Well, it's been a while since my last post. I'm going to blame things like lab, vacation, and general laziness. But my absence isn't interesting to talk about. Let's talk about money. That's interesting, right?
So I find myself in a pickle. As a grad student, I don't make a lot of money. But, I also try not to spend a lot of money, so I end up having some money left over at the end of each month. Now, what should I do with that money?
Some might say, "Stick it in a savings account!" And at one point in my life, that's what I would have done. I was so proud of myself as a cute little undergrad going to the bank to open my very own savings account. Where I got a couple cents of interest a month. Exciting, right? I've stepped up my savings game since then, and now have an online savings account with Barclays. Here I make over $1 a month, with much less in the account than I ever had in my old savings account.
Good for me for opening a savings account that actually gets me some cash, but chances are I probably shouldn't even have that account right now. You see, even though I manage to put away a decent chunk of money each month, I still find myself with a negative net worth because I have student loans that need to be paid off. As a grad student, I don't need to make payments on these till after I graduate. And that sounds great because inflation means they'll be worth less then than they are now. It might not be much of a difference, but it does help. So I would almost say it's in my best interest to not pay off my loans yet, but that would be forgetting to account for interest.
There's two general types of student loans: subsidized and unsubsidized. Subsidized don't accure interest while you're in school. Unsubsidized do. I have some of both, which means my student loan value is going up daily. The interest rate on these loans is higher than the average rate of inflation, so I want to get the unsubsidized loan paid off as soon as I can. The subsidized loans, currently accruing 0% interest, won't be touched until after I graduate. They'll also have lower interest rates than the unsubsidized loan, which is nice.
So I should just take what cash I have saved up and dump it into my loans, right? Maybe. The other option I have is to throw the cash into my IRA. I have a Roth IRA, which means that I put money in after taxes, but I don't need to pay taxes when I take the money out. The money in my IRA is invested in index funds, which means it's distributed proportionally across all companies in the stock market. On average, the stock market goes up over time. By investing in index funds, you get that average. Now, there are a lot of finer points on Roth vs. traditional IRAs, index funds, etc. I'm no financial expert, but there are a lot of resources where you can get more information if you care.
Looking at my IRA, the value has been tanking for a month or so. I haven't yet dipped below my original investment, but it's getting pretty close. Some people would look at that, freak out, and take all that money and put it in a nice, safe savings account instead. Or maybe a CD, which would make a little more interest than the savings account. Me, I'm just going to leave the money there. As fun as it can be to try to "buy low and sell high," I'm sticking with the tried and true "leave it be" method. Sure, it's having a bad month. But this is a retirement account. I don't need the money till I retire, and that's not for a long time yet. Again, the stock market averages upward, so while I work towards my retirement, this month will eventually become just a little meaningless blip.
So again, two general options. I can pay off my student loans and stop them from accruing interest. Or I can work on maxing my 2014 IRA, where I'll be the one profiting from the interest. I don't like being in debt, so I'm tempted to throw the money into my loans. But you can only contribute specific amounts into your IRA each year, and you can't go back and invest in past years, so not putting money into my IRA would be missing out on a portion of my retirement fund. Currently, because I'm bad at making decisions, I have the money sitting split between my checking and savings accounts. Having money in my checking account where it's not even making interest, is probably the worst thing I could be doing with my money (besides spending it needlessly), so I really should make a decision, and soon.
Overall, try to be at least a little bit knowledgeable about investing your money. And don't let it sit around in a checking account gathering dust like mine is!
