I Have So Much $$$ From My Summer Job
While summer can be a time of relaxation, for many it’s a time for financial responsibility, like taking on a summer job. Some people find themselves scooping ice cream, renting out fishing gear, or doing other jobs that peak in the summer. Others stuff envelopes in an office for upcoming elections, or start jobs they can keep working at into the following school year. Regardless of what job you took on this summer, at some point you’ll be faced with the same question: what should you do with the money from your summer job? Keep reading for some tips and tricks to help answer that question!
DON’T SPEND IT ALL
This sounds easy, but it’s not. For many people, it’s hard not to spend money as soon as it’s in their hands, especially if you have responsibilities to pay for (like car payments). But often it’s the little things that take away all of your hard-earned cash.
If you’re still in the middle of your job, figure out exactly how much money you’re earning. If you are paid biweekly with consistent work hours, that’s probably easy to figure out. But if your schedule fluctuates or you get overtime pay, you may have to do a bit more work to figure out exactly how much money you’ve made so far and how much more you expect to make through the end of the summer.
Then check to see where that money is going. Did you already spend most of it on a trip with your friends? Or did half go towards unavoidable expenses like car insurance and work uniforms? You don’t need to track it back to every nickle and dime right now, but having a sense of where your money is going will help you determine if you’re happy with how it’s being spent.
GET A BANK ACCOUNT
If all of your money is stuffed into your wallet or an envelope in your sock drawer, this step is important. It’s critical to get a bank account as soon as possible-- preferably one that allows a checking account linked to a savings account.
We’ll have plenty of articles and videos explaining bank accounts in the coming months, so don’t worry if you’re a little confused. There is a lot that goes into setting up an account for the first time, including having your parents co-own if you’re below 18 years of age in some states. Check out credit unions in your town, which tend to have lower fees and higher savings interest rates. Often banks and credit unions have special teen rates or student discounts for new accounts. Remember that you can always go in and ask questions about new accounts, even if you don’t open an account.
GenW Story: “I remember being terrified when I went in to get my first bank account. I felt like everyone was staring at me. I always figured that bank accounts were only useful when you had real money-- not just my small summer job. But all of the bank employees were kind and willing to answer my questions, and I was so proud when I actually saw my money in my account on their computer screen.”
Once you have a checking account and savings account, transfer a good chunk of each paycheck from your summer job into savings. Then don't touch it! You can save up for a big trip or fun purchase, but we always recommend first setting aside some savings for emergencies. Imagine how bad it'd be if you car breaks down halfway through the summer, and you don't have any money set aside to fix it in order to get to work!
CHECK YOUR TAXES (ON THAT PAYCHECK!)
This is not the time to learn about every tax rule there is, but some general understanding of taxes now can save you a lot of headache next year. If you’re a full time college student or you’re still in high school, there’s a decent chance you won’t make enough money this year to actually have to pay taxes! It changes from time to time, so always do your research, but right now the federal minimum is $10,300 (1). If you make less than that this year, no federal taxes!
However if you filled out a W2 form when you first got your job, you might want to check to see if you entered everything correctly. There are options for withholding (paying taxes early), and often people just default to withholding a certain percentage. Sometimes it’s really hard to figure out what the form is even asking! In most cases you can re-file your W2 to change your withholding, so go take a look!
If it turns out that you’ve been paying taxes to the government every paycheck, but you make less than the minimum income-- make sure you file your taxes next April. That way, you’ll be able to get your money back in the form of a tax refund.
GenW Story: “Something that often high schoolers [or college students] don’t think about is whether or not they are being paid legally. My first job was at an ice cream parlor, and I was paid ‘under the counter’ in cash. At first it sounded awesome-- no taxes! Cash instead of a check! But there are a lot of scary problems with jobs like this. Not only is it illegal (ever heard of tax fraud?), it also means that your employer is pretty shady. If they don’t report you as an employee, it means that they could tell you to break child labor laws by working too many hours per week. You also aren’t covered by their insurance! You feel trapped, because if you report your boss then the government will know you were paid illegally. My tip: Stay far, far away from any job that won’t play by the law, even if being paid in cash sounds fun.”
PUT SOME MONEY AWAY FOR SCHOOL
It’s not glamorous to think about how you’ll pay for college, but it has to be done.
If you’re in high school -- look up the average cost of public and private schools in your area, and it’ll likely make you feel a little faint. Even if you’re planning on getting scholarships or loans, or your parents have committed to paying your tuition, there are always other expenses.
It may not feel like your small summer job can make a dent in school payments, but every little bit is important. Let’s say that your tuition is covered by scholarships-- how are you going to pay for food and books? If you have a loan cover school-related expenses like a college’s meal plan-- how are you going to pay for new clothes? Even a small amount of savings now can help with day to day expenses while you’re in school.
And beyond school or college, saving your summer job money can help with a new apartment when you move out of your parents’ house, a new car, or any other basic necessity.
PLAN FOR 50 YEARS FROM NOW
Let’s say you’ve followed our tips and opened a savings account. You make sure not to spend all your summer job money, even if summer activities are tempting, and you’ve even put away a good chunk towards emergencies and college savings. The next step is to plan for retirement.
We know that retirement can sound crazy. You’ve barely even started working, and we’re asking you to plan for when you stop! But hear us out-- money that earns 5% a year in a safe investment will grow tenfold in 50 years. That means if you put away just $100 now, you’ll have $1000 when you retire!
There are also a lot of really great benefits to starting now-- when your income is relatively low-- compared to a few years from now. If you open a Roth IRA (a type of retirement account), you pay taxes when you put money in, but not when you take it out in 50+ years. Once you start your “real job” (whatever that is), you’ll likely be making more money. That’s great, but it also means your tax rate is higher. So if you open a Roth IRA now, you’ll pay less taxes on the $100 you want to invest compared to if you tried to add $100 when you’re 25 with a higher tax rate. This can all seem a little complicated, but don’t worry-- we’ll have plenty more articles and videos on retirement accounts later!
HAVE A LITTLE FUN!
Lastly, make sure you do what is right for you. For some, a strict no-spending policy works great. For others, investing in important experiences like a family trip is a lifelong memory.
And, always a great piece of advice: consider, finding lower cost options to have fun. Host a movie night at your house, instead of dropping $13 or more to see the latest blockbuster every week. If you live in a city, there’s likely plenty of free or inexpensive events going on that you may not even know about! Check to see if your city has a community center or social media page like FunCheapSF to discover new events. Try to be wise about your spending, but make sure to enjoy your time off of school, too!
REFERENCES AND IMPORTANT LINKS