Investing
This is where it gets exciting. You've recorded how much you make each month and it's all funneling into a single bank account. You know your expenses, you've got a budget, and you've built up an emergency fund. Now what?
Should You Invest or Pay Off Debt?
If you're risk averse, you might want to continue throwing any extra cash you have at your debt and paying it off as fast as possible. That's a perfectly valid strategy.
But if your debt has low interest rates (under 5-6%), you might come out ahead by investing instead, since the stock market has historically returned about 7-10% per year on average.
The math: If your student loans are at 4% and the market returns 8%, investing gives you a 4% net gain. But remember—investment returns aren't guaranteed, while paying off debt is a guaranteed return.
Getting Started with Investing
In this section, you'll learn about:
- Compound Interest — The most powerful force in personal finance
- Types of Investments — Stocks, bonds, mutual funds, and ETFs
- Investment Vehicles — 401(k)s, IRAs, and brokerage accounts
The Key Insight
The earlier you start investing, the more time compound interest has to work its magic. Even small amounts invested in your 20s can grow to substantial sums by retirement.
Start today: Even if it's just $50/month. The habit of investing is more important than the amount when you're starting out.