Working a Summer Job? Here's the Smartest Place to Stick Your Earnings

When you have the summer off between high school or college semesters, it can be tempting to use that time to kick back, relax, and hang out with friends. But getting a job could be a much better move.

First of all, there's only so much relaxing you can do before you get bored. And if you want money to enjoy your summer, you may need to go out and earn it.

But ideally, you'll earn enough money to do more than just pay for night time outings. You might earn a nice chunk of cash you can really put to good use. Here are a couple of options to consider for your summertime earnings.

1. Use the money to build savings

Many high school and college students don't think about needing to have an emergency fund. After all, the purpose of having one is to cover your expenses in the event of a lost job, or to cover an unplanned expense.

But if you're a student, you may not have many bills you're solely responsible for. And your parents might still be willing and able to bail you out of a financial jam, such as if your car ends up needing repairs.

But while your need for an emergency fund may be minimal now, things could change once you start working full-time and become a full-fledged adult. So if you're willing to put some of your earnings into a savings account now, it might really come in handy later on.

2. Open a Roth IRA

It's a good idea to make sure you have some money in a regular savings account. But if you have savings already, or are earning enough to pad your savings account and still have money left over, then it pays to consider opening a Roth IRA.

A Roth IRA lets you save and invest money for retirement. In order to fund one, you need to have earned income.

The amount of money you can put into a Roth IRA can change yearly. In 2023, savers under 50 can contribute up to $6,500.

Now, let's say you manage to earn $3,000 from your summer job, and you decide to save $1,000 in the bank and spend $1,000 on yourself. Let's then say you stick your remaining $1,000 into a Roth IRA and invest it in stocks.

Over the past 50 years, the stock market has delivered an average annual return of 10%, as measured by the S&P 500. If you were to leave your $1,000 Roth IRA contribution alone for 50 years while it generates that same return, you'd grow it into more than $117,000.

Working during the summer could do many good things for your resume as well as your finances. It pays to consider these two options for the money you're earning. Both of them could really come in handy for your future, whether it's regular adulthood or retirement, which is a milestone you're really never too young to save for.