What should I do?

[threelefts]

So here's the thing. Earlier this year I received about $30k from an inheritance. I'd like to spend the money in a wise way (rather on a bunch of cool stuff). I'm currently renting (splitting the rent with my girlfriend) and my only debt is my Student Loans (about 28k left @ 3.5%) and my Car Loan (about 8k left @ 7%). I also have about 5k of my own money saved, bringing me to $35k total.

My dilemma is, I'd like to learn to invest a bit... using this money in some way to have it work for me. I've been reading stuff at the richdad.com forums (another forum about money etc), and everyone is talking about investing in real estate, but I've read some horror stories about that here.

I'm so confused... real estate, stocks, network marketing sites, etc etc etc... I know so little about all this stuff! What to do what to do.

Or should I just pay off my debts and have a nice clean slate. This would bring my bills down about $350/mo. That's pretty nice too!

Your thoughts?

P.S.
In case you're wondering (to help get an idea where I'm at), I make $50k/yr (Girlfriend makes maybe $25k) and my half of the bills comes to about $1000/mo. (That's a rough estimate with rent, bills, and loans all together)

[anonymous_saver]

As long as you were not taxed on this money, and you actually took away $30,000...

(1) Pay of $8,000 car loan. [$22,000 left]

(2) Set aside 6 months of an emergency fund based on what it would cost you to live in a house. I'll just say your expenses would be $2,000/month. Obviously, this is just a random estimate! This would be a total of $12,000-$5,000 that you already have... this would be setting aside $7,000 of the inheritence. [$15,000 left]

(3) Put $4,000 into a Roth IRA with a Place like Vanguard. Stick with the index funds for now. I probably would also set aside $5,000 for a Roth IRA for 2008. [$6,000 left]

(4) With that additional $6,000 I would set it aside for a start of a down payment on a home. By the way, do you have a 5%+ savings account to hold your emergency fund, if so, you should just create a subaccount for a down payment.


By the way, I hope you already are putting money into your 401(k)/403(b)/etc. up to your employers match?

I would not get into real estate investing. You do not have enough money or knowledge at this time to do that. Plus that can be incredibly risky. I would say you should have your own home paid off before you even think about it.

Then with the money you used to put towards your car every month, I would probably split equally between down payment and your school loans. Your school loan is at a great rate, but if it would make you feel better to pay it off faster, that's fine. I would say this is the only spot I am really flexible with what I think you should do, I think it would also be a fine choice to only put your extra money towards a down payment at this point (as long as you follow my other suggestions).

[dcox20]

ditto that! great advice...

[disneysteve]

I think anonymous saver has given you a great plan to follow. Nothing to add.

[boefixepa]

I will 4th AS...follow that advice and you will be WAY ahead of the game! Try to max out your IRA contributions every year there after too...

[Scanner]

Ditto that.

The only thing I may add, and it depends on your risk tolerance, is to go with a slightly more risky return than a savings account for your short term goals (your home, assuming your want one).

If a home is 5 years away,, maybe even 3 years, I'd squirrel your money in a balanced fund, one that leans towards bonds, like Vanguard's Wellesley fund.

Other than that, ladder some CD's or do a savings account like anon. suggested.

[humandraydel]

I agree with AS. I do want to caution you on richdad.com though. Robert Kiyosaki (the founder of Rich Dad) is....not a very well liked man among knowledgeable investors. To be blunt, many think he is a complete farce and does people more harm than good.

Most investors would be better off getting real estate exposure through REITs (real estate investment trusts). These are basically companies which invest in real estate (both residential and commercial) and typically pay a hefty dividend.

Oh, one last thing. I wouldn't pay off your student loan. 3.5% is the cheapest debt you'll ever get (plus it's tax deductible) and you'll make more money than that in a savings account.

[Broken Arrow]

I don't have anything extra to add as the advice you have been given is spot on. I just feel so strongly about the following that I feel the need to re-emphasize it:

I do want to caution you on richdad.com though. Robert Kiyosaki (the founder of Rich Dad) is....not a very well liked man among knowledgeable investors. To be blunt, many think he is a complete farce and does people more harm than good.

I don't hate the guy. Quite the opposite, I happen to like his affable persona. I just strongly disagree with many of his so-called "investment advices".