companies like Apple or Amazon, that could be $1,000 or more. "This meant you could invest however much you wanted, you didn't have to buy the entire share," Tam says.
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However, it's worth noting that investing in individual stocks and trying to time the market is risky and typically not recommended by experts, especially for first-time investors. If you're new to the market, index funds are a good place to start, since they are low cost, low risk and automatically diversified.
3. Setting a limit for dining out
CJ May aims to make the money he earns from summer internships last the entire year, which can be a challenge. That's why he focuses intently on budgeting and keeping his spending in check.
One way he does that is by setting a weekly spending limit for eating out. Setting a goal for spending "helps me think about how much I'm spending because now I actually have to track how close I am to that $50 cap," he says. It also helps encourage him to cook more food at home, which is typically more cost-effective.
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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.