New college student seeking financial advice

[im_not_1337]

Heres my story:

First off, I know people don't like endless "what should i do with my dead money, help!" posts, but this isn't exactly that, i want to know if i even should invest it, or just pay off loans etc.

I basically have no idea of investing, this kind of bank account or bond or that. I just have my 5k in a student savings account which from what i have heard, is basically useless in growing my money, it just holds it there.

In a month ill be going back to college as a sophomore. I've already been to college for one year and my parents completely paid for all room/board and tuition. However, they said since im a twin and have other siblings, they can't afford to pay for all of my college and that i will have to be on student loans for the remaining 3 years plus likely 2 years in grad school going for an MBA. Really not that bad and i greatly appreciate them giving me a year totally free.

I have 5k in the bank and have a part time job making 12/hr doing tech support type work, plus im making roughly 1k/month from poker, likely more as i move up limits and improve etc. Ive added all school expenses up and it comes to little less than $12k a year for everything (Includes room/board, meal plan, tuition, books, and some spending money). So lets say i add in another 1k for random expenses. That means my yearly expenses should be about $13k, probably less.

My main question is this: Should i try to do something with investing my $5k? I think i should but what should i do with it? Theres probably so many options out there but i don't have a clue about any of them. I should be close to being able to pay my expenses just from my part time 12/hr 20hr/week job. That would land me at a little over $11k/year without taxes taken out plus poker winnings.

So, if you think i should try to invest the $5k, should i invest poker winnings and my job money as well? Or should i just pay off student loans immediately as i go with the $5k +job money +poker money? Should i not invest anything, and try to just pay as i go with the student loans? Should i invest it all and pay off student loans after college? Just invest the 5k? etc. All advice is greatly appreciated

[emon87]

Do whatever will yield you the highest returns. That probably won't be paying off the student loans but since you didn't say what the terms of those are I can't say.

[Nomad84]

If the student loans are cheaper than ~5% or so, I wouldn't pay them off any quicker than I had to. However, I would probably not invest the money either. I'd just stick it in a high yield savings or money market account because you need this money in a short amount of time. As you reserves grow (and by reserves I really mean savings minus loans, even though you might not be paying off the loans yet) then you can begin to consider investing. If you have plenty of money before April 15, I'd probably recommend opening a Roth IRA with Vanguard and putting whatever you can afford up to the max of $4k into the longest dated target retirement fund. The target retirement fund will automatically diversify the money into a mix of assets that is appropriate for someone who will leave the money invested for a very long time. It will also automatically rebalance and automatically adjust asset allocation as time passes so as you get older, you don't have to worry about it. It will automatically become more conservative. That's probably the easiest way to invest for someone that knows nothing about investing, and a Roth IRA is an excellent deal for someone like you. After-tax money goes in, but you never pay a dime in taxes on your earnings ever as long as you don't withdraw until you are a certain age (I believe 59.5). If something does come up and you need the money, you are allowed to withdraw up to the amount of your contributions with no penalties.

[relativity_x]

I don't think you've estimated your expenses correctly.

I'm a college student too and pay 4k a semester for tuition and books. That's 8k a year then add in living which is another 3500.

That brings the total up to 11.5k. Then I would add a 30% contingency, so you're looking more like 15k a year.

[spider]

Lots of good questions here, but really hard to give many concrete answers. In terms of saving vs paying off loans, from a strict economic perspective, it just depends on what you earn vs what you pay to borrow (and you have to compare this on an after tax basis). But that's really going to be a secondary issue compared to your risk aversion and comfort with debt. Most people don't like additional loans hanging over their heads for a small and risky profit. If you are a brilliant investor though, it can be worth it.

A couple of points that don't need to be qualified:

1) If you don't have good credit or friends/family you can borrow from, it's nice to have $5k or whatever in the bank for emergencies. In this case you probably just want to keep it in a money market or bond type of fund, don't bother with stocks.

2) If you save, do it in a Roth. That way you won't pay taxes on whatever you earn. Also, you can still withdraw your original deposit w/o any kind of penalty (i.e. you deposit $4k and it grows to $5k. You can't take out the whole $5k for an emergency, but you can take out $4k at any time for any reason).