UW junior Andrew King understands the economic plight of the modern student.
As students with no full-time source of income, many of us are living paycheck to paycheck,"" King said.
King, who is also the president of UW's chapter of AIESEC - the world's largest student-based organization, which focuses on building a global network - faces similar problems as his peers when it comes to saving money for retirement.
""I probably work about 20 to 25 hours per week and that's just enough to cover rent, food, bills and the occasional night out,"" King said. ""[And] as an out-of-state student, I'm racking up a mountain of debt just to get my education.""
Tuition is on the rise. Social security is in danger. Students are leaving college with more debt than ever and on top of all that, are being told to save for a retirement that's 50 years away when they've got bills due tomorrow. With a little fiscal planning, however, saving for someday might be easier - and cheaper - than it seems.
Take what you can get
""You should always be saving or trying to save,"" Karen Holden, professor of consumer science and public affairs at UW-Madison, said. ""[It doesn't matter] whether [savings are] for retirement or some unexpected event in your life.""
Saving is especially important for young people facing a potential crisis in the economy, according to Moses Altsech, professor of marketing at the Edgewood College MBA program.
""The guaranteed retirement funds of yesteryear no longer exist,"" Altsech said. ""The good news is there is more than one way to save.""
One such way is by taking advantage of 401K plans offered by many companies. For employees with a 401K plan, employers will match funds with a set percentage taken from each paycheck, according to Altsech.
""It's always a smart idea to take advantage of the 401K,"" he said. ""[Then] you don't need the self-discipline of getting a check ... and putting [a percentage] away.""
The key is to start saving as soon as possible, according to Holden, even if it's just a little each month.
""A lot of people think they can wait until they have more money,"" Holden said. ""People should put aside [money] out of every paycheck, even if it's just a modest amount, like 10 or 20 dollars.""
Additionally, the sooner students start investing and saving, the more time the money has to grow, according to Jim Hodder, professor of finance at the Wisconsin School of Business.
""The sooner you start, the better off you are because of the power of compounding,"" Hodder said, referring to how the money multiplies annually. ""The key underlying idea is that even a relatively modest amount starting early on, if it's compounded for 45 years, that's a big deal.""
However, students should make their money work for them, Hodder said, by investing in a fund with a good interest rate without a heavy tax burden.
""You want to do something that's tax efficient,"" Hodder said, recommending an IRA fund. ""[With an IRA], you can put money in without first paying taxes on it. Then it can compound tax-free until you take the money out.""
Before investing, though, students should leave a little money in the bank to fall back on if needed, according to Hodder.
""You don't want to tie everything up in long-term investments,"" he said. ""Have some cash in the bank for some cushion.""
Hodder also recommends index funds, an account that invests in a broad portfolio.
""Some people think they can one-up the market,"" Hodder said. ""You're probably better off just buying an index fund.""
Drowning in debt
Debt, however, is nothing to be taken lightly. Many students graduate with thousands of dollars in student loans, as well as the constant struggle to meet living costs and other expenses.
""There's this problem of how you get from [being] a relatively broke, possibly in-debt college student, to being able to save some money,"" Hodder said.
For a recent graduate with a new (and perhaps low-paying) career, saving in the face of debt can be a struggle, according to Altsech.
""Because of the nature of debt, it's not something you can get out of easily,"" Altsech said.
He stressed the importance of understanding the
types of items worth getting in debt over.
""There is something very different about the debt you get into for buying Gucci shoes and the debt you get into for college,"" Altsech said. ""An education pays itself off.""
Even though education is an investment, there are still ways to reduce the amount of debt after graduation, according to Holden.
""The best way to save is to quit spending on your credit cards,"" she said.
Paying off just the minimum each month is not a fiscally responsible idea, said Altsech.
""It's going to send you to the poorhouse and nothing short of that,"" he said, stressing that students should only spend money they have.
The cultural comfort with debt rising is making students think it's acceptable to charge up large bills they can't pay on credit, said Holden.
""It's a culture where it's hard to say, 'I just can't afford it,'"" she said. ""It's not easy having less money than other people but the reality is you can't continue to live beyond your income.""
Altsech agreed with the changing societal dynamics regarding debt.
""We live in a culture that's very debt-friendly,"" Altsech said. ""We just have to become less comfortable with the idea of debt.""
The early bird...
The bottom line, according to Altsech: ""The sooner you start to save, the better off you are.""
However, Altsech sees debt and the pressures of school as preventing current students from investing - yet.
""I'm not sure it's feasible to start saving when you're still in school,"" he said.
Holden, however, disagrees.
""I'm surprised at how many students I teach have started saving,"" she said.
Even if students don't start saving until after graduation, they can still manage, said Hodder.
""I probably didn't save anything really significant until two or three years after school,"" he said.
According to Hodder, part of the trick of saving after college is to live a low-budget, college-type life.
""Just because you start making more money doesn't mean you have to spend it,"" Hodder said.
If students do decide to take advantage of offers from employers, they shouldn't put all of their assets in one place, cautioned Hodder.
""If you have some of your own resources, you've got more protection,"" Hodder said, adding that diversity is crucial. ""Losing 90 percent of your retirement is not fun, so one of the things you don't want to do is tie up all your money in company stock.""
Additionally, students should try not to view debt and other expenses as preventing them from saving, Altsech said.
""There's always an excuse, a present excuse, of what you could use the money for,"" he said. ""I don't think there's any excuse for taking away from your retirement fund.""
