In Part 2 of the PF 101 Series, I want to discuss debt management and investing.
So after graduating school, you’ll have to debate between the following options:
1. Pursue higher education immediately after school
2. Take a gap year
3. Enter the workforce.
For the majority of people reading this, you are probably somewhere between 1 & 2. If you are graduating your final level of schooling, then you are looking at 3. But either way, there are usually options for everyone. But let’s look at the general gist of debt management and investing before making a decision as to what we’ll do.
- The question to ask yourself is: Am I new professional with little to no debt or one with a lot of debt? This determines your direction with regards to debt management.
- A lot of people tend to favor the avalanche method of paying off debt which basically states that you pay the largest amount with the highest interest rate and go down from there.
- This method allows you to pay the least amount of interest in the long-term while getting rid of your debt.
- You are also to able to do a loan consolidation which is basically when an institution pays off your debt for you and allows you to pay them instead, sometimes for a lower interest rate. However, with this option you may see a temporary decrease in your credit score because this option requires a hard inquiry towards your credit (more on Hard Inquiries later). But with on-time payments and etc, this decrease will lose its effects over time.
- This method is best reserved for student loans or at least 10,000 dollars in debt.
Also ask what type of debt is it: Credit Card debt, student loans, personal loans, or the dreaded ~collection~ 🙁
While I will dive deeper into these metrics for the last part of the series, in general, I would recommend budgeting to pay above the minimum payments on all with an emphasis on paying off credit cards first then loans. We’ll talk about collections and how to handle those in Part 3.
Anyways, onto investing:
- In 2020, there are many ways to begin investing and you can start with as simple as $1 so there are virtually no more excuses for not being able to invest. I formerly used CashApp to invest into the stock market. It was simple, easy to use, and you also have the ability to invest fractionally which means if a stock cost $1,000 (looking at you Tesla), you wouldn’t have to buy the entire stock. You could simply just buy a $1 worth of stock and still reap the benefit percentage wise.
- However, obviously just buying a dollar worth of stock and leaving it there won’t build any sort of real wealth unless you give it like 50 years but even then..
- So what I would recommend you do is to just round up your purchases to the nearest dollar and invest that PLUS set an arbitrary amount that you’ll invest every week. Let’s keep it at $20. Assuming this totals out to be $27 dollars a week you invest, you’ll have invested $1,404 by the end of a year. Now if we assume a 5% increase in your portfolio by that time, you’ll have earned $70.20 which means you’ll be left with $1,474.20 at the end of the year.
Some investing platforms include:
Schwab Stock Slices (https://www.schwab.com/fractional-shares-stock-slices)
“So Jay, what do I exactly do?” To which I respond, it all depends. There isn’t necessarily a one size fits all.
Create an excel sheet to track your monthly expenses and see what you would prefer to tackle first. For me personally, I take on whatever could damage my credit the most and what I will be able to work out over a longer period of time (since credit honestly matters more than your salary to be honest).
I am a graduate student with a fair amount of student loan and I know more student loan debt is coming around the corner, so I emphasized paying off any sort credit cards and the biggest, highest interest rate student loan I have currently with a plan to just exclusively use scholarships and federal aid for future education that I will be able to defer payments on and consolidate later.
Any money I do earn along the way is to take care of that big student loan with a huge interest rate as well as invest into the market.
That’s just me though, I am not a financial expert. Just a kid who knows a thing or two about finance and wants to open you up to the potential of managing your finances properly.
Please take your time, however, to do your own research and if possible, discuss finances with a financial expert of some sort.
Anyways, catch my last installment of personal finance 101 next weekend where I’ll be discussing the overwhelming importance of credit.
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