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Currently, I'm in a predictable but yet uncertain future with my money situation. I'm working for the next semester and summer, but I'll be going back to do a 2-years graduate program in the fall. During this time, I'm expecting the course load to be very heavy and impact my ability to work a job during this time.

However, I have a small amount of extra cash from my job, but I'm not sure exactly what to do with it. Its $1-2k extra a month, and would it be advantageous to invest it in short term deals, or is it just not worth it when I know I'll probably need to spend it to get by while doing my thesis. I'm just wondering for any good short term investments that can help get me a little bit more though, but I'm not sure if the pay out on short term investments is worth it with this little cash.

I have no previous history of investing, and no debts besides student loans, which aren't accumulating interest yet because I'm technically still in school.

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    $1-2k extra a month is a "small amount of extra cash"? Guess it depends where you live.
    – Davy8
    Jan 8, 2011 at 5:01

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I would pile up your extra cash to use when you won't be able to work as much. This will prevent you from adding debt during that time.

Because you'll need the money in the short term (less than 5 years), your best place to put it is a savings account earning a dismal amount of interest.

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    +1 Good Advice, Alex. I'll add that you should shop around for banks/credit unions with the best savings rates. All savings accounts are not equal.
    – JohnFx ♦
    Jan 7, 2011 at 16:55
  • January 2011: rates on savings accounts can hit about 1.3% APY.
    – user296
    Jan 11, 2011 at 20:34
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I recommend you consider a Roth IRA. Invest it as others here suggest, safely, CDs, money market,etc. You can put in $5000/yr. When you spend, use this last, there is no penalty to withdraw the deposits. But if you make it through grad school without needing it, you'll have great start on your retirement savings.

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How's your savings and emergency fund?

Everyone should have an emergency fund that will last them 6 months, and the goal should be two years' worth. This should be in an easily accessible account, such as a savings or money market account at your bank (you could consider CDs, but unless you're laddering them there will be penalties to get at the money).

Once you've got 6 months' worth saved, the next thing to focus on is a tax advantaged retirement account. Only when you've maxed out your contributions (and the tax benefits) should you consider other investments. After all, those tax benefits are free money from Uncle Sam :)

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If you need the money in the short-term, you want to invest in something fairly safe. These include saving accounts, CDs, and money market funds from someplace like Vanguard. The last two might give you a slightly better return than the local branch of a national bank.

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    Ordinarily good advice, but in January 2011, it won't work so well. For example, Vanguard's money market fund yields a pathetic 0.06% right now. A regular vanilla FDIC-insured savings account from an online bank or a credit union is probably your best bet. You can get up to about 1.3% APY right now; you won't get significantly better on a CD shorter than 3 years, so why lock up your money? Especially at these interest rates.
    – user296
    Jan 11, 2011 at 20:33

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