Post College: Getting Started

This post was originally published in March 2014.

One of the most common questions for investors, particularly young investors is, “should I pay off debt or invest?” That question is often asked by those that have accrued a lot of debt through student loans. I subscribe to the idea that individuals should do both; service their student loan(s) and begin building their fiscal foundation. I should preface the rest of this article by noting that I did not take the traditional route to a post-secondary education and did not acquire any student loan debt, so I do not speak from first hand experience.

I joined the U.S. Army at age 17 and during my 21-years of service I utilized Tuition Assistance (a program whereby the Army pays for 75% of college costs while on active duty) for my undergraduate degree. I used the Montgomery G.I. Bill for my first Masters degree, following retirement; and I am currently using the Post 9/11 G.I. Bill for my second Masters degree.

Student DebtWhile there is no doubt that former students, now in their 20s or early 30s, would have a difficult time making significant contributions to retirement plans, they should not neglect building a foundation as soon as possible. While they likely cannot maximize contributions at this stage, they can certainly get the foundation in place and start developing good habits. I always recommend people do something simple such as open an IRA account and start funding it.

Individuals can do it on their own, online, with companies like Fidelity in 15 minutes. And even though they may not have $2,500 to purchase their first mutual fund (the normal minimal initial contribution), they can always set up automatic monthly contributions (the last time I looked, Fidelity requires $100 minimum for use of this feature) which are deposited into a money market account.If they cannot afford $100/month? They can also just manually transfer one time contributions (e.g. $20, $25, $35). Once that $2,500 is reached, the first fund can be purchased. Of course, after that, smaller amounts can be used to buy new shares.

Post College

This is the approach I recommended to my 20 something younger cousin (a recent college graduate) about eight months ago when she asked for some guidance when she realized she had some extra money available at the end of each month. However, her present employer does not offer a 401(k) and she wanted to do something to get a foundation in place. Remember, Someone does not need to jump full throttled into retirement investing right away. However, they can service their debt and start educating themselves with regards to personal finance concepts, get their retirement portfolio in place, and start slowly building their nest-egg. The sooner a young person starts investing, the sooner they can start utilizing the power of compound interest.

Notes: I am not affiliated with Fidelity in any way; I am simply familiar with the company. I am fairly certain that other financial services company – particularly similar companies like Vanguard – offer similar capabilities with regards to establishing and funding an IRA account.

Are you, or someone you know, saddled with debt from student loans? Are servicing the loan and contributing to a savings/retirement plan at the same time?

Blogger-in-Chief here at RetirementSavvy and author of Sin City Greed, Cream City Hustle and RENDEZVOUS WITH RETIREMENT: A Guide to Getting Fiscally Fit.


  1. From a reader on Google+

    “For most people, if they wait till debts are paid off, they’d never invest. Also, profits from investments could be used to pay off debts.”

  2. Well, I do think one can still pay off his or her debt and still be able to invest, right? So, why not do both at the same time and just see what happens.

    • Agreed. Not only do I believe that it is possible, I would suggest that it is a better course of action than waiting until student loans, or all debts for that matter are paid in full, before contributing to savings/investment plans.

  3. A young investor should be sure to contribute enough to their retirement plans to take advantage of any employer matching contributions. Otherwise, they are passing up an important piece of their benefits package. I think the WSJ had an article a few months ago showing how the after tax impact of the tax deferral and employer match outweigh the cost of servicing the debt. Certainly, a case by case analysis, but probably good general advice.

    • Very good points. I always recommend that young investors, or for that matter older investors making their first foray into investing, start with contributions to their employer’s defined contribution plan if available, and as you note, take advantage of the matching to the greatest extent possible. After all, why pass up free money? If an employer’s defined contribution plan – 401(k) – is not available, I recommend they at least establish an IRA for the reasons articulated in the article. Thanks for visiting and joining the conversation.

  4. PS. I’m not trying to say those who’ve attended college & earned a degree have made a wrong choice. I’m only saying that
    1. There are alternatives (trade schools, seminars, workshops) to gaining the same knowledge.
    2. If the traditional route is chosen a “graduate debt free” plan should be put in place as soon as possible.

    • A very interesting approach. While I do believe college is the right choice for many and generally the best option with consideration to lifetime earnings – and I think statistics that measure earnings by education level would still bear that out – I agree that the traditional approach needs to be carefully evaluated. By traditional, I mean graduate high school and go directly to college utilizing loans as the primary method of paying for the education. I would suggest two, of many alternative, methods. First, go to work immediately after high school vice college. This would provide two functions. First, it would give the individual a chance to save a significant amount of money, lessening the requirement for loans, when they did start college. Second, by taking 2-3 years off before starting college, they would gain a little maturity, a little focus, and have a better idea of what they wanted to study when they did go go school. The second option would be to consider military service. As I noted in the article, I was able to get earn two degrees – I’m not even counting the Associates degree – and currently working on a second Masters all without ever requiring a loan. It is really disappointing to know that a lot of people will not even consider military service because they are so focused on going the traditional route. For me, going to school later and never worrying about loans was the absolute best approach.

      • Going into the work force or military before college is a really great idea James Molet, really great point. Based on what I’ve read recently though, the college degree (accompanied by the massive debt) outweighs the “higher earning potential” promised by higher learning institutions.

        There was a time when the total of student loans did not exceed what a student would earn once his degree was put to good use. However, there are many doctors and attorneys still paying off student loans a full thirty years into their careers. That’s just sad to me considering that thirty years after graduation they also have a thirty year mortgage, car loans, regular family expenses, etc. to pay for. The more I think about it, the more I believe we should teach our children at a very young age to create a “Debt free education” plan.

        The MANY unemployed PhDs in or country today should be proof enough of that.

        • I firmly believe that the military option is an under appreciated option for training/education. My experience has been that many educators, including guidance counselors, have the traditional model for pursuing advanced education burned into their heads and/or benefit from kids going directly to college, and never present the military as a viable option. Of course, many still feel that the military is only for those that aren’t smart enough for college or are somehow not college material.

          Regarding an advanced education not being worth it anymore, I would have to see the studies that show education beyond high school does not have discernible economic advantages. I believe there are a lot of issues with the current system; however, if I’m dispensing advice to my child or any young person with regards to plotting a life course – pursuit of a degree, preferably at least a Masters – is going to be part of that advice.

    • Agreed. Absolutely.

  5. I’m about to say something unpopular. Is getting a foundation in place for your financial future important? Absolutely!! I’m firm on that. The point at which I veer away from tradition is attending college in the first place. (hold on, don’t run away).
    We want to retire “financially free”, owing nothing if anything at all, so that we can enjoy worry free golden years.
    The cost of higher education is making this harder & harder to attain.
    Should we just forgo education? I’ll answer that with two thoughts.

    I read a book called, Where Did My Money Go? by Bob Hopkins. In it was listed a page and a half of extraordinarily successful folks who either didn’t attend college at all or they dropped out. They achieved financial freedom without a degree or the massive debt that comes with it. My family is full of folks who have done the same thing.
    Second, if if my son decided he wanted to attend a traditional university instead of the trade school he’s decided on, I’d insist that our immediate family sit down to decide on a “Graduate debt free plan”.
    Saving, investing, living frugally (within our means) & attaining assets @ as young an age as possible is essential.

    Traditional college, however, in my opinion, should be rethought.

  6. If you have the chance – start saving for your retirement as soon as you possibly can.
    Here in the UK the minimum amount you can put into a pension scheme is only £20 (about $30)so that it doesn’t deter people from saving.
    However the bad reputation of pensions (by people who dont have them), the bad reputation of financial services in general which is perpetuated by the press, and the marketing industry which persuades people to buy stuff they dont need means that the majority of people dont bother.

    For those who are believers in pensions – compound compound you gotta love that sound.

    • Of course I absolutely agree with you, Mike. I honestly do not believe that the idea of starting early – even if it is only $25 – $35/month – cannot be overstated. While clearly at some point the contribution level will need to increase to start seeing significant gains and to take better advantage of compound interest, three important things happen when people get started. First, there is the psychological lift that comes from finally making the first definitive move. Second, now that they have some skin in the game, they become more interested in learning about personal finance/investing and start educating themselves more. Third, when they do start seeing some gains, even if just small ones, it encourages them to find ways to save more so that they can invest more. Thanks for stopping by, amigo. And yes, compound, compound, I also love that sound.

  7. Creating an IRA account and making smaller contributions was the approach I took. Just opening the account was a nice psychological lift and I felt like I was doing something positive. It worked well as I was able to reach the minimum contribution limit within a couple of years and purchase my first mutual fund within the account.

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