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College Savings 101: Financial Multi-Tasking

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The words "college life" and "savings" are typically not used in the same sentence today. However, for college students preparing to move onto campus this fall, finding ways to save money may very well be as important as their academic major. As the school year progresses, most students begin thinking about how they will be able to stretch their hard-earned savings through the end of the school year. This means that saving money in college -- let alone having extra money to spend -- will likely be a challenge for many new and returning students. While it can seem daunting, creating sound financial habits now will help enable today's college students to be among the future's most retirement ready.

College is a memorable life adventure, but is also typically one of the greatest financial challenges for both parents and students. As Millennials (young adults aged 20-34) enter the post-grad world, they are learning that good savings habits formed in college have a profound impact on their early working years. While the majority of Millennials in a Voya Financial study1 agree that starting to save early -- even a small amount -- is sage advice, more than four-in-ten (41 percent) have put off saving because they are struggling to prioritize their financial commitments. Becoming a student of financial multi-tasking early on is important, especially for college students living on a shoestring-budget. Following a few savings tips can help students become financially disciplined -- a trait that will be necessary to manage the financial multi-tasking that the post-grad world demands.

Learn to live within your means. It may seem obvious, but preparing a simple budget, paying with cash and using credit cards sparingly are foundational good saving habits. Budgeting is all about understanding monthly expenditures. Paying for items with cash provides a more disciplined approach to spending. While it might be tempting to fund a Spring Break trip on a credit card, those transactions can add up quickly and end up costing more in the long run -- especially if the balance isn't paid off each month. This is an important lesson to learn early on as it will help prevent today's students from becoming tomorrow's credit-strapped pre-retirees.

Look for savings opportunities. Excessive ATM fees are just one of many hidden costs that college students can avoid by checking out the school's affiliated credit union. This strategic savings habit is one of the easiest ways to "find" money. Another example is taking full advantage of an on-campus meal plan. These plans are paid for in advance so it doesn't make financial sense to pay again to eat somewhere else (which is likely more expensive). Students can also consider hosting a dinner party and inviting each guest to contribute one item to be shared with the group or divide the cost of a home-cooked meal amongst the group. Not only does this strategy save money, but can also make for a great night of entertainment -- a two-for-one special!

Buying used and protecting valuables so they last is another easy way to save money. From books to Smartphones and many items in between, opting for pre-owned items can help cut back on big ticket expenses. For example, a used book typically costs a fraction of the same one brand new -- and often times comes with past students' notes and helpful scribbles... for free. Protecting these books by making covers will also protect them from damage so they can be sold back to the school bookstore or online for a higher value. This type of best practice translates into smart investment approaches down the road. For example, protecting financial investments against market volatility or getting insurance to avoid paying for large losses that could otherwise jeopardize one's ability to contribute to their future retirement.

Maximize financial aid potential. Each year, a number of available grants remain idle due to lack of applicants. Given that four-in-five Millennials (83 percent) in Voya's study will be responsible for paying off their student loan debt, applying for grants can help reduce the amount needed to cover essential college expenses. Students can research the inventory of grants available at both their education institution and nationally and then apply for those that are applicable to their situation. By doing so, students are less likely to be saddled with debt upon graduation and have more available funds to invest for their later years.

Take advantage of 'learn and earn' opportunities. Check out work-study programs, internships and campus employment opportunities. The easiest way to prepare for the real-world working life is to experience it in college.

Invest in your future by saving first. Many students postpone taking control of their finances until they have graduated and settled into their dream job. Unfortunately, life doesn't always go as planned. One of the heaviest burdens today for young college graduates is excessive college debt. According to the U.S. Department of Education, the average debt levels for all graduating seniors with student loans rose to $29,400 in 2012, a 25 percent increase from $23,450 in 2008. As a rule of thumb, students should avoid graduating with more debt than they expect to earn from their first full year of post-graduate employment.

Students can leverage their savings from implementing these tips and take advantage of one of the most inexpensive, risk-neutral income generators -- compounding interest. For example, investing $250 per month from age 20 to 29 at an 8 percent annual rate of return would yield $460,236 by age 60. Applying those same terms, but starting monthly investments 10 years later -- at age 30 -- would yield only $372,590. This scenario demonstrates the power of compounding interest. By simply starting earlier, the investor would save 21 percent more in 21 less years!

The bottom line is that while college students live on a tight budget, "necessity is the mother of all invention." Finding ways to save will not only put college students ahead financially in the long run, but will also foster skills that translate into post-grad retirement readiness. Implementing these easy-to-follow tips will make it easier for college students to save money and get accustomed to managing multiple financial commitments. This will allow students post-graduation to handle student loan payments while also saving for the ultimate year-round Spring Break -- a secure retirement.

Patrick Kennedy is senior vice president for the Retirement Solutions business at Voya Financial (formerly ING U.S.). This strategic business segment is focused on guiding Americans on their journey to greater retirement readiness through employer-sponsored, tax-deferred savings plans, as well as through holistic advice, financial planning and a broad range of retail product solutions for customers nearing or in their retirement.

1 Voya Financial (formerly ING U.S.), a leading retirement, investment and insurance company serving the financial needs of approximately 13 million individual and institutional customers in the U.S., recently commissioned a study, representing responses from 2,000 Millennials (young adults aged 20-34), to gauge the financial needs and challenges of America's younger generation.

The material contained herein is for informational purposes only and does not constitute tax or legal advice. You should consult with your tax or legal advisor regarding your own individual situation.

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