Everything you do with your money is an investment, even if we typically don’t think of it as such. Post-graduation investment is some of the most important you’ll make in your life, because it provides the foundation for what you will be able to invest in later in life. If you succeed here, even in small ways, you’ll have many more opportunities in the future. Here are some things to consider.
What to do about your student loans
There are basically two schools of thought when it comes to prioritizing student loan payments. Of course, your student loans have a low interest rate. Basically, this is money that you are borrowing for cheap. Compare this to credit card debt (another form of loan) that has a much higher interest rate. That’s an expensive loan, by comparison. If you keep your loan around for awhile, just paying the minimum every month, you’ll be able to use the extra money to spend and invest in other things.
For instance, if you are paying 5% on your student loans, but you are earning 9% annually on an IRA (more on that in a moment), this is the most profitable financial decision. By the numbers at least. There are some people who simply hate having debt looming over them and prioritize school debt over everything. Here’s a link to a story about a graduate who killed $20k+ in loans in less than one year. A decision like that is one that few make, so it will require you to live like few live. But it can be done. So ask yourself, ‘what is my priority?’. Make a plan and stick to it.
What about early investment opportunities?
Investment is a huge world that you can grow into over time. My recommendation at this stage in your life is a piece of advice you will see a lot of places. No less true for the repetition. Start an IRA. For those who are unaware, IRAs are a tax-protected savings or investment account. Basically, money you put in is free to grow.
There are two types: the “Roth” where you pay taxes on the money when you deposit it. When you withdraw the money years later (after it has had lots of time to grow), you pay no taxes on it. A traditional IRA works the other way around (no taxes first, pay upon withdrawal), but this is a worse deal for most people.
Why do you want to do this? Because this is a way that normal people can achieve very real wealth in their lifetimes. But the key is you’ve got to start early. Through the power of compound interest you’re contributions and earnings will start building off one another, with bonuses for every year you do it. Each year has maximum contributions, kind of like adding fuel to the fire. If you make your maxes every year, you’ll have millions by the time you retire.
These are just two ways you can make most of your money upon graduation. There are others, but if you do this, you’ll be way ahead of the game. This stuff isn’t easy. You’ll be separating yourself from the pack. But your life will be a lot easier later on than if you ignore this stuff now.
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