I remember when I first started making money. I finally had a steady job, and regular paychecks were being deposited into my account. Prior to this the only times I would get an influx of cash would be during the summer, gifts on birthdays, and Hanukkah, so making the cash last was a high priority. After I started working? Every two weeks I would get a paycheck for more money than I knew what to do with!
Now, I knew that I didn’t want to be foolish with my money. I didn’t want to just blow it - but more than that I didn’t want it sitting in a checking account collecting dust! This was finally it! I’ve read all the finance books - I want to get my money to work for me! But where should I invest?...
That’s when I stumbled upon an interview that Mark Cuban had with Kitco news. The best investment to make? Pay off your student loans. I was kind of disappointed because it’s definitely not the flashiest thing to do, but when I thought about it it actually made perfect sense.
Let’s say you have a student loan that’s accruing 7% interest. That would mean that any money you invest right now would have to make more than 7% to be worth it. That’s incredibly hard to do! Keep in mind that the average return for 1 year invested in the stock market is about 8% after inflation. If you just chose a few random stocks to invest in you probably won’t even make that because odds are you’re just starting out investing.
Here's the thing... there's an investment you can make with a guaranteed 7% return. Really though - because this is how you should be looking at it: any money you put into paying off your student loans has a guaranteed 7% return. That’s insane! If there was a stock or bond that had a 100% guarantee at a 7% return there would be people fawning over it! And in truth - you do have it! Paying off a loan of 7% interest saves you 7% interest, which, if we're being honest, has the same net impact on your wallet as earning 7%.
So. What’s the best investment you can make in college? Truthfully, it’s probably the network and friendships you’re making. But the best financial investment? Pay off those loans!