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It can be HARD to save money while in college, let alone have extra money to invest. With expensive classes, social activities, and every day expenses, it can feel like there isn’t anything left at the end of the month.
Looking to financial mentors for answers to how I could begin investing while in college, I found the same 4 tips and money principals coming up over and over again.
The solution to investing while in college, regardless of how much you make, comes down to four simple rules. Pay yourself first, automate your investments, invest consistently, and hold your investments as long as you can.
After learning and implementing these four financial principals into my life, I have seen firsthand how EASY it is to invest in your future. Understanding these principals can help make your financial journey grow exponentially!
Investing With Little Money as a College Student
1. Paying Yourself First
Paying yourself first is an expression that almost everyone has heard before, yet many people don’t actually understand what it means!
Paying yourself first means that you prioritize your savings and investments BEFORE you spend money on anything else. Let me provide an example of both the WRONG way and the RIGHT way to pay yourself first:
The Wrong Way
Let’s say that Suzy works a part time job as a barista and makes $500 every two weeks. Every time Suzy’s paycheck comes in, she figures that she will spend money on “what she wants to buy”, and whatever is leftover will be saved and invested. With this mindset, Suzy can never seem to have enough money left in her bank account at the end of the month to save OR invest, and continues to live paycheck to paycheck.
The Right Way
Donna works the same part time barista job, and makes the same $500 every two weeks. Donna has made the decision that she will prioritize her financial independence and pays herself first. Every time she gets paid, she has an automatic transfer set-up to move $100 into her savings account. Every month Donna is now saving $200 without even thinking about it or noticing a change in her spending!
From there, Donna has options to begin building up an emergency fund, begin investing for her short term goals, and investing for her retirement.
What’s the Point?
By paying yourself first and immediately transferring money to your savings or investment account, you will be able to prepare for your future without even noticing a difference in your spending.
Prioritizing your savings and investing will take you from having no extra money to invest, to actually SEEING your investment accounts grow tremendously overtime!
2. Automate Your Investments
Similar to paying yourself first, if you are able to automate your savings and investments so that you don’t even thinking about it, you are more likely to see growth!
One of the most common problems people face when investing is they let their emotions make their decisions for them. It is important to not let your emotions get in the way of your financial goals, and having an automated system in place helps with that.
A great way to begin is by turning on automatic deposits on your investing and saving platforms. Most bank accounts have this option, as well as investing platforms. Wealthfront is my favorite savings account that has automatic deposits, and Robinhood and Acorns are my favorite investment accounts that have this feature as well.
If you’re just getting started with investing, beginning with one of these investing platforms is a great idea. They are beginner friendly, and are all no-cost to low-cost.
I personally prefer to not pay any fees when investing, that is why I love my Robinhood app, and continue to use it.
The benefits of Robinhood is that it’s extremely user friendly and completely commission free. They also have a great referral program that rewards both you and your friend with a free stock valued at $2.50 – $200 when they sign up!
I also love using my Acorns app for the same reason. Acorns is the most beginner friendly, easiest, and most hands-off form of investing that I have found. It is an investing platform that automatically invests your spare change and lets you invest as little as $5 any time or on a recurring basis into a portfolio of ETFs.
It is important to note that for anyone who is not a college student there is a small fee for Acorns’ services… and like I said, I don’t like paying fees. That is why I only plan on using Acorns while it is free during college, and I plan on moving my investments to another platform once Acorns begins charging me. That being said, everyone has different priorities, and some may really enjoy the simplicity and efficiency that Acorns offers and feel that it is worth the one to three dollars every month.
There are so many options when it comes to reoccurring investments! Regardless of what platform you choose to use, look into turning on automatic deposits and investments for both your savings accounts and investment accounts, you will thank yourself later.
3. Invest Consistently
It is so important to invest consistently every month and continually build your portfolio. This point ties into all of the previous points about paying yourself first and automation, but this is what helps ensure that you are getting the best deals on the stocks you buy.
So many people are nervous about investing because they fear market turndowns, or stock prices falling. The beauty of consistently investing is that no matter what happens in the market, your investments will AVERAGE out to the best price.
Too often prices begin to drop and people panic, this panic causes them to either sell or stop investing altogether. This is the WORST thing that you can do! When stock prices drop is the best time to invest.
Averaging out over time will provide your portfolio with the best opportunity to grow.
4. Hold Your Investments
All of the tips up to this point have been important, but this tip is where the REAL magic happens.
You’re already consistently investing through the use of automatic investments, and you know that when the market dips that is the best time to continue buying… but the real magic of investing comes from when you hold stocks. HOLDING is the most important part!
As Warren Buffett always says:
“Time in the market beats timing the market.”
This basically means that the longer your money is invested, the more likely you will be to be successful.
Some people will argue with this, advocating for “buy low and sell high” trades, but the reality is that it can be difficult to try and time stocks. That is why consistently investing and HOLDING for as long as you can, enduring both the downturns, and the breakouts, is your best bet to growth.
Many people think that this advice means that you have to invest for YEARS. But this also isn’t true! Even if you are just trying make extra money for a specific goal, buy-and-hold investing can absolutely help you achieve that.
It is so important to remember that the earlier you start your investing journey, the better. That is why beginning your investing journey while you’re still in college is IDEAL for building wealth!
How To NOT Lose Money When Investing
The most important thing to remember when you are investing is that you must always reduce your risk. Yes, risks can equal rewards. But we want to be smart with the risks we take, and reduce the amount of risk that we put ourselves through.
Risk is the reason why so many people are scared to begin investing in the first place! That is why properly educating yourself and making informed decisions is so important, because this way you will be reducing your risk, and will be surprised by the rewards that follow.
The two best ways to reduce risk when investing are to invest in index funds and buy stocks when they are on “discount”.
Buying index funds is the BEST way to reduce risk, because you are essentially buying a portion of MANY different stocks, making your portfolio much more resistant to individual stock downturns.
Index funds serve an important role in investing, and they make up the majority of my Roth IRA portfolio. But they are a little boring… If you’re anything like me, you enjoy investing in individual stocks to see a higher percent return on your investment.
The best way to reduce your risk when buying stocks is to look for stocks that are at a discounted price. Warren Buffet calls these kind of stocks “Cigar Butt Stocks,” these are stocks that have been beaten up and the price is lower than usual, but you know that the company has a lot of VALUE and has a strong foundation.
These are my FAVORITE stocks to buy! I am always looking for “deals” to pop up on the market. Bad press, missing revenue expectations, competition, and many other things can temporarily hurt company’s stock price, but whenever I see this I get excited because these are the “discounted” stocks that I always am on the lookout for!
It is important to do your research and do the proper analysis when looking for stocks like this. Whether you look at the moving averages of the stock, the news, the fundamentals, etc. doing as much research as you can before making your purchase is important!
What Now?
Now that you know these fundamental principals, you can begin to invest! Remember that investing is all about patience, and there is no trick to making money overnight. Time IN the market beats TIMING the market.
The horror stories that you hear about people losing large amounts of money when investing largely is due to people trying to time the market and make risky trades.
This isn’t to say that there isn’t a place for swing and day trading, but it is best gain fundamental market experience before even attempting these kinds of trades. Remember our main priority is to reduce risk and increase our reward so that you can enjoy college and experience the benefits of investing.
If you are looking for a fast way to make extra money (to invest more!), instead of making riskier trades, you can begin working on side hustles! Here you can find my guide to the 5 easiest side hustles for college students to start from home.
Good things take time. Whatever it may be, building your portfolio, starting a side hustle, making more money, etc. remember that there is beauty that lies within patience.
Well, that is it! I truly hope this post has been useful and that you will be able to begin your investing journey starting TODAY!
And if you struggle with feeling like you don’t have enough money to begin investing, remember that all you need is $5 and a little bit of knowledge. Go out there and begin making your money work for you! 😀