I loved working a summer job. Looking back, now that I work every summer, I really miss those days. Summer jobs when you’re in high school or college can be fairly low key.
Since I was there only a few months, I never had grandiose projects or high stress moments. I had my share of retail jobs, where it was relatively easy work where I’d make new friends, and corporate internships, where I made a few friends but generally tried to figure out if that line of work was for me.
There were aspects about them both that I enjoyed but the one thing I didn’t do a good job with was saving my money. When you have few expenses, unlike years later, you want to take advantage and save for the future. Here are some tips for how to do that, even if I didn’t!
1. Make it Automatic
Whether it’s the story about the Tortoise and the Hare or David Bach’s, Automatic Millionaire – the key to success is being slow and steady, and make it automatic. Have a portion of your summer job paycheck directed to a savings account. If you know you will need the money during the school year, have it put into a high-yield savings account.
If you won’t need the money soon, consider opening a tax-advantaged retirement account, such as a Roth IRA, or even a certificate of deposit. If you open a traditional IRA, you may receive a tax deduction. Open a Roth account, and your earnings are tax free (but you have to pay taxes now).
2. Learn to Budget
Budgets are important and it’s best to learn how to budget when you don’t have a lot of income and won’t have a lot of expenses. You can go with budget software or do as I did, use Microsoft Excel. I categorized each of my expenses and compared it with my income.
The key to budgeting is making sure your expenses stay under your income. Some suggest “paying yourself first,” which means you set aside a certain percentage to savings as an expense. So if you make $500 a week, pay your first $50 to savings and treat your income as if it was only $450 a week.
Budgeting should liberate you to spend intelligently. If you pay yourself first and are saving that $50 each week, feel free to use the other $450 without feeling guilty because you’re already saving.
3. Reduce Your Living Expenses
Do what you can to reduce your living expenses. If you are college student, moving back home with your parents might not be your first choice of living arrangements for the summer but it can save you a ton of money. You can probably live rent free, get free food, and have access to free laundry (though Mom might make you fold your own now).
If you can’t live with your parents for the summer, try to find inexpensive housing. Many college towns offer discounted summer rates, and you might be able to split your housing costs with a couple of roommates if you plan properly. Plus, it’s a lot more fun to live with roommates anyway.
4. Be Tax Wise
Fill out your W-4 and get your employer to take money out of your paycheck for taxes. This is especially important if you know that you will have to pay taxes at the end of the year. Have money withheld from your paychecks so that you avoid having to try to come up with what you owe all at once.
If you end up not owing or not owing as much, you might get a big tax refund. This can come in handy later on during the school year. For those who have a hard time saving, this “forced savings” can be one way to make sure that you prepare at least a little bit for the future. (I don’t personally advocate forced savings but you know yourself best).
This means, too, that you don’t want to forget to file a tax return later. If you want your tax refund, you have to file a tax return. Most students, though, don’t make very much and have very simple tax returns, but you can still file for a tax refund if you had federal taxes taken out or if you qualify for a tax credit like the Earned Income Tax Credit.
Even if you make money as someone who is self-employed, make sure that you are aware of the tax implications. You need to report the income to the IRS at tax time, and if you make at least $400 in net income, you will need to pay self-employment tax. Set aside money each month for tax purposes so that you aren’t caught by surprise with what you owe for being self-employed later.
Taxes may seem tricky and scary but they aren’t when you use tax software. TurboTax will help you file your taxes and put more money in your pocket..