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I'm 23. I have $3000. How can I best use it to make more money?
25 points by nimbleNima on Feb 3, 2012 | hide | past | web | favorite | 32 comments
Hello fellow HN readers,

The title gives the gist. I'm in college. I'm $6000 in credit card debt, and at 12% APY I'm paying $60/month in interest. If I pay off half of it, then my interest drops to $30/month. In other words, it's an investment that makes me $30/month. I've read into CDs and IRAs, and I find them meaningless, since their returns are insignificant, and any accrued money will be offset by inflation.

I want to know, from any multimillionaires here, what is the best course of action? Speak authoritatively. How would YOU use this money--if it was all you had--to snowball it into more? I'm open-minded.


12% after taxes is an incredibly difficult return to achieve (you're talking around an 18% return y-o-y). If someone promises you this rate of return make sure the fund manager's last name isn't Madoff.

You are much better off paying down your credit card debt. Sorry I wish I didn't have to sound like Suze Orman.

As a bonus, paying down your debt will likely increase your credit score, thus decreasing the expected value of future loans you may take out (e.g. car, house).

This is absolutely correct.

If there was a foolproof way to make > 12% interest, the credit card company would have invested in it instead of investing in you.

Pay off your debt.

Since you're on HN, I assume you already have a good computer. Invest the money in books that will teach you how to start a profitable and sustainable business, and purchase any additional tools you need to start producing and shipping. (Here are the books I recommend: http://personalmba.com/best-business-books/)

I've easily spend $10k in books (and $20k+ in training) over the past ten years, and can't think of any other investment that has an ROI that's remotely close. Example: after reading Value-Based Fees by Alan Weiss, I tripled my profitability pretty much overnight. The book cost $40.

Buying every book on my recommended list would set you back about $1,500. (Less if you hit the library, and buy only the books you want to keep for easy reference.) The rest can be spent buying tools, specialized training, and inexpensive test marketing.

As long as your first idea isn't very capital intensive, $3,000 can take you far if you use it to invest in your own knowledge and skills.

I'm going to be adversarial and say that no one needs to spend $10k in books and $20k in training to learn programming or tech-related skills. There is plenty of material on the internet to get you rolling without a dime invested.

If you own a laptop and can use your schools internet - start learning.

And stop spending your money. Go freeze your credit card in a block of ice or something.

And I'm going to agree with you - if you're learning programming, there's no reason to spend $10-20k. All you really need is a good computer, some relatively inexpensive software, and a few subscriptions to online services that will save you time and headaches. Beyond that, all you need is free time, a project to work on, and a willingness to invest the effort.

I spent that much because I was learning and doing much more than programming, and even then, some of my spending was inefficient due to lack of good guides and less useful online material at the time. I bought a ton of things that weren't that useful in the end. Even with the "waste," it's still the best investment I've ever made.

I think it's entirely possible to be too frugal when it comes to learning. If you can take a course that costs $1-2k, and it directly teaches you things that help you make 5-10x more money on a recurring basis, that's a bargain.

Consider the mathematically equivalent scenario: if he had only $3k in CC debt, would you recommend putting $3k more on the card for books and training?

Absolutely. If you're able to take a one-time $1-3k expense and turn it into a $10k+ annual increase in salary / profit, that's a huge win. In my experience, the actual returns are much, much higher than $10k/yr for pretty much everyone who's willing to invest the effort.

Most of my early book / course purchases were financed with credit card debt. I paid off my cards in full with a small portion of my first product launch. I'd do the same thing in a heartbeat.

I heartily agree with you. I bought my first real computer with a student loan in 1993, outgrew it, and the next year I started a company to secure a loan for a $5700 computer. This was way more than I could afford, and in fact I often couldn't make the payment so I damaged my credit record and it seemed to my responsible friends that I was a financially incomptent retard.

But, three years later, I shipped my first real product, having done all the learning and coding on that very same machine, and made enough money to recover all that several times over. The knowledge I gained during those years led to a programming career that continues to the present.

Early in life, I think it makes sense to not pay down debt, or take on even more debt, in order to buy something is going to be a force-multiplier for you.

Obviously, without additional effort, there is not much you can do with $3000 that is likely to have a higher return than paying off the card.

But, depending on your own interests and motivation, there are a lot of things that--when combined with your own efforts--will allow you to upgrade your own value. So figure out what those things are, and whether any of them can be had for $3000.

As others have pointed out, obtaining a 12% after tax return is not something you can count on no matter how you put the money to use. As you've pointed out CDs will produce a negligible return and also come with liquidity restrictions. Investing in stocks (bonds are not an option to beat a 12% after tax rate of return) will not produce that kind of return without you taking on a severe level of risk.

It's hard to give a good answer without knowing what kind of income you have and how regular a source it is. The more regular your income, the more aggressive you can be paying down your credit card debt. But if you expect to go a while without a significant source of income, you will need to keep more cash on hand.

You could ask family or close friends for a no-interest loan to help you get your credit card debt down to $3000 or lower. Depending on how much they are willing to loan you, you might be able to use some of your cash to pay it off completely.

The bottom line is that, realistically speaking, you are not going to be able to "snowball" $3000 into anything when you owe $6000. Your snowball needs to be pushed uphill right now (pardon the mixed metaphor). When you get over that hill you can start thinking about rolling it down the other side.

In the meantime, you can do as Mr. Kaufman suggested and spend a small amount on educational books that will prepare you for the day when you are in the black.

If I had $3k in the bank and $6k in debt, I'd be very wary of moving any of it around. What happens if your car breaks down and you need $1k in repairs? Your CC limit only goes so far. And if you don't have a car, I'm sure you can think of another example..

Make iOS apps to help with managing credit card debt. $99 developer fee and depending on whether or not you already have a Intel-based Mac with at least 10.6

Here are some examples: http://www.topappcharts.com/search.php?string=debt&show=...

They probably make $100 or more daily.

I am not a multimillionaire yet, sorry.

If $3000 was all that I had, the one thing I would do would be to a) get a job or b) get a second job (work hard while you can). I would then immediately pay down my credit card with the $3000. Then, with the money from my paychecks, I would save $1000 into a regular savings account (for emergencies). More work more money. Then I completely pay off my debt. I sure as hell hate debt! After my card is paid off, I start adding that old credit card payment to my savings plus anything extra that I possibly can.

It is more advantageous for you to stay out of debt now (and forever). I think you will feel better.

If you feel that you have stable employment or means of supporting yourself, pay off the credit card as soon as possible. If your financial situation is not that solid, put the money in a savings account for a rainy day.

I don't subscribe to the theory that says you should always use your available cash to pay off debt. Having no ready cash can leave you in a world of hurt if the unexpected happens. While $60/month is no fun, it is manageable and not a financial risk.

Oh yeah, one more thing, stop using your credit card.

Having no ready cash can leave you in a world of hurt if the unexpected happens.

He has a credit card with at least a $6k limit...

I think the smart money is probably to pay off your debt, but I'm going to repeat what an older gentlemen once said to me, because it meant so much to me.

  "Sooner, rather than later, Invest in yourself."

 I don't know if that will really help you with your predicament, but truly, sometimes the best thing you can do in life when the chips are down is just to bet on you.

Honestly, that level of cash is insignificant in terms of earning money.

Focus on the skills you have that help you earn money. I don't know whether you have a job or a business, but you'll get much more by investing there. For example, if you work as a programmer, you can probably get a $10k salary bump by learning how to negotiate.

Unlike the OP, I have no debt and $6000 in the bank. A soon-to-be grad student, I'm also looking at a pretty low income for years to come. So I'd like to be able to reasonably quickly free up my assets. Is the money still best left in the bank?

Yes, keep it in a decent bank, and don't bother with bonds or equity.

If you find some project that you're passionate about, then don't be afraid to burn through a little bit of your savings in order to learn and explore.

Think like this: if smart investing allows you to raise your (risk-adjusted) returns by a full percentage point - which is really good - you have earned $60/year. That's unlikely to be a good wage for the hours you need to put in.

Looking at a comparison website and moving your money to an account with good interest is probably worth it, though.

Absolutely pay off personal debt first. The only place for credit is so that you can use other peoples money to take on business or investment risk. The creditors ultimately shoulder the risk for your venture.

Just to clarify a point, IRAs are long-term investing vehicles for retirement savings. They are not meaningless, but they are only useful in the context of 40+ years.

Don't worry about them now because you have no money (and need to pay off that debt), but once you get a steady income and have your debt under control - start investing money into your retirement.

A little money put into an IRA now will make a huge difference 40 years from now.

If you really want a good investment, figure out how to how sell something at a higher price and get someone else to do the work at a lower price. Then use your $3K to seed the business and use the business to pay off your credit card. It's all about cash flow.

Debt is a cancer. Try your hardest to be free of it and you'll sleep soundly at night. That is the best investment you'll ever make.

Pay off your debt.

Put all $3K on NY Giants to win!

Wait a few months, then buy Facebook stock. ;)

$3000 is not much for starting a business etc.

Why was this downvoted? Buying Facebook stock is a perfectly reasonable suggestion.

No, it's not reasonable. His savings barely covers the cost of a new car (bought on an emergency). IPOs are volatile and impossible to time.

On his budget, I could see him investing a few hundred into Facebook with the intention to stay and hold, but anything beyond that is silly gambling.

And besides, buying Facebook stock right now is just plain stupid. It's a low-float IPO designed to make people who already own the stock rich. By floating a low number of shares, people who own the shares create artificial demand

The stock is being sold at nearly 25 times sales...Amazon is selling for about 2 times sales. Seriously? This is just a get-rich scheme for current Facebook shareholders.

Not saying anything is wrong with it. But you should definitely wait to invest until after the pop and the prices slide back to something reasonable.

Also, the OP has no business investing in stock right now. Unless you have 10k to throw around as disposable income, investing should be off the table.

3k is almost starving and homeless territory. Pay off your debt and get a part-time job.

$3,000. I would leave $2,500 in the bank (on the CC). Explore manufacturers in China – Perform a few searches on ebay to see which products are the most popular – Import a few widgets with the $500. Ensure you can sell for more than the product costs and shipping expenses are. Review ‘Product Differentiators’ online to ensure that you can sell your product for a higher price than others by describing it better and introducing a higher perceived value.

Could work...I would say $6,000 in the hole - $500 will not really change your predicament?

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