School Fees Vs. Investing

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Q: I recently moved to the U.S. from the Caribbean. I have $5,000 and I’m trying to obtain a second degree. I know this money can’t pay for my school fees, but it could pay a part. Or I could get a regular job and invest the $5,000. Please advise.
— D. Dickodeen, Via the Internet

A: My advice to you would be to get a job and search for financial aid and scholarships to pay for school. Even if you have to take out loans for school, it will be worth the investment in the future. As you’ve pointed out, the $5,000 you have will not pay for the total cost of your education — in fact, it will barely pay for the cost of one semester of advanced degree classes at most colleges and universities.

If you get a job now, you can take that $5,000 and begin building toward a future goal — the down payment on a home, for instance. I would advise using $3,000 of your money to open up a Roth IRA (the limit for contributions in 2005 is $4,000). This will allow you to begin saving for your retirement and also give you the flexibility to use the money as a down payment for a home in five years without incurring the 10% early withdrawal penalty.

Your remaining $2,000 could be placed in a money market account, a high-interest savings account, or a six-month CD. While you’ll only earn between 2% and 2.5% interest, you’ll have some money available to you in case of an emergency.