Start forming good financial habits early

Lissandra Villa

Ross Kimm, senior in finance, was 15 when he decided he wanted a car. His father, however, wasn’t quick to let him have one.

“My dad told me I had to come up with a down payment. So I landscaped for two summers, and I paid him in cash,” Kimm said.

That’s when he realized that the money could be doing something else.

“To work for money is one thing, but to get to the point where you can get a whole lot of money to work for you, that’s definitely my goal,” Kimm said.

Kimm realized the potential of money earlier than a lot of people do, but there are several ways to go about achieving the maximum potential of money and preparing for the future. First and foremost:

“Get into the habit of putting money away,” says Ramon Reyes, a Wells Fargo financial adviser in Ames.

Savings accounts rarely have a big interest rate, but they, along with other similar accounts, are insured by the Federal Deposit Insurance Corporation for up to $250,000 in an insured bank.

Reyes also recommended using the envelope system as a budget, in which money is divided into major spending categories. When the envelope for the category is emptied, the user is forced to quit spending.

“Every time I spend money I think … is it worth it?… am I accounting for the opportunity cost of this money?” Kimm said.

A user is forced through this thought process by paying in cash instead of having to swipe a card. Reyes said that studies have proven that spenders will think harder about spending money when they use cash as opposed to simply swiping a card.

“It’s very hard for me to spend cash,” Kimm said.

Besides saving money and budgeting what the user will spend, there are other options as to how money can be handled.

It can, for example, be put in the stock market, an option which, providing that a student is capable of investing, can actually favor younger investors.

“We’re young. If we lose a little bit, we’ve got some time to make it back,” Kimm said.

The stock market is not for everyone, however, especially if they are less familiar with the way the stock market works.

“If you don’t know what you’re doing, you could actually end up spending more money,” Reyes said, especially when it comes to trading online.

Knowing what you’re investing in is critical, especially knowing exactly what is being paid for (i.e. commission rates).

Instead of investing in individual stock, there is also the mutual fund option, in which one purchases a pool of stock. Therefore, if a particularly volatile stock underperforms, the rest helps make up for it. This decreases the risk to the investor.

No matter what is put into the stock market, it is important to remember that it is cyclical.

“You really want to have a long-term focus,” Reyes said.

However, if the user fully understands the way the stock market works, there’s no reason to be afraid of it.

“There’s a lot of money to be made in the upswing of this recession,” Kimm said.

Other options include putting money into a 401K and using credit cards wisely, perhaps to build a good credit score.

“Whether we like it or not, money makes the world go round,” Kimm said. “I have goals. … I have a dream house, I have a dream car, and I’m actively trying to make sure that I can, in some respects, live the dream.”