Page 333 - Keys to College Success

Now is the time to begin owning both your money mistakes and your smart money
plans. If you overspend, decide on your own to be more careful until you build up your
cash flow. If you want to make a big purchase, set a goal to save for it and work toward
that goal on your own. Feel both the pain and the pride of your choices and take future
risks based on the rewards you need most, and you will build skills that will serve you
for life.

HOW CAN YOU PLAN FOR A
stable financial future?

Being able to achieve long-term financial goals such as buying a car or house or
saving for the future requires that you think critically about short-term risks that will
bring long-term financial reward. The strategies you’ve examined so far contribute to
your long-term goals because they help you spend wisely and establish good habits that
will help you stay in control moving forward. Similar to the situation with time, you
can’t always control how much money comes in, but you can control how you use
what you have. Working to stash away as much as possible now will give you more
freedom in the future. How can you do it?

Put Your Money to Work

When you live below your means, the money left over can go into savings accounts and
COMPOUND INTEREST investments, which can help you with regular expenses, long-term financial plans, and
Interest calculated on
emergencies (financial advisors recommend a cash “emergency fund” that will cover at
the principal (original
investment) as well as the least three months worth of expenses). Savings accounts, CDs, and money market
interest already added to
accounts can help your money grow.
the account.
Savings accounts. Most savings accounts have a fixed rate of interest (a sum paid
for the use of your money while it is in the bank). Money in those accounts earns
compound interest. Here’s how it works: If you put $1,000 in an account that carries
5% interest, you will earn $50 over the
course of the first year. Your account then
holds $1,050. From that point on, interest is
calculated on that $1,050, not just on the
original $1,000. Imagine this: If you
invested that $1,000 at the age of 22 and
put a mere $50 in the account each month,
by the time you turned 62 you would have
over $100,000.

Certificates of deposit (CDs) and money
market accounts. CDs deliver a fixed rate
of interest on an amount of money that you
put away for a specific period of time (three
months, six months, one year). Money mar-
ket accounts also deliver a fixed rate of
interest and allow you to withdraw money,
but tend to require a minimum balance and
restrict you to a certain number of with-
drawals per month. Both types of accounts
earn slightly more than a regular savings
account.

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