How to Prioritize and Invest Your Money the Right Way in 7 Steps

Advertiser Disclosure

Student Loan Hero Advertiser Disclosure

Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.

Editorial Note: This content is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the financial institution.

how to invest money
Logo

We’ve got your back! Student Loan Hero is a completely free website 100% focused on helping student loan borrowers get the answers they need. Read more

How do we make money? It’s actually pretty simple. If you choose to check out and become a customer of any of the loan providers featured on our site, we get compensated for sending you their way. This helps pay for our amazing staff of writers (many of which are paying back student loans of their own!).

Bottom line: We’re here for you. So please learn all you can, email us with any questions, and feel free to visit or not visit any of the loan providers on our site. Read less

The first time I invested in the stock market, I was in a business class in high school. It was a virtual stock exchange, so the money wasn’t real. It’s a good thing too because I lost 25 percent of my original balance in just a few days.

My experience taught me that investing in stocks is risky business and that knowing how to invest money properly requires more than a brokerage account.

In fact, an investment doesn’t have to be tied to stocks or a retirement account at all. An investment also can be a savings goal, a debt payoff goal, and more.

That’s why it’s important to learn how to invest your money in a way that helps you build wealth and security for the future. Here’s how you can get started.

How to invest money and prioritize your investments in 7 steps

Learn how to invest money for your future and protect your investments from the unexpected with these seven steps.

1. Invest in an emergency fund

There’s no point in investing your money if you have to withdraw some of it when your car breaks down or your water heater leaks.

To protect yourself from small emergencies, set aside at least $1,000 in a separate savings account you can access easily. You’ll want to contribute more to this account later, but for now, get to that $1,000 balance and avoid using it except for legitimate emergencies.

By having an emergency fund handy, you’ll free up larger chunks of money you can devote to retirement accounts, debt, and other investments.

2. Invest in your 401(k) match

If your employer offers a 401(k) and matches some of your contributions, invest at least enough money to get the full match.

For example, say you earn $50,000 and your employer matches up to 3 percent of your 401(k) contributions. Each month, you’ll contribute $125 and your employer will add another $125 to your account:

$50,000 x .03 = $1,500

$1,500 / 12 = $125

That’s an immediate return of 100 percent on the money you invest in your retirement account. No matter where else you put your money, you won’t beat that kind of return so quickly. And you don’t need to know anything about how to invest your money to do it.

3. Invest in getting properly insured

No one will argue that insurance is as sexy as investing. But just like small emergencies can set you back financially, big ones can cripple you.

For example, life insurance is a must-have if you have kids or other people who depend on you financially. Even if you don’t, you might want to consider getting a small policy to cover funeral and other final expenses.

A funeral can cost between $7,000 and $10,000, according to Parting.com. An inexpensive term insurance policy is the best option for most people.

You might argue that disability insurance is even more important. That’s because more than 25 percent of 20-year-olds will become disabled before they retire, according to the Social Security Administration.

There are two types of disability insurance, both of which help replace lost wages:

  • Short-term disability insurance: It typically covers you for a few months to up to a year. There might be a short waiting period of up to 14 days before you start receiving benefits.
  • Long-term disability insurance: It typically covers you until you recover or reach retirement age. There might be a waiting period of a few months before benefits start to kick in.

Health insurance is also essential since you’re more likely to take a trip to the doctor than to become disabled or die.

To make insurance more affordable, you might be able to get some or all of these insurance policies through your employer at a lower rate. If not, shop around to see which insurance company offers the best value for your needs.

4. Invest in paying off high-interest debt

If you have credit card debt or any other debt with an interest rate of, say, 8 percent or higher, pay it off as quickly as you can. Although paying off debt isn’t as exciting as investing, you’ll likely save more in interest than you would earn by investing that money in the stock market.

Plus, once the debt is gone, you can take the amount you were putting toward your monthly payment and invest it elsewhere, such as your retirement account.

5. Circle back and invest in your retirement and emergency fund

Once you’ve gone through the first four steps, it’s time to ramp up your rainy-day fund and retirement investments.

For your emergency fund, set a goal to save enough to cover three to six months’ worth of basic monthly expenses. This number should include only your necessary expenses, not extras such as eating out and entertainment.

For your retirement savings, aim to save 10 to 15 percent of your gross income. Fortunately, your 401(k) match counts toward this number. So, if you’re contributing 3 percent and your employer matches it with another 3 percent, your retirement savings rate is 6 percent.

At this point, you also might consider opening an Individual Retirement Account (IRA), which can give you more control over your investments and offer better tax advantages. For example, investments in a Roth IRA grow tax-free, whereas the taxes on a traditional 401(k) investment are deferred until you retire.

And if you don’t know how to invest money, you can consider using a robo-advisor to do the work for you.

The amount you save for these two goals is up to you, but try to target a figure within those ranges to make sure you’re on the right path.

6. Invest in a college savings account

If you have or plan to have kids and want to help them pay for future college costs, there’s no time like the present to start.

You have a few options:

Each option has benefits and drawbacks, and some might require that you know how to invest money, so be sure to compare them all to find the right one for you.

You might be tempted to start saving for your child’s college fund as soon as they’re born. However, consider prioritizing saving for your retirement first. In the end, college students can take out student loans, but there’s no such thing as a retirement loan.

7. Work on building toward other investing goals

Now that you’ve covered all the most important bases, it’s time to work toward other investing goals.

Maybe you want to take a nice vacation with the family, buy a nicer house or car, or save up to start your own business. These goals might be the reason you’re trying to learn how to invest money in the first place.

Whatever your goal is, you can start working toward it knowing that all your other financial needs are taken care of.

You can use a simple savings account or a brokerage account to work toward these goals. The important thing is finding an investment strategy that fits your needs and preferences.

Start with a solid foundation and build upon it

If you’re still trying to figure out how to invest your money in the best way possible, use the above steps to lay a solid foundation so the unexpected won’t derail your investments down the road.

It might not feel like you’re racing to the finish with fast-paced trading and high returns, but you’re more likely to reach your goals this way.

So, as you’re trying to sift through all the advice for how to invest money, remember that slow and steady wins the race.

Interested in refinancing student loans?

Here are the top 6 lenders of 2018!
LenderVariable APREligible Degrees 
Get real rates from up to 4 Lenders at once

Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Laurel Road.

Laurel Road Disclosures

  1. VARIABLE APR – APR is subject to increase after consummation. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes.

2 Important Disclosures for SoFi.

SoFi Disclosures

  1. Student Loan RefinanceFixed rates from 3.999% APR to 7.804% APR (with AutoPay). Variable rates from 2.480% APR to 7.524% APR (with AutoPay). Interest rates on variable rate loans are capped at either 8.95% or 9.95% depending on term of loan. See APR examples and terms. Lowest variable rate of 2.480% APR assumes current 1 month LIBOR rate of 2.07% plus 0.91% margin minus 0.25% ACH discount. Not all borrowers receive the lowest rate. If approved for a loan, the fixed or variable interest rate offered will depend on your creditworthiness, and the term of the loan and other factors, and will be within the ranges of rates listed above. For the SoFi variable rate loan, the 1-month LIBOR index will adjust monthly and the loan payment will be re-amortized and may change monthly. APRs for variable rate loans may increase after origination if the LIBOR index increases. The SoFi 0.25% AutoPay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. *To check the rates and terms you qualify for, SoFi conducts a soft credit inquiry. Unlike hard credit inquiries, soft credit inquiries (or soft credit pulls) do not impact your credit score. Soft credit inquiries allow SoFi to show you what rates and terms SoFi can offer you up front. After seeing your rates, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit inquiry. Hard credit inquiries (or hard credit pulls) are required for SoFi to be able to issue you a loan. In addition to requiring your explicit permission, these credit pulls may impact your credit score
  2. Terms and Conditions Apply: SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet SoFi’s underwriting requirements. Not all borrowers receive the lowest rate. To qualify for the lowest rate, you must have a responsible financial history and meet other conditions. If approved, your actual rate will be within the range of rates listed above and will depend on a variety of factors, including term of loan, a responsible financial history, years of experience, income and other factors. Rates and Terms are subject to change at anytime without notice and are subject to state restrictions. SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. Licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. SoFi loans are originated by SoFi Lending Corp., NMLS # 1121636. (www.nmlsconsumeraccess.org)

3 Important Disclosures for CommonBond.

CommonBond Disclosures

  1. Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). The following table displays the estimated monthly payment, total interest, and Annual Percentage Rates (APR) for a $10,000 loan. The Annual Percentage Rate (APR) shown for each in-school loan product reflects the accruing interest, the effect of one-time capitalization of interest at the end of a deferment period, a 2% origination fee, and the applicable Repayment Plan. All loans are eligible for a 0.25% reduction in interest rate by agreeing to automatic payment withdrawals once in repayment, which is reflected in the interest rates and APRs displayed. Variable rates may increase after consummation. All variable rates are based on a 1-month LIBOR assumption of 2.08% effective July 25, 2018.

4 Important Disclosures for Citizens Bank.

Citizens Bank Disclosures

  1. Education Refinance Loan Rate DisclosureVariable rate, based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of August 1, 2018, the one-month LIBOR rate is 2.07%. Variable interest rates range from 2.72%-8.17% (2.72%-8.17% APR) and will fluctuate over the term of the borrower’s loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree earned and presence of a cosigner. Fixed interest rates range from 3.50%-8.69% (3.50% – 8.69% APR) based on applicable terms, level of degree earned and presence of a cosigner. Lowest rates shown require application with a cosigner, are for eligible, creditworthy applicants with a graduate level degree, require a 5-year repayment term and include our Loyalty discount and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty and Automatic Payment Discount disclosures. The maximum variable rate on the Education Refinance Loan is the greater of 21.00% or Prime Rate plus 9.00%. Subject to additional terms and conditions, and rates are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change. Please note: Due to federal regulations, Citizens Bank is required to provide every potential borrower with disclosure information before they apply for a private student loan. The borrower will be presented with an Application Disclosure and an Approval Disclosure within the application process before they accept the terms and conditions of their loan.
  2. Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer with the Education Refinance Loan. Borrowers should carefully review their current benefits, especially if they work in public service, are in the military, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans and replace those with the benefits of the Education Refinance Loan. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision at http://www.citizensbank.com/EdRefinance, including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
  3. Citizens Bank Education Refinance Loan Eligibility: Eligible applicants may not be currently enrolled, must be in repayment of their existing student loan(s) and must make the minimum number of payments after leaving school. Primary borrowers must be a U.S. citizen, permanent resident or resident alien with a valid U.S. Social Security Number residing in the United States. Resident aliens must apply with a co-signer who is a U.S. citizen or permanent resident. The co-signer (if applicable) must be a U.S. citizen or permanent resident with a valid U.S. Social Security Number residing in the United States. For applicants who have not attained the age of majority in their state of residence, a co-signer will be required. Citizens Bank reserves the right to modify eligibility criteria at anytime. Interest rate ranges subject to change. Education Refinance Loans are subject to credit qualification, completion of a loan application/consumer credit agreement, verification of application information, certification of borrower’s student loan amount(s) and highest degree earned.
  4. Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
  5. Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
  6. Co-signer Release: Borrowers may apply for co-signer release after making 36 consecutive on-time payments of principal and interest. For the purpose of the application for co-signer release, on-time payments are defined as payments received within 15 days of the due date. Interest only payments do not qualify. The borrower must meet certain credit and eligibility guidelines when applying for the co-signer release. Borrowers must complete an application for release and provide income verification documents as part of the review. Borrowers who use deferment or forbearance will need to make 36 consecutive on-time payments after reentering repayment to qualify for release. The borrower applying for co-signer release must be a U.S. citizen or permanent resident. If an application for co-signer release is denied, the borrower may not reapply for co-signer release until at least one year from the date the application for co-signer release was received. Terms and conditions apply.
  7. Average savings based on 18,113 actual customers who refinanced their federal and private student loans through our Education Refinance Loan between January 1, 2017 and December 31, 2017. The calculation is derived by averaging the monthly savings of Education Refinance Loan customers whose payments decreased after refinancing, which is calculated by taking the monthly student loan payments prior to refinancing minus the monthly student loan payments after refinancing. The borrower’s savings might vary based on the interest rates, balances and remaining repayment term of the loans they are seeking to refinance. The borrower’s overall repayment amount may be higher than the loans they are refinancing even if their monthly payments are lower.
2.57% – 5.87%Undergrad
& Graduate
Visit Earnest
2.80% – 6.38%1Undergrad
& Graduate
Visit Laurel Road
2.48% – 7.52%2Undergrad
& Graduate
Visit SoFi
2.47% – 7.99%Undergrad
& Graduate
Visit Lendkey
2.57% – 6.65%3Undergrad
& Graduate
Visit CommonBond
2.72% – 8.17%4Undergrad
& Graduate
Visit Citizens
Our team at Student Loan Hero works hard to find and recommend products and services that we believe are of high quality and will make a positive impact in your life. We sometimes earn a sales commission or advertising fee when recommending various products and services to you. Similar to when you are being sold any product or service, be sure to read the fine print understand what you are buying, and consult a licensed professional if you have any concerns. Student Loan Hero is not a lender or investment advisor. We are not involved in the loan approval or investment process, nor do we make credit or investment related decisions. The rates and terms listed on our website are estimates and are subject to change at any time. Please do your homework and let us know if you have any questions or concerns.