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College students: Make the most of your summer earnings

Attention college students:  Be responsible with summer

Attention college students:  Be responsible with summer earnings; you don't want to start your adult life digging out of a financial hole. Credit: Getty Images/iStockphoto/Milkos

What you do with your paychecks in college can affect your financial life long after you toss your graduation cap. By saving money and repaying debt now, you're doing Future You a huge favor.

If you have money left over or come into extra cash — thanks for the birthday check, Grandma! — here are a few ideas about what to do next.

Build an emergency fund

Stash some of your earnings in a high-yield savings account that should be tapped only to cover unexpected expenses, like a car repair. (In a high-yield savings account, your money will earn more interest than in a traditional account — and you'll still be able to easily withdraw or transfer money when you have an expensive car repair bill.)

If you've earned a lot and can drop $500 into the account, you're off to a solid start. Or if it's more realistic to gradually build those savings — say, by automatically transferring $10 a month from your checking account into savings — you'll still be in better shape than if you had no fund at all.

Without an emergency fund, you'd likely have to borrow money to cover curveballs, says Lynn Ballou, certified financial planner and senior vice president and partner with EP Wealth Advisors in Lafayette, California. "Those who end up in financial trouble at whatever point in life are those that have no emergency savings," she says.

Pay down high-interest debt

Pay some of your extra earnings toward high-interest debts, such as from credit cards or personal loans. You'll save money on interest, and you'll be headed toward a healthier credit score. Plus, as Ballou puts it, you don't want to start your adult life digging out of a financial hole.

If you don't have these kinds of debts, consider beginning to pay off student loans if you're able, says Erin Lowry, author of "Broke Millennial: Stop Scraping By and Get Your Financial Life Together." As long as you're enrolled in classes, there's no penalty if you start to pay your loans and then stop. So it's OK to pay a little bit every month or a single lump sum after a fruitful summer gig, Lowry says.

Enjoy yourself

Saving is important, but so is living life. As Lowry puts it: "Money is a tool that's meant to be used, and you can't constantly focus on the future."

You're about as free as you're ever going to be if you don't have kids, pets, mortgage payments or a salaried job. So Ballou suggests using this time and some of your earnings to travel. "You'll never ever get an employer who will tell you, 'You know what, I think you deserve a gap year,'" she says.

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