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So I just won a bunch of money...how to have money make money, and assorted questions.
Wontgetcaught
Registered User regular
Registered User regular
So I swear I'm not trying to gloat, but I just won 10,000 dollars on a scratch ticket, and as someone who's notoriously bad with money, and seeking advice outside of my parental sphere, I figured I'd come here.
So,
After taxes it looks like I'm going to net 7000 dollars. Ideally I'd like to use about a grand of this for various frivilites, including a new PC, HD televison, and fixing my car up nice - I intend to do this on the relative cheap via Pawn Shops and so on.
With the remaining 6,000 I'm curious what I should do. Like many people my age I have a ton of student loans, but with those payments being only 80 dollars a month I'm not sure if I want to give all my winnings to the government right away. Ideally I'd like to do something with this money that can generate some kind of income, but am unsure of the what and how. I suppose the Stock Market is risky, and investing in a movie or a video game or something seems both stupid and a great way to give myself a bad headache.
Thus if it's not too much to ask are there any good resources for micro-investing that isn't kickstarter? where you ideally can get a return on your investment for funding something worthwhile or creative that doesn't cost an arm and a leg? Are there bank funds I should into? I'm kind of swirling around and have no idea where to start.
Thanks!
So,
After taxes it looks like I'm going to net 7000 dollars. Ideally I'd like to use about a grand of this for various frivilites, including a new PC, HD televison, and fixing my car up nice - I intend to do this on the relative cheap via Pawn Shops and so on.
With the remaining 6,000 I'm curious what I should do. Like many people my age I have a ton of student loans, but with those payments being only 80 dollars a month I'm not sure if I want to give all my winnings to the government right away. Ideally I'd like to do something with this money that can generate some kind of income, but am unsure of the what and how. I suppose the Stock Market is risky, and investing in a movie or a video game or something seems both stupid and a great way to give myself a bad headache.
Thus if it's not too much to ask are there any good resources for micro-investing that isn't kickstarter? where you ideally can get a return on your investment for funding something worthwhile or creative that doesn't cost an arm and a leg? Are there bank funds I should into? I'm kind of swirling around and have no idea where to start.
Thanks!
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The important thing is how much interest you're accruing. If that percentage happens to be higher than what you could hope to gain in investments (which it most likely is), then you absolutely should put your money towards paying down that principle.
Second rule of investing is that the level of risk is usually following the level of possible reward ie. you could buy lottery tickes for your money and maybe win big or lose it all in a jiffy.
I think the most sensible thing to do would be to see if you can make an impact on your student loan as the best return of investment with no risk is normally reducing debt. It isn't sexy and I must admit I do not know if that is even an option as the way student loan payback could be fixed somehow - there may also be to much cost in paper work doing so that is isn't worth it (I'm non-US and thus do not know the specifics).
With the current interest rates in the worlds money market putting your money in the bank are not likely to bring much profit - at best I think you may be able to match inflation +/- so while the $ amount may go up the net value won't do much more. Think of it as not so much investing but more safe keeping for when you need the $ some day and then won' have to borrow money.
Then there is the stock market to which I include all the other types of investing in x hoping for it's value to go up without having to any work, with that there is risk and my second rule applies plus it is difficult to predict risk/reward levels. On top of that there are some costs involved in trading and those cost are relatively higher with smaller amounts of $, meaning trying to ride the market from day to day is sort of out so unless you can predict the next Apple doing the stock market thing is a long term investment.
My advice on investing is to get creative. Is there perhaps a skill you have that will enable you to add value which the money will enable you to use somehow. Like say you know how to fix cars you could then pick a car in need of rescue, buy it, fix it and then sell it for profit.
pay your students loans
in financial strategy, paying off a debt is what is called a "guaranteed rate of return"
the return is you aren't paying interest on your student loans
Then think really hard about your upcoming costs for the next year. Are there times of the year you struggle a bit for money? Christmas shopping time? Do you need to pay for your own travel around Thanksgiving or Christmas? Do you think you may want to travel for a wedding or other event in the next year? Potential moving expenses? Are you going to need/want a new cell phone when you're up for a contract renewal?
After setting aside all of that, spend your remaining $50 on YNAB budgeting software, and watch it magically change your financial life from here on out.
Normally, I'd suggest paying down your debt, but from what it sounds like, your debts are much more than $6000, and you have zilch for savings.
Thus, your best option is to put all $6000 into a savings account, and not touch it, pretending like you never won it.
After that, you put a good sum of money into a savings account that you use solely as a rainy day fund. Like I have 4 months of savings in that account, it used to be a year and a half but then life hit. But because of that account I didn't fall flat on my ass.
I dunno man, it worked pretty well for the o.p.
Most of the advice thus far has covered off on the basics (pay off any interest-accruing debt first, put the rest of the money away in a savings account). Hopefully, you take this advice to heart and actually use the windfall to save yourself a ton of money down the road in interest fees. Doing this will earn you way, way more money than any reasonable investment you could possibly make. To put it in basic math terms, you could have a credit card with 20% interest (a typical credit card rate), or you could make an investment that will give you a 5% dividend (a phenomenal return) - that's still a difference of 15%.
If you're feeling like you need to celebrate something, go ahead. Just try to manage your expectations a little better - maybe go out to a nice meal or buy a couple of games that you really wanted. No one is trying to rain on your parade here. If you want to have fun, go have fun - just don't expect us to tell you to spend it all on a crazy vacation only to come back home still with $50,000 in debt that you could've put a dent into.
If you want advice on savings accounts, then there are a ton of online banks (Discover, Everbank, ING, Capital One, etc. etc. etc.) that offer much better rates than brick-and-mortar institutions, particularly the well-known ones like Bank of America and Wells Fargo. If you want something a little closer to home, then checking out your local credit union is also a good idea.
To add some additional perspective, the best interest rates right now for savings/checkings accounts are all under 1%. If you get close to that number, you've probably found a good return. Just keep in mind that those kinds of accounts generally have limits on the number and size of withdrawals at any given time.
Er, if Geth is investigating me because it looks like I'm a spambot, I have no affiliation with any of the above mentioned products. Just honestly think the above recommendation would make a big difference in Wontgetcaught's financial situation.
That's silly.
Buy 600 10 dollar tickets instead.
$6k won't go very far in the stock market or other finance investment vehicles. But it will go a long way toward improving your professional image, paying for training in actual skills, and giving you access to opportunities (event tickets, travel to conferences, taking potential mentors out to lunch) that can further your career.
Awesome android RPGs are made by my friends; check them out.
Then pay off credit cards and student loans in that order.
And since you mentioned it, Kickstarter is not an "investment." Your ROI for a Kickstarter is maybe a product you think sounds cool gets made, full stop.
Probably the opposite. When I got my $15K lump sum bonus from the military, they took a third...but as my marginal rate was NOT that high, I got a significant portion of that withheld tax back at the end of the year.
OP shouldn't count on this, but it's not unlikely.
Oh, and I'll second YNAB over Mint. Different tools, and YNAB is better, I think, for people that hate managing money.
Lastly, if your student loans are at 4.5% or so, or less, leave them and bank the money as an emergency fund. For many borrowers, student loans are about the best rate they'll see on a loan. It would be profoundly silly to plunk down all $6K on 4.5% student loans, only to have some need arise (car repairs, whatever) and put it on a 15% or 20% credit card. You've just raised your effective interest rate.
Then work on a budget so that you're setting money aside to replenish that savings, because you will wind up needing it. First step, zero out the "lottery ticket purchase" line. You're already farther ahead on those than you'll likely ever be again.
Thanks for the advice, and I'm definitely going to look into that money management software because Mint was really, really, confusing when I tackled it before.
But if he'll be super tempted to keep spending the rest frivolously bit by bit, I do agree that it would be a good idea to lock it away a bit and make it less easy to spend than in a checking account. Even a separate savings account might be a good idea. Negligible interest but it might be a good psychological barrier to spending.
But yeah, I'm in agreement, as long as we are talking federal student loans (not private) in the single digits for interest? No need to rush paying those off. Liquid cash can be more important, especially if you have no savings right now.
Let's ignore inflation for this experiment.
If you suddenly "find" 10k, if you keep it, you have 10k every year. You earn 0% each year.
If you invest it in a basic savings account, let's assume you find one that returns 1% annually. So each year you earn 1% more (year one is $100, year two is $110 -- very basic).
If you have debt, you must subtract the debt rate. Let's assume you have the same amount in student loans, so if you have debt that's at 4%, you lose 4% each year by doing nothing. So, you hold on to the money, and at the end of the year you have lost $400.
Therefore, if you have debt, before you can earn any money, you have to eliminate the debt. Then, you just take the same amount you would have paid towards the debt and bank it. This process helps you learn savings and also builds up TRUE savings, as the money will actually grow even if you just have it in a simple savings account (well, get an online savings account that returns like 1% )
A lot of you folks seem like paying off debts is more important than an emergency fund, when the opposite is true. You need the emergency fund first. It's what keeps you from piling on more debt. Assuming you're disciplined enough to not spend it on non-emergencies.
At the end of the year, paying the interest can net him 100% returns, if not more, because that person might now get EIC. Maybe not with an extra 10k income, but, it's better to keep and save this money than to pay off student loan debt.
I say this with one caveat. If you have private student loan debt (not federal debt, you see), it is better to pay that off, full stop. There are no advantages to having it. You do still get that interest deduction, however, you run the risk of fucking yourself up if you lose your job tomorrow. Get rid of private student loan debt at all costs.
Even if it means you need to eat ramen noodles for the next 5 years.
That last bit is the kicker. Put it in another bank, in savings, and don't even keep an ATM card for it. Make it something you have to go to the bank to pull out if necessary. But when you have some random $1K emergency, now you're not leaving that on a 16.99% credit card because you paid off your 4.5% student loans. The interest on which was tax deductible, yes.
Not all debt is bad. I feel like we're in a generation that saw people get totally fucked by irresponsible borrowing, so now we're deathly afraid of all debt forever.
There's good debt and bad debt. I don't know about the OP's student loans, but mine are only at 1% higher APR than my mortgage. I'm not rushing to pay either one off. If my cash savings ever got to the point where I had six months salary on top of my student loan balance? Sure.
But if I lost my job tomorrow, which would I rather have...$6K in the bank or a zero student loan balance. Gee, let me think....
Though I'll reiterate, ALL of this depends on having the self control not to spend it. If you've got holes in your pockets, then yes absolutely pay off debt before you waste it on hookers and blow. However you'll be better off in the long run learning to budget so that you can have a cash savings without fear of blowing it.
Wontgetcaught, this is a really really smart idea.
Assuming OP has only public student loans and a lot of them, if he's paying only $80 / month he's not making that much.
Take $3,000 and put it in a savings account for an emergency fund. Don't touch it unless there is an emergency - basically, your car breaks down and you're going to lose your job, or you need a place to live / food to eat.
If he has higher interest debt (car payment, credit card, etc) he should take at most $2,000 and pay down the debt. Pay on highest interest rate debts first generally. If there are smaller debts with slightly lower interest rates, it's ok to pay them off entirely and put that payment towards the larger higher interest debt...that way, if something happens where you can't make payments, you're only stuck with one late fee. Again, this is circumstantial and is really going to depend on your job, your future plans (are you trying to get credit rating up to buy a house, etc), and the interest rates / debt amounts.
If your only debt is Federal student loans, put all your money in savings for a rainy day. You'll make very little in interest, but it's readily available if there is an emergency (a benefit over an IRA) and you're not really going to make much off it otherwise.
Seriously consider stopping gambling and honestly evaluate if you have a problem. If you're buying scratch offs regularly and dropping 10-15% of your money at a poker table you've PROBABLY at least leaning towards having a problem and need to get a hold on it before it gets out of control.
Make a budget and keep a budget. YNaB is a good option, but whatever works and you can stick to. My wife and I use a calendar in Excel. After you've made a budget, if you have disposable money left over from your income, maybe allocate a small amount (<$20 per paycheck) to gaming / gambling if it's something you really enjoy and find entertaining. If you can't stick to the budgeted amount see above and stop gambling because you have a problem.
Also, like McDermott said - if you don't have the discipline and are absolutely going to blow it and tricks to make it hard to get to (bank on other side of town w/ no ATM card) don't work, spend it on useful things like repairing your car, next semester's classes, things you're going to NEED anyway like a suit for interviews, paying down debt, or even putting it in an IRA where you can't really get to it before you start blowing it.
Just to underscore this, my wife (social worker) had a client who habitually played scratcher tickets and won $25k. He spent almost the entire $25k on scratcher tickets over the next couple months.
This made me sad.
fuck up once and you break your thumb / if you're happy at all then you're god damn dumb
that's right we're on a fucked up cruise / God is dead but at least we have booze
bad things happen, no one knows why / the sun burns out and everyone dies
Make sure that $80/month goes into a savings account until you do have an emergency fund built up, and then into an investment account or to pay off your next loan faster.
It's worth it though.