How do I start saving money now that I'm actually making it

April 12, 2011 9:27 AM

If you were 22 and making a good amount of money at a new job for the first time, what would you be doing now to have a better life later?

My lack of knowledge about all of this is disgusting.... but I'm going to keep it short and just get to the point.

I recently graduated from college, I'm 22 and I've just gotten my first job with a salary, benefits all of that.
Prior to this, I had a debit/checking account with Bank of America and then some savings account that I've had since I was a baby that I kind of don't keep track of and is more in my parent's hands.
For the first time in my life, I'm getting a paycheck every two weeks that's more than two thousand dollars which is huge for me because I'm used to working at minimum wage retail jobs. I chose to have my checks direct deposited in my debit account but it's getting to the point where I don't want that much money in my debit account at any given time.
What I'm saying is, I need some real life advice on what I should be doing with this money. Do I open a new savings account? If so, what kind? I'm trying to make good decisions now so that I can possibly benefit from them later.

posted by anonymous to work & money (59 answers total)

Put 5-10 percent of your salary (more if you want) into some sort of retirement account.
posted by leesh at 9:29 AM on April 12, 2011

Max your 401K.
posted by shew at 9:29 AM on April 12, 2011 [11 favorites]

Do you have student loans? Credit card debt? Pay that stuff down as quickly as you can without compromising your ability to pay your monthly bills.

If not, like leesh says, open up an RRSP.
posted by LN at 9:30 AM on April 12, 2011 [2 favorites]

You should open 2 accounts- a savings account for emergencies (some say to have 3-6 months living expenses), big purchases, etc, and if your company does not offer a 401(k), a retirement investment account- for someone your age, a Roth IRA invested in a Target Date retirement fund (like this, 2055 is probably the year for you) would be appropriate.
posted by ThePinkSuperhero at 9:30 AM on April 12, 2011 [5 favorites]

Stay out of unsecured (credit card) debt.

Take the best care of your health that you can. This will save big money in the long run.
posted by Danf at 9:34 AM on April 12, 2011 [1 favorite]

I Will Teach You to Be Rich is one of the better book/website guides (despite the name) out there and it is especially targeted at people in your situation. Simple, automatic steps to take now that pay off big time. Read the book (it goes quickly) and then check out the website.
posted by ChrisHartley at 9:35 AM on April 12, 2011 [3 favorites]

DON'T ACCUMULATE MORE DEBT. Pay what debt you have asap; you're already used to living like a student so do that until you're debt free. Then keep doing it as long as you can stand it while you save.

I wish, I wish, I wish I had done that.
posted by motsque at 9:36 AM on April 12, 2011

PAY OFF YOUR STUDENT LOANS!

I cannot stress this enough.

Also, depending on your employer, you may not be eligible for retirement benefits until after a year of employment a certain age. I had to be 26 an employee of a year before I could even sign up for a 403b. There are other retirement options I could have taken advantage of before then, but I chose not to.

My vote is to open a general savings account, save 10% of your salary, and pay off your student loans, or get them significantly lowered, before even before opening a retirement fund.
posted by zizzle at 9:36 AM on April 12, 2011 [4 favorites]

When I first started working, I moved a large chunk of my salary each pay to an ING savings account. I did this through automatic transfers from my account to which I got direct deposit, but you could also just split up your direct deposit.

I didn't miss out on the money I didn't see, and it was nice to look at my bank account after six months and say "Wow, I saved all that?"
posted by kellygrape at 9:38 AM on April 12, 2011

Nthing the 401k. Do it now, at least 10%, before anything else.
posted by something something at 9:41 AM on April 12, 2011 [1 favorite]

Clear all your debts as a priority.
posted by fire&wings at 9:42 AM on April 12, 2011

Resist lifestyle bloat--resist the urge to buy more things, get a bigger apartment, get new cars, all of that. It happens to everyone and is the reason people who used to live comfortably on $30,000/year now can't live comfortably on $90,000/year. A guy I know saved over 50% of his pre-tax salary after college and had considerable savings within a year or two. Now, he blew it all in a year of unemployment, but it did give him that option. If you're strict about savings now, it means earlier and earlier retirement later (and living off the interest/dividends of your savings).

Pay off your debts.

Sock as much of that into your retirement fund as possible.
posted by schroedinger at 9:42 AM on April 12, 2011 [5 favorites]

No credit card debt- I like expensive things but I don't like to live above my means. I only have one credit card for mostly emergency purposes and that gets paid off each time I use it.

I am working on the student loans, right now there's not much left to pay off, but it sounds like that should definitely be the first thing I do.

Thank you so much for your replies, the honest help is appreciated.
posted by twoforty5am at 9:42 AM on April 12, 2011

If you have credit cards destroy them immediately. Do not acquire debt. Save, save, save, save, save, and save some more.
posted by playertobenamedlater at 9:47 AM on April 12, 2011

You don't need to destroy your credit cards, just use them wisely (as in, don't carry a balance; pay it off monthly). It is necessary to build a strong credit history, which you should definitely read up on. I think book recommendations would be good for you, like "Personal Finance for Dummies." It will cover the basics, and as you can go from there into more advanced topics. Sounds like you are doing great so far and asking the right questions.
posted by JenMarie at 9:55 AM on April 12, 2011 [1 favorite]

My vote is to open a general savings account, save 10% of your salary, and pay off your student loans, or get them significantly lowered, before even before opening a retirement fund.

I agree with this, especially since you are 22! You could also open a retirement account, but fund it at 2 percent, while building up six months of fixed expenses in the emergency fund, and putting 10 percent in a separate savings account for variable or unpredictable expenses/youthful-but-modest-startup-household costs.

At the exact minute you've got six months' fixed expenses, then move to the 60-40 budget plan. And make that plan's 10 percent long-term savings separate from your six months money.
posted by jgirl at 9:56 AM on April 12, 2011 [2 favorites]

1. Pay off any revolving debt you may have (credit cards, car loans, etc.)
2a. Open up a Roth IRA (talk to your bank about it). Ask your bank if they can set it up so the maximum annual allowance for you to contribute is automatically deducted from your checking account for you in monthly increments.
2b. If your employer offers a 401k/403b/retirement savings account, you can use that instead of a Roth IRA. Put in the maximum allowance.
3. Keep a minimum of six months of expenses in a savings account at all times as an emergency fund (this is in addition to your IRA)
4. If you have student loans, start paying them off as aggressively as you comfortably can, after you meet your IRA/emergency fund goals.
5. ...profit!
posted by booknerd at 9:59 AM on April 12, 2011 [2 favorites]

Just to hammer the point home:
401K. Money you put in now will grow in ways it never could if you wait to start. Plus, it lowers your taxable income, so you end up saving more than it feels like. Do not put it off!

Debt is your enemy. Pay off those loans!

If all that goes well, start a separate savings fund for a vacation. It will keep you sane if life or work gets you down. It's like Christmas for adults. It doesn't have to be grand, but having money in the bank all set aside to make memories for yourself is a wonderful way to have a better life.

Congrats and good luck!
posted by cccorlew at 9:59 AM on April 12, 2011 [1 favorite]

Step one: Save up enough money in an easy to access account to cover your expenses for at least 3 and preferably 6 months. I use ING direct so I can get some interest on the money and their customer service is pretty awesome. This is the emergency fund. It is for emergencies. Going on spring break to the Bahamas is not an emergency, losing your job or having a car accident or cancer or whatever are emergencies. This is probably more important than paying off debt because it can keep you from going into more debt, plus you'll feel good about it.

Step two: If your employer matches any 401k/403b/whatever contributions make sure you are contributing at least enough to get all of the match, because this is free money.

Step Three:Make a budget. Figure out how much it costs for you to live every month. Rent, Cable, Car insurance, gas, rental insurance (get it), electricity, heat, water, cable, netflix...all of it.

Step Four: Pay off credit card debt, if any.

Step Five: Bring your total contributions to retirement accounts up to 10-15% via some combination of 401k/IRA. The specifics of this probably depend on your retirement goals and 401k options, read up on it.


Step Six:Did your budget and have a surplus? Pay off that student loan debt


Step Seven:At this point you don't have any debt and you might still have a bunch of extra money coming in every month. Hooray! Now would be a good time to kick an extra 5% of your income to retirement. If you do it now you won't be used to spending it and it won't hurt.

Future stuff: Think about big, expensive goals you have for the future like grad school or home ownership or an awesome vacation or a wedding or having a kid. Now would be a good time to start saving up for that too. If you're lucky enough to get a raise at some point consider diverting all or some of it to retirement savings right away. After all, you've already proven you can live without that money. Don't forget to spend some money on having fun. In my opinion paying for learning and experiences is a better deal than buying a bigger tv or whatever but that's up to you.
posted by ghharr at 10:06 AM on April 12, 2011 [2 favorites]

I'm in almost exactly the same situation as you. Here's what I've decided on after months of agonizing over potential budgets:

1) Your income is probably fairly high now, which makes it worth contributing a lot to an 401k. I maximize my contribution - this helps safeguard against long-term downturns in the market, gives me the possibility of early retirement, and because of tax deductions it really doesn't cost that much.

2) Contribute to an emergency savings/down-payment account. Go for something with a fairly high rate of return (this could end up accruing interest for years on end), but make sure it's liquid enough that you can access cash in under a week.

3) Pay off student loans. Depending on your interest rates, it might be worthwhile to focus more on 2), but that's up to you.

4) Deposit something into a high liquidity account for vacation saving.

The most important thing you can do is to have these amounts automatically deducted from your incoming paycheques. Then, as long as you're saving enough - have fun with the leftover money guilt-free!
posted by ripley_ at 10:08 AM on April 12, 2011

Here's the standard advice:

0. Pay off any credit card debt that you are paying interest on. Duh. And don't use credit cards for anything besides transactional credit; if you find this difficult then you might want to just use debit cards or cash.

1. If your employer offers a company match into a retirement account like a 401(k) — you should ask HR if you do not know the answer to this question for sure off the top of your head — you should contribute whatever you have to contribute in order to get the "free money" that is on offer. E.g., if they offer "50 cents on the dollar up to 3% of salary", then you need to contribute 6% of your salary in order to not leave money on the table. DO THIS. It will probably be the case that within your working lifetime that companies will no longer offer perks like this, and they'll go the way of the dodo, the company doctor, and the three-martini lunch. Grab it while the grabbing is good.

2. Open and contribute the maximum to a Roth IRA. These things are the second best deal going, right after free money from your employer. Tax-wise, they're such a good deal it's practically stealing from the Treasury. Note that a Roth is not the same as your 401(k); it's something you generally set up yourself and contribute with post tax money. But the deal is that although you contribute with post-tax dollars, you never pay tax on the money again. Ever. So if you stash money in there now, it grows tax-free and you can draw on it in retirement without paying additional taxes. (A 401k, on the other hand, you pay income tax on when you withdraw from it in retirement.) There are catches, though: you can only contribute $5k per year and there's an income cap, which once you hit it you can't contribute anymore. So you really need to start contributing when you're young and not making too much money (but enough to afford to max it). Lots of companies offer Roth plans, I like Vanguard.

You didn't mention student loans so it's not clear that's an issue. My understanding is that some (generally private) student loans are at really extortionate interest rates while some are much lower (generally government). Obviously you want to get rid of the high interest ones, treating them basically like credit card debt, but the low-interest ones might take a back seat towards contributing to retirement... since the value, in retirement, of money you contribute now when you're young is phenomenally high due to compounding interest over time. It might be worth deferring payments on a very low-interest loan for a little while in order to get your 401k match and open a Roth ... but you're going to have to do some number-crunching to figure that out, and it's also going to come down to how you feel about debt.

Beyond that, what I've found very helpful is to set up not exactly a budget, but to figure out how much of your take-home you go through each month on fixed expenses (rent/mortgage, utilities, groceries, telecommunications, subscription stuff that you've contracted to), and how much you really have left over. Then, of that, your bank should let you automatically move some of it each month into a savings account. I'd play around with this for a few months until you can find a level of automatic savings contribution that keeps your checking account at a comfortable and constant level (doesn't dip too low for comfort when you have to pay big bills). When the amount in the savings account gets high enough, so that it's more than a few months' expenses, then you can think about how you want to save it or what large purchases you might have been putting off that you want to consider.

Anyway, that's my feeling out of my experience. I'm still kicking myself for not opening a Roth earlier than I did; a few thousand dollars a few years earlier into one of those makes a big difference.
posted by Kadin2048 at 10:09 AM on April 12, 2011 [8 favorites]

In addition to all of the above, get in the habit of keeping track of your budget. You're not currently in a spot where you need to watch every dime, but one day you might be, and it'll be easier to do if you're used to looking at your expenses instead of mindlessly withdrawing 20s and buying frappuccinos several times a week.

And, yes, look after your health as best you can. Floss daily.
posted by Metroid Baby at 10:09 AM on April 12, 2011

Everyone's saying save for long term, but noone's mentioning what that really means. It means more than openning a savings account at a bank -- they're currently getting something less than 1% return, less than inflation, and meaning you'll have negative growth in the future.


The best bet is for you to learn more about what options are out there (certificates of deposit, savings bonds, index funds, mutual funds of all types, actual stocks and bonds are all the easiest for a personal investor to get involved with), and how much risk you're willing to take and what you want to use your money on.

I'd also recommend setting aside some amount each paycheck for charity.
posted by garlic at 10:10 AM on April 12, 2011 [1 favorite]

My vote is to open a general savings account, save 10% of your salary, and pay off your student loans, or get them significantly lowered, before even before opening a retirement fund.

I'm a little surprised by this advice. In my opinion, this only makes sense if the interest rate on your student loans is higher than the rate of return you expect from retirement savings (and 6-7% over the long term is conservative if you're investing in some kind of index fund). Also, there will be significant tax savings from a 401k.

Maybe I'm just unfamiliar with American student loans - are interest rates really that high?
posted by ripley_ at 10:18 AM on April 12, 2011 [1 favorite]

Thanks to garlic for mentioning charity! A lot of those can be automatically paid, as well. But do some volunteering besides.

And flossing and routine dental care is a big deal for heart health, so do it. I have mentioned here before my friend's husband who had a $40,000 dental bill (while unemployed) after his heart attack. Every year on your birthday make your appointments for your annual checkups.
posted by jgirl at 10:21 AM on April 12, 2011

1) Get out of debt- Credit cards first, car payments etc next, student loans last.
2) Save: When I got a job that paid more than my last one, i set up an automatic transfer like the one kellygrape describes that deposits twice a month (when I get paychecks) to my savings account.

You have to figure out how much you want to sock away--some people will say all of the difference between your old salary and your new one, but I don't agree with that. I think your lifestyle should improve and you should have some fun with your new money. I gave myself $150 every paycheck of the increase to play with.
Also, buy something meaningful that you will have a long time so you can look at it and say "I got that watch/fancy sweater/blender etc when I got my first god job."
posted by rmless at 10:24 AM on April 12, 2011

Pay off your debts, take care of your teeth, and start having some split off into a savings account. I am crap with money, but I'd do first a savings account, then a CD, then some sort of money-market or mutual fund thingie. Listen to other people who know more before you listen to me!! but OMG take care of your teeth.
posted by KathrynT at 10:26 AM on April 12, 2011

Maybe I'm just unfamiliar with American student loans - are interest rates really that high?

Can be, especially if it was a private loan. We just finished off paying my husband's student loans that were at a whopping 9.3%, and that was down from the original loan he had at 13%. That's a credit card! I still curse the for-profit trade school administration that conned a 18-year-old kid into that kind of deal.
posted by ninjakins at 10:33 AM on April 12, 2011

After paying off debt and while doing the other stuff listed above, start a separate account for a dedicated travel fund. Plan interesting, fun things that you can do while you're still young and unencumbered.
posted by bonobothegreat at 10:39 AM on April 12, 2011 [2 favorites]

I wish that I had known the rules for having a good credit score, back then. The two I messed up are:

- Don't pay your bills late (any of them).
- Get a few Credit Cards with no annual fees, and keep them open and in good shape (age of credit cards counts towards credit score).
posted by Phredward at 10:42 AM on April 12, 2011

After paying off debt and while doing the other stuff listed above, start a separate account for a dedicated travel fund. Plan interesting, fun things that you can do while you're still young and unencumbered.

This is something you can do with the 60-40 plan started after the six months money is stoked away. The 10 percent long-term sum need not be an emergency fund, since you'd have that. Adding to it is certainly a good idea.

And for periodic life improvement, the 10 percent for whatever-you-want is invaluable! That 10 percent is easy to carry over or reprogram, too, if you want or need, although I am generally opposed to reprogramming funds.
posted by jgirl at 10:49 AM on April 12, 2011

Also, pull your credit report at least once per year (and more if you have reason to think your identity has been compromised). Go here: Annual Credit Report (not to "free credit report" or any of those other services you see advertised -- this is the actual free, no-strings service).
posted by JenMarie at 10:51 AM on April 12, 2011 [2 favorites]

Finally, think about an emergency sum of cold cash to be held at home. The amount might be determined by what your renter's insurance will cover. Perhaps $200.

This is for a real, serious emergency where cash might be needed, like a taxi ride after you lose your keys or the like. (Don't count on taxi credit card machines to work if they are even in the cab.)
posted by jgirl at 10:58 AM on April 12, 2011

Am I the only one that doesn't like a 401k? I maxed out my 401k and then the market tanked. It recovered ... but my personal investment account did much, much better. I no longer max out my 401k.

If maxing out your 401k means saving money you'd otherwise would, go for it. Otherwise, I don't think the returns are really all that great. If you're comfortable with investing, and well read on the topic, you could probably do better.*

*Note I know research says the average investor is a suckers bet, so if you're just picking randomly, don't bother.
posted by geoff. at 11:04 AM on April 12, 2011

Budget a good block of time to review and carefully consider your financial affairs. Gather all of your documents showing debt, your budget, and all of your assets. Also review your employment materials and/or hit up HR for materials covering your available benefits.

Generally, if your company has a 401K plan, pay into it, especially if your employer matches funds in which case you must pay in at least as much as it takes to hit the maximum in matching funds contributed by your employer. (Seriously, this is free money.) Before you save more than emergency funds or make long-term investments, examine the cost of interest on your debt. Pay off the highest interest rate debts first. Then pay off debts with interest rates that exceed what you can make by simply saving. (But do make sure you start building a savings to cover you in case you are ever unemployed or face a crisis.)

Avoid lifestyle improvements now, and avoid high interest unsecured debt (e.g., credit cards). Drive a pre-owned car.

Learn about the time value of money. You are young. When the debt is paid down and you start investing more of your money, you can handle more risk in your portfolio now than you could tolerate when you are older.

Finally, if you don't know already, learn to cook for yourself. It's good when you're dating, saves money over eating out and contributes to your health.
posted by Hylas at 11:05 AM on April 12, 2011 [3 favorites]

ripley, it's not always a question of the interest rate. I have a really low interest rate on my student loans, but I have a lot of student loans that the interest rate is really negligible compared to the principle.

It can take an average of 10 - 20 years for a student who studied at a private institution in the US to pay off student loans (and that does not include forbearance and deferments taken), so paying them off as quickly as possible is generally a really good idea.
posted by zizzle at 11:14 AM on April 12, 2011

You are young, have money in your pocket, and will want to have fun. Consider matching your fun with savings. So for every dollar you spend on a night out, sock away an equal amount in a savings account.

I have a friend who did this with beer the moment he turned 21. He had a huge downpayment ready when it came time to buy a house. Wish I did it!
posted by robocop is bleeding at 11:30 AM on April 12, 2011 [2 favorites]

Max both your 401K (if any) and a ROTH IRA.

I don't generally recommend personal finance books because they don't take individual situations into account, but Suze Ormand is pretty much talking directly to you. Listen to her and do what she says.
posted by coolguymichael at 11:40 AM on April 12, 2011 [1 favorite]

It can take an average of 10 - 20 years for a student who studied at a private institution in the US to pay off student loans (and that does not include forbearance and deferments taken), so paying them off as quickly as possible is generally a really good idea.

The length of time to pay off debt is irrelevant because other investments will have the same amount of time to mature. Debt payments are essentially an investment - paying off a loan with an interest rate of 4% is basically the same as investing in something with a 4% rate of return. If you're interested, you can Google "pay off debt or invest for more technical details".

That said, the debt payment has a guaranteed rate of return and other investments won't - so it's best to add a bit of leeway into your calculations.
posted by ripley_ at 11:50 AM on April 12, 2011

Pay down debt.

Keep living a generally frugal lifestyle (this is what screws most people - expenses expanding to fit income).

Set some clear "self-reward" goals so you get to enjoy some cool experiences or rewards for your financial sucess (a trip abroad, or a new gadget), but don't let them eat your new disposable income. Ideally tie the rewards to goal success.
posted by rodgerd at 11:54 AM on April 12, 2011

Except that student loans in the US don't count FOR you. They can only count AGAINST your credit score, so if the OP can pay them off in half the time by paying twice as much on them now, it will be better in the long run in case the OP faces unemployment or unexpected medical expenses three or four years from now.

Paying them off early won't contribute to the credit score, but having the means to do so and not doing so could pose more trouble down the line if the OP suddenly can't pay them off, which would negatively affect the OP's credit score.

They don't work the same way as revolving credit where paying on a credit card contributes to positively to a credit score while not paying on a credit card contributes negatively. Student loans only work in one direction with regards to credit.
posted by zizzle at 11:57 AM on April 12, 2011 [1 favorite]

Everything everyone said above is good - but I would add something else.
If you can, buy a piece of Real Estate. A fore-closure.

Get a property manager to take care of it for you. And sit on it.
You might not want real estate now, but someday you will.

Now is the time to buy land. In time, the market will stabilize, and prices will rise again.
By Real Estate now, while the buying is good. Personally, if you can find a good property manager, I think real estate is a better deal than a mutual fund. The stock market is a bit of a sham these days. And, they will never make any more land than exists today.

Buy a fore-closed property.
posted by Flood at 11:58 AM on April 12, 2011 [2 favorites]

Max your 401k AND contribute $5k each year to a ROTH IRA.
posted by eas98 at 11:59 AM on April 12, 2011 [2 favorites]

Buy the book Smart and Simple Financial Strategies for Busy People by Jane Bryan Quinn for $17. Read her guidelines about how much to save. She recommends investing a minimum of 10% of your income in a retirement account, and preferably 11% or more. As she explains, the key is to set this up to happen automatically, and you probably won't even notice the reduction in your income.

Make sure you focus on her example of the early saver vs. the late saver. They both invest $1,000 a year, but early saver starts this at a young age, goes for 15 years, then stops investing and leaves the money there. Late saver starts investing 15 years later than early saver (i.e. at the time in early saver's life when she stopped investing, late saver just got started investing). Look at how much of a difference it makes how young you start saving.

If you search within the book at that Amazon link for [early late], the first result should be page 15, which explains this. The chart with full details (exactly how much each person has accrued in each year) is on page 16, which isn't in the online preview.
posted by John Cohen at 12:00 PM on April 12, 2011

Student loans only work in one direction with regards to credit. They can only count AGAINST your credit score, so if the OP can pay them off in half the time by paying twice as much on them now, it will be better in the long run in case the OP faces unemployment or unexpected medical expenses three or four years from now.

I don't think it's at all clear that paying off loans in 2 years with no safety net is less risky than paying off loans in 4 years while also contributing to some mutual funds - in the event of unemployment or unexpected medical expenses you can always sell those off to make payments.
posted by ripley_ at 12:11 PM on April 12, 2011

Hylas makes a good point. Cook for yourself, as much as possible, and buy pre-packaged or restaurant food as little as possible. The cost savings is significant.
posted by LN at 12:15 PM on April 12, 2011 [2 favorites]

I didn't say it should be at the expense of a mutual fund. I said it makes sense to pay them off as quickly as possible, and that the OP may not be able to set up a retirement fund through his/her employer pending other requirements that they may have.

Also, as someone only a little bit older than the OP, with a husband, a child, and another on the way, if I could do it again, I would have paid down my student loans a lot more quickly than I have been because it's really making money tight right now.

There's no telling how the OP's life will change in the next ten years that having the extra income each month and not having the debt could make a very huge difference --- I would be in a much, much, much better financial situation now had I worked harder to pay those loans off earlier than I have. It's a huge fixed expense each month for both me and my husband as we try to pay daycare and other living expenses.

Paying down debt is a much, much, much better thing to do initially whenever possible. Since it's possible for the OP, that's what I'm going with.
posted by zizzle at 12:21 PM on April 12, 2011

I completely agree about not racking up debt, and contributing to retirement now. However, don't forget that traveling while you are young is great, and those experiences will last a lifetime. You can travel fairly cheaply, armed with knowledge and some good planning. I like hostels and camping as affordable ways to go places.
posted by annsunny at 12:23 PM on April 12, 2011

Pretty much all the major points have been covered. I'll just add:

* If you have extra money that you're going to need in the next 3-5 years, put it in a savings account, don't put it in the stock market or mutual funds. There's too much volatility to be a good short-term investment, unless you know what you're doing.
posted by blue_beetle at 12:24 PM on April 12, 2011

Buy 10 shares of AAPL
posted by rhizome at 12:26 PM on April 12, 2011 [1 favorite]

All this saving money and getting rid of your debt is great, but now that I'm 13 years past were you are, I wouldn't recommend anything but travel. We started dealing with debt and investing for the future about 5 years ago and it's pretty much set in stone. All of our money goes to planning for the future, be it 401ks, ROTHs, 529s, and bills. All our time goes to caring for the little one and making sure she has a future, making repairs on the fixer upper, and working.

Have fun while you are young and free of life commitments.
posted by Big_B at 1:06 PM on April 12, 2011

Year 1: Build a basic emergency cushion, get rid of high interest debt, get in the habit of retirement savings. You're very young, so you don't have to max out retirement savings yet, but aim for that soon.

1) Build up $1000 as an emergency fund.
2) Pay off consumer debt (if any).
3) Pay down your student loan as scheduled.
4) Put $25 each and every month into retirement savings.

Year 2: Your high interest debt should be gone now, so get a more robust emergency fund in place. Increase your student loan payments and retirement fund payments, but these get done AFTER you have a bigger emergency fund.

1) Increase your emergency fund to 3-6 months coverage.
2) Accelerate payment of student debt.
3) Increase your retirement savings to $100/month.

Year 3 to Year X: You can maintain the small, regular payments to retirement savings -- you're still young enough for compound interest to work in your favour even with very small contributions -- but get all other debt out of your life.

1) Finish paying off your student debt.
2) Continue paying $100/month to retirement savings.

Year X + 1 onward:

1) Max out your retirement savings.
2) Save for a really nice experience or acquisition: house, vacation, pony, whatever.
posted by maudlin at 1:09 PM on April 12, 2011 [2 favorites]

In addition to the sound advice on debt, retirement, and emergency fund, I'd say now is a good time to catch up on any deferred maintenance. Visit the doctor, get your teeth cleaned, have your car tuned up, all those things that keep you healthy and your gear running smoothly.

When I graduated, I had gone years without seeing a dentist and unfortunately I kept that habit for a couple more years. I ended up spending a fair amount of time under the drill.
posted by rube goldberg at 1:53 PM on April 12, 2011

Get debt-free, max out a 401k and IRA, and have a 6-month emergency fund. Also invest in yourself through classes/training/coaching and healthcare, and spend money for worthwhile memories with friends.
posted by sninctown at 1:54 PM on April 12, 2011 [1 favorite]

Good advice so far in this thread. To avoid repeating myself I will direct you to a previous answer with my general advice. If I had one main piece of advice it would be to use the fact that you are used to a minimum wage income to keep your expenses low even though you have a lot of extra money at this point.
posted by burnmp3s at 1:56 PM on April 12, 2011

Lots of good advice. Mine is dump Bank of America, and find yourself a good local credit union. Are your parents or grandparents veterans? Might be worth checking out USAA.
posted by cyndigo at 2:14 PM on April 12, 2011

Oh and sorry for the double post, but get Maxed Out from Netflix. You'll be horrified, and it will teach you a lot about credit cards and debt.
posted by cyndigo at 2:16 PM on April 12, 2011

everyone else has said do retirement, and i concur.

the next step is: when you get laid off, don't cash out your retirement account. just leave it. because at 22 it's super awesome you even have a retirement account. and if you cash it out a few years later to cover groceries and stuff, you'll just hate yourself when you're 31 and don't have a retirement account at all.
posted by misanthropicsarah at 5:35 PM on April 12, 2011

Also, as someone only a little bit older than the OP, with a husband, a child, and another on the way, if I could do it again, I would have paid down my student loans a lot more quickly than I have been because it's really making money tight right now.

We're completely talking past each other. I'm not suggesting that the OP party instead of pay off loans. I'm suggesting that under certain circumstances, investing is flat-out better than paying off debt.

Again, paying off loans is the same as investing. To illustrate this point:

Say the OP has $25k in debt at 5% and can invest in a mutual fund that has an expected rate of return higher than 5%.

If the OP invests $500/month into that mutual fund, it will be worth $25k before it would be possible to fully pay off the debt at $500/month. At that point, it's possible to sell off the investments to fully pay off the debt.
posted by ripley_ at 6:19 PM on April 12, 2011 [1 favorite]