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Three Places to Invest a Tiny Little Bit of Money

Oh, here's something that I could use some advice on: after I get paid, I'll probably have around 3K USD in a bank account doing pretty much nothing. Should I invest it in a Vanguard index fund or something similar for now? Also, I'm probably going to need to buy a car eventually (my guess is in 2-3 years), which can create a lot of nasty compounded interest. Would I want to use any money that I have saved up to pay a big expense like that off immediately, or would I want to keep some invested?

If you've only got $3k you want to keep most of that liquid as an emergency fund. You probably don't want to buy stocks unless you can go long on the stocks and ignore market movements, and you want to study investing before investing ESPECIALLY investor psychology so you don't panic and act rashly if (when) there's a crash. You probably want to read "The Intelligent Investor" by Ben Graham before buying any equities, which Warren Buffet says is the best book on finance ever written. I agree, btw - I've never found better. Excellent book.

If you did want to deploy some of your cash, here's a couple things:

*It'll cost you around $20 to $100 to develop a credit score, assuming you're American and don't have one. Go to the bank, throw $100 in a CD, and get a secured loan against it that reports on your credit. That'll give you a revolving line of credit on your credit history, which helps. Get a credit card a few months after that, and ALWAYS pay it off in full each month. Good credit will make/save you thousands later, so do it now.

*Buy small gifts for people you admire as a show of respect. Do this for particularly good professors, bosses, teachers, friends of family, acquaintances, etc. Go $20 to $100 per gift to start, $100 is even too high unless someone has been really great to you. Buying 50 gifts at $20 each for people who have treated you REALLY well probably pays for itself. Write a note of gratitude when you do it, just buy chocolate or protein bars or a great DVD or something small. Don't do it all at once, spread it out, but I've never regretted spending money to say thanks for someone who helped me.

Smarter and Less Smart Ways To Go Broke

It's not quite an axiom, but it seems like people unused to money who come to have a lot of it, shortly thereafter have no money again.

It's easy to understand why someone who wins the lottery and fritters it away goes down that path, but cash is just as dangerous in the hands of someone who is legitimately disciplined and working hard for their money, putting together good transactions, and building up a base of cash.

Money does all sorts of strange things to your psychology. Here are three big ones:

*It makes you think you're smarter than you are: when you've earned well, you tend to think it's because you're brilliant. You systematically underestimate the effects of market conditions and being in the right place at the right time, both of which can be tricky to replicate without large amounts of experience (and, even then).

*It makes you think you've reached a new level permanently: once you've gotten good at earning money, it's therefore permanently easier. This may or may not actually be true, and almost never to the extent you think with the first successes you have.

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