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When you’re a 20-something year old staring graduation right in the face, or maybe looking back at it, chances are you have had the opportunity to amass a small lump of moola in your trusty dusty savings account. The word around town is that your cash cache can do a lot more for you if you plan right, so if you happen to have $5000 somewhere somehow, (tax returns and a paycheck maybe), then why not make more practical use of it?

By that I dont mean go out and buy a new car, (though my old girl has one foot in the grave I might have to), or a new XBOX 360, a slew of games plus the latest surround sound system and headsets (unless part of your job is entertaining guests and you can write it off as a business expense.)

Every resource I’ve used to try to find what I should do with my $5000, has pretty much said to do the same thing.

1. Bucket-Up a Rainy Day Fund
2. Kill Credit Card Debt
3. Buy your First Home
4. Lay that Nest Egg

From Money Magazine:

1. Do you have a cash cushion? You should have at least three months’ worth of living expenses saved. If not, stop here: Use your $5,000 to build a rainy-day fund. You don’t want to be one visit to the auto shop away from racking up thousands in credit-card debt.

2. Do you have credit-card debt? Each year a card balance lingers, the Mexico vacation you charged right after graduation becomes more costly. Chances are, your memories aren’t growing fonder at double-digit rates. So pay off that balance. It’s the equivalent of earning 13 percent (on average) risk-free.

3. Do you own a home? As long as you are paying for housing, you might as well spend on a house you own. Even if prices cool, a home has advantages like no other asset, including no taxes on the first $500,000 in gains (for a couple). And because mortgage interest is tax deductible, the cost may be lower than you think.

4. Are you doing what it takes to retire rich? It’s not chasing a hot stock. It’s getting into the habit of saving regularly. The easiest way to do that is to sign up for a 401(k) plan. The money comes out of your paycheck (pretax) and grows tax-free. Better yet, your boss will likely match your contribution.

I’ve been asking everyone everywhere what to do with my money, and well no one knows, lucky me I found the answer in an article from Money Magazine on CNN Money. These paragraphs just about sum it all up for me:

“Why pay off the loan? If you have a private loan, chances are you have a variable rate of at least 7.5 percent - and rising. Paying down that balance keeps rate increases in check.

You want happy memories of your college days, not debt.

Why invest? Long term, you should be able to earn a better return than the rate you’re paying on a federal loan, especially if you’re getting a tax break in your 401(k) or IRA. If you’ve consolidated those loans, you likely have a fixed rate of no more than 4.75 percent. Up to $2,500 in student-loan interest is deductible (if you’re single with an income of $50,000 or less, or $105,000 if you’re married and filing jointly). All the more reason not to pay it all off early.

Bottom line: If your interest is 7 percent or higher, pay off the debt. You can’t count on doing better in the market. Otherwise, invest in stocks. If you absolutely can’t stand the idea of debt - or have a huge loan balance - put half your $5,000 toward debt and invest the rest.”

Suffice it to say that Im starting to like Money Magazine.
What to do with $5000

More on this later–

Awesome!