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Gettin Paid Gettin Paid [Investing] and how do i do it
Element Brian
Peanut Butter ShillRegistered User regular
Peanut Butter ShillRegistered User regular
So basically I feel like I've been given this opportunity, and I'd like not to waste it. I'm currently in school right now and will be for the next couple more years. I no longer need to take out student loans because my pell grant covers more than the cost of tuition, at that my loans are probably around 10k at most, not too bad. Right now i have an ok paying job, making between $12-20 an hour, working 30 hours a week while taking classes. So financially i'm doing ok, the thing is, i have about 2k saved up and i dont have any need for it, i make rent in about one weeks pay.
So what I want to know is, how can i take this 2 thousand dollars i have saved up and turn it into more? I don't have any background in investing but if that's something i could do to make more money instead of letting my money sit there then I'm very interested. I obviously don't want to risk it on some flimsy " i have a friend" deal. But i'd like to know what my possibilities are. Even outside just 'investing', how else could i turn this money around? Start some sort of small business selling things online? I'm totally new to this idea but very willing and I'd just like some advice/input on what I could do, and how to go about doing it.
Thanks guys.
So what I want to know is, how can i take this 2 thousand dollars i have saved up and turn it into more? I don't have any background in investing but if that's something i could do to make more money instead of letting my money sit there then I'm very interested. I obviously don't want to risk it on some flimsy " i have a friend" deal. But i'd like to know what my possibilities are. Even outside just 'investing', how else could i turn this money around? Start some sort of small business selling things online? I'm totally new to this idea but very willing and I'd just like some advice/input on what I could do, and how to go about doing it.
Thanks guys.
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No, however I'm a single student adult, and my university has plenty of disability programs that i know if i were to get injured and could not perform my job, my school would be able to get me a job rather quickly in order to help me out. On top of that, my cost of living is very low, my rent is about 270 a month, plus insurance so im paying about 400 a month, which again i make that in about a week and a half.
I understand where your coming with the emergency fund, but that aside i'd like to assume I won't be getting hurt anytime soon.
Arch,
https://www.youtube.com/watch?v=t_goGR39m2k
That's a poor assumption to make. A very, very poor one. Your first goal should be to make sure that you have a safety net. As I'm fond of telling my kids, they call it 'an accident' because it happened even though you didn't mean for it to.
The thing you should do with that money is stick it in a savings account and keep adding to it until you have $5000. Then forget you have it and start paying all your debts. THEN save another $2000 and start looking for ways to make it grow.
The reason why people are unprepared in the event something bad happens is because people structurally underestimate the chance of something bad happening to them. I would sock away $3-$5k. Given the current state of the stock market, any investment should be a long-term proposition, so i'd recommend a 401k as an investment vehicle. Why don't you use the core $2k as a nucleus for your emergency savings, and split your savings going forward 50/50 to a 401k and towards your emergency fund?
Also, the short-medium term return on investment is going to be lower than your loans' interest rate unless you have a sub-3% interest rate on your loans. Especially if your loans are currently being subsidized, this is a great opportunity to pay down those loans now. It's also a better return on your money than investing the cash.
While everyone is different, in general, your financial priorities should look something like this:
1. Rent
2. Paying down high-interest, bad debt (credit cards, payday loans, etc.)
3. Minimum payments on low-interest, good debt (home loans, student loans, etc.)
4. Paying utility bills & other living expenses (internet, water, electricity, etc.) (these come after the above because you can take on more credit card debt to pay them down, and get a new 30-day grace period; saves you interest in the long run)
5. Emergency savings fund (ideally, six months of living expenses).
6. Long-term savings fund (for things like retirement, or the down payment on a new home/condo).
7. Short-term savings fund (for things like buying a car or new computer).
8. Paying down additional principal on low-interest, good debt.
Some of these things get shifted around--depending upon your precise living situation, what bills exactly you're dealing with, and the interest rate on those bills--but that is, in general, what it should look like.
The emergency savings fund isn't there just for if you get injured and/or lose your job (though, it can help tremendously with that); it's there for both those things you can think of, but also the things you can't think of. What if your mom found out she had cancer, got fired, and had to go on COBRA for $2000 a month (not an uncommon occurrence)? What if you ended up out of school because of violating some arbitrary rule your school decided to enforce upon you (correct me if I'm wrong, but you've run into issues similar to this before, haven't you)? What if the transmission falls out of your car tomorrow (you know, the car that gets you to work, school, etc.)? Really, that money is "worst-case scenario" money, there to help you for the shit you can't see coming.
That being said, once you've got that set up, the next step would probably be to start putting money into some sort of long-term investment account, something you could either use or borrow from to make a down-payment on a home, but would primarily be for retirement. For someone in your situation, your best bet is probably going to be to talk to a financial planner (Vanguard is pretty good), and most likely invest through a Roth IRA (Roth IRAs aren't tax-deductible now, but they don't get taxed when you withdraw them; they're pretty great if you're not making a lot of money). You can look at either an aggressive managed fund (like a mutual fund investing in small-capital stocks) or something like an index fund (which a lot of people swear by). Alternatively, you could start learning about the stock market, and try to invest it for yourself, but this is almost always a bad idea.
The short-medium return on paying down a subsidized loan while you're still in college is 0%. You can definitely beat 0%. And in fact, having some liquid money at your disposal is worth more than a 0% interest rate. i.e. you're better off taking cash and sticking it in a suitcase under your bed than you are paying down subsidized student loans while you're in college.
Also, as a student, a 401k is a terrible investment vehicle; all the benefits of investing there are front-loaded, and unless you've got a matching contribution from your employer (which you almost certainly don't, as a student working 30 hours a week), all you're getting out of it is a small discount on your almost-nonexistent income tax bill.
I mean, assuming the OP's finances are typical.
Than,
I agree liquidity is good, which is why the thread so far has proposed an emergency fund. You're also probably right on the 401k front, I'm projecting my bracket onto others - perhaps the better move is a roth IRA. I would plan for taxes on every income band to increase in our lifetime so anything that hedges against future taxation is a big benefit.
I really disagree with the student loan thing. No argument that the math is the way you lay it out - but (a) I wouldn't be sure you can beat 0% in the next year or two, and (b) I would have at least a somewhat risk-averse financial model in this economy, i.e. a model that values reduction of downside risk more than a equivalent upside gain. It will be easier and quicker to pay off those loans if you start doing it now, and the sooner the loans are paid off, the sooner he can reduce the concomitant downside risks of sudden job loss.
I would recommend sticking it in a money market account and just focus on being awesome at school.
TLDR;
If you're at school, you should just focus on excelling at that right now. There will be plenty of time to worry about your long term financial plan once you graduate. I would recommend going hardcore at your current job and just absolutely piling up cash as high as you can. When you graduate knock out every penny of debt you can.
There's just not really anything you can do reliably to invest $2k and turn it into more. Maybe the business thing if you're absolutely certain you can do it without cutting into school effort and without losing the $$, and I still wouldn't do more than $500. I would just stick it in a money market and pile it up as much as possible.
Long term, after college my financial plan would look like this:
1. Basics: Food, Roof, clothing, utilities. $1k emergency fund
2. Get rid of all debt, every penny, in order of a mix between balance/interest rate until it's all gone.
3. 3-6 month of expenses in an emergency fund.
4. Fund my Matching 401k up to match, Roth maxed if making less than $250k(? might be 200k), back to 401k if still at less than %15 of my annual income. The 401k and Roth are invested in Growth Stock Mutual Funds that I never touch, and have a 10 year history of 10-12% growth. Using leftover income for saving at least 20% down payment for house to avoid PMI, depending on scale of income, maybe saving up to 100% down for house. If I borrow for the house, it's on 15-year fixed rate, where the payment does not exceed 1/4 of my monthly income.
5. Enjoy $$DENTIST$$, no payments dinging your income every month, retire a millionaire.
Steam
Only the strong can help the weak.
Something else for the OP to consider is moving expenses. If you're planning to move to a significant city post-graduation, they're going to expect first and last month's rent, plus probably a security deposit; if you're moving there without a job, they're going to want evidence that you can actually afford to pay rent for awhile, like, for example, a savings account statement with a substantial balance. In addition to that, you're probably going to want to move furniture or buy new furniture when you get there, both of which are expensive (most non-student housing isn't furnished).
While Kaliyama's points are good, I have to respectfully disagree with him regarding what the downsides and upsides of paying down those loans are.
Bottom line is, you aren't LIKELY to do a bunch of great daytrading with your loose 2k. You have fees to beat, shit like that, that rob it of profit margin. You want to refine your approach. At your age, if you start consistently saving even a small monthly amount, you're going to have a big ole' chunk in the bank by 40 or 50 without some of the catch up tactics people (like me) who figure this shit out in their 30s end up having to use
The first thing you should do is pay off any credit card debt you have.
Then you want to establish a savings budget every month. You don't have to pay off your student debt per se, but you want to start planning for the end of your grace with it.
Once you have a bit of savings, and you don't have any debt at a rate greater than about 8 percent, start to invest. Probably with a roth IRA.
I host a podcast about movies.
2) Put it in savings as an emergency fund as others said
3) You honestly don't have enough money or security to think about investing right now
This loose capital is highly unlikely to earn you more than your (modest) debt is costing you. Turning it into paying down loans will translate into "earning" you more money (in the form of obviating interest payments) than you could ever hope to earn if you put it in the market, even if you put it in an exceptionally safe investment.
I just don't understand how debt is helping. Income is my number one wealth building tool. If you don't have debt dinging it every month, it's pretty amazing how even a little income do some incredible stuff. Maybe it makes sense if you're an accountant or someone who works with debt every day, but I'm just trying to build wealth, invest long term so I can retire a millionaire, and do stuff I care about instead of dealing with financial institutions.
Steam
Only the strong can help the weak.
So would everyone in the history of forever that had some totally unexpected horrible shit happen.
First save up your emergency/future planning savings account before you think about getting deeper. 5K is a good number.
Also, I will disagree with Thanatos. Student loans suck and those fuckers are racking up interest as we speak. If you have the extra scratch, it wouldn't be a terrible idea to chip away at those bastards, especially since the interest is tax deductible.
EDIT: removed first world problems
But seriously, it's not the best use of cash right now. I have like 10.3k in debt and pay ~277 a month. If I had 10k in cash nowhere would I get 2% per month or 25% annually.
A Roth is a shell that you can put up to like, $5k, into per year that grows without being taxed, the capital gains, the money it makes in the stock market, isn't taxed which is what makes it awesome. It's a retirement fund, so if you take out of it before 65yo, the withdrawal is taxed at your current tax bracket +10%. It hurts, and it's supposed to in order to discourage touching it. When you borrow against it, then something happens and you can't bring it current within 60-90 days, the IRS counts it as a withdrawal and hammers you with the tax +10%. This will be unlikely to help or aide whatever situation you encountered that caused you to fall behind initially.
I would never touch or borrow or anything on retirement funds unless it was to avoid bankruptcy or foreclosure.
Steam
Only the strong can help the weak.
So a Roth is a reliable long-term investment that fucks you in the ass if you try to opt out? I'm assuming it has a variable growth rate based on the market somewhere between 1-5%?
A Roth IRA is still an investment account, so your return is still predicated on your investment choices within the account. (Ergo, there won't be anything reliable about it if you dump all your money in high-risk small cap stocks.)
Until you're 65, then you can just take out of it like a regular stock market account at whatever the tax rate is at the time. The point of it is that it doesn't tax you on the growth while it's in there, which can be quite substantial. It's there to give you incentive to not be on welfare when you're old and can't work any more.
You can invest the money in the Roth however you want through your stock broker. Anything invested in the stock market has pretty goddamn variable growth, most investment people have you invest it aggressively at first, than as you get to 65 or whenever you want to retire, they move to more and more stable, but slower growth investments. All of mine are in growth stock mutual funds that have a 10 year track record of at least 10-12%. I'm leaving my stocks alone for the next 30 years, so I don't give much of a shit what the market is doing today or this year. I look at it in 5-year increments, keeps me from bitching every time there's a correction in the market.
Steam
Only the strong can help the weak.
2008, 2012, 2014 D&D "Rare With No Sauce" League Fantasy Football Champion!
Also, I could swear that you can pay for education out of a Roth penalty free, and I think you can always take out the amount that you put in, which was taxed, but not the earnings.
Getting started young is important simply because it means you have $$ in the account that is growing. Getting the ball rolling is the important part. They tax it when you take it out, so however much you take out is simply counted as income and they take whatever % that falls into. When you retire and you're not working, the idea is that you will be making enough % interest in the stock market that you can take like $50-$70k out a year and never touch the principle. You'd pay taxes on the $50k and live on the rest. Healthy people are living into their 80s and 90s these days, so touching the principle is really to be avoided, and why getting a huge pile is so important.
This I am not entirely certain about, but pretty sure you're thinking of an ESA 529 plan, which is a Roth but exclusively for education. You can put up to $2k a year into this type of shell for a kid named on the account and it works like a Roth in that you invest it in the Stock Market until the kid is 18 and then you can take money out to pay for college. Those are pretty great.
Not that I'm aware of, but I wouldn't mess with my retirement for anything short of disaster.
Steam
Only the strong can help the weak.
What to invest in towards buying a house, or best off just throwing the money into a savings account and waiting till you make enough on your own for a DP?
How liquid do you need those funds to be in case of an emergency? Usually people suggest CDs with 1-5 years worth of growth, though, most CDs are about equal to most savings accounts in this market so it's best to just toss it in one that's separate from your normal savings account. Go with the CD if you absolutely cannot be trusted to dip in.
Also, for Roths, the age cut off is 59.5. As in, at 59.5 years of age, you can start to distribute from the IRA penalty-free. But there are a few distributions you can make from the IRA and not have to worry about the penalty even before that age.
Home buyer (1st time) up to $10,000 within 120 days of distribution.
Insurance (medical), unemployed w/ 12 consecutive weeks of unemployment or self-employed.
Medical expenses in excess of 7.5% of AGI
Disability (permanent)
Education: tuition, books, fees
and
Death.
CDs don't keep up with inflation which historically is around 3-4%-ish, so they're a bad long-term investment. My short term(<5years) money planning involves saving my income, my long term(>5years) money planning is investing in Growth Stock Mutual funds that I look at in 10-20 year increments.
Also, my recommending reading = every book written by Thomas J. Stanley.
Steam
Only the strong can help the weak.