Building a 'Stash Before College

[MajorFergus]

Hello everyone! I've been binge reading on all the Mustache goings on for the past week and must say I'm thoroughly humbled by the badassity floating around. I'm gonna throw my own financial curiosities into the ring and see what we can come up with together!

So I'm a high school graduate, Class of 2013, here in North Texas. I had taken the year after high school to enlist in the military, with no intention of going to college on my own money (anticipating GI Bill, Yellow Ribbon, etc etc). For this reason, neither I nor my parents ever had a bundle of money prepared for college. When that didn't work out, I have decided to take another year before college to decide on a path for myself and to work my butt off for the little green bills. So I'm anticipating going to school in the fall of 2015, a grand 15 months from now.

I work at Olive Garden (and have felt slightly guilty for working at a restaurant, knowing that the people eating there are likely putting themselves in a bad financial position), making a variable income per month due to the volatility of living off tips. I've only worked 2 months so I haven't been able to work out a confident average, but on the low end I make $1,500/month.

I had some pretty limited monthly expenses:
$450 for rent, thanks to a classy roommate
$80 on gas thanks to a handy manual, used car and living near where I work. I have looked into the bike option for this coming winter (biking during Texas summers is not safe #heatstroke.)
$100 for food, mostly organic, farmers market style, plus indulging in some dinner on the town once in a while.
Parents still pay for car/health insurance

All in all, small things here and there, I have about $750 of expenses a month. You'll notice a large gap of savings opportunity here, upwards of $500 a month, sometimes as high as $1000. So that begins my question:

Where can I put my savings, to be untouched for 5 years*, such that it goes forth and multiplies and is faithfully waiting for me on the other side when I arrive, BA in hand, for us to take on the world together? I'm not expecting it to become a million dollars in 5 years, but I want to put that $10k to work while I have no real need for it. If there is no real need for liquidity can I anticipate higher than 4% return?

I had some finance/economics classes in high school (some out of a Dave Ramsey textbook, actually) and understand the general workings of these investment things but I have no practical experience so any help would be great. Trying to get the financial ball rolling as soon as possible, anticipating some early retirement in my future.

-Jacob

*In my refusal to take out student loans to go to school, I assume that anywhere I go will result in full-ride scholarships, financial aid, and as much money as I can make working as much as possible during the year and the summers. If there's a farfetched option in using that money as counterbalance/down payment against student loans, I'm open to all options here.

[Hotstreak]

Good on you for saving so early.  I hope you can get the scholarships you're planning on and end up with no loans - or are able to work enough through school to make it happen!  For your wages & tips I would suggest opening a Roth IRA through Vanguard and investing in low cost index funds.  No need to touch it in 5 years... you can let that money grow until you're ready to retire.  As for other liquidity, I would suggest you have at least a few thousand dollars set aside.  You may need to cover books or tuition before loan/aid checks come in, repair your vehicle, etc.

[Goldielocks]

ROTH IRA.   Awesome for building habits AND money.
Low cost index funds.

Go conservative, you don't want to be in equity growth funds for a potential purchase within 5 yrs. You don't need a high rate, you a guarantee not to lose (much) in return for better than savings acct.
 If you change your mind and decide to keep it for long growth, easy to change up funds later.

[MajorFergus]

ROTH IRA.   Awesome for building habits AND money.
Low cost index funds.

Thank you both for the suggestions, it seems that Roth IRAs are a great choice! Not to mention they are after-tax savings so that's an upside I hadn't thought of.

[mxt0133]

This might not be the response that you expected but since you are looking for a high rate of return on your capital i'll put it out there.  I am of the belief that investing in yourself if one of the fastest ways you can achieve FIRE.  You already want to go to college to get a higher paying job, I assume, and hopefully a meaningful career.  The other side of the equation is learning to lower your expenses so you can get your savings rate as high as possible.

These can be skills in cooking, construction, negotiations, ect.  How can you attain these skills you may ask?  One way is to take classes, but that costs money.  The other way is to get paid to learn like an entry level job.  Another way is to teach yourself by working on small manageable projects.  You have 15 months, you can keep working your current job and get another part-time job that will help you build useful skills.  Or get a job related to your intended major and you might still get college paid for by someone else.  Another option is to start taking general requirement classes now, make sure you can get credit for them when you are officially matriculated. 

You are off to a great start, now just use this time to learn as much as possible and the dividends will get you to FIRE in no time.  Who knows you might be a millionaire in five years.

 

[Joel]

I would highly recommend taking some of your general education classes at the local junior college as soon as possible. There's no reason to delay college while working a minimum wage job.

[Goldielocks]

This might not be the response that you expected but since you are looking for a high rate of return on your capital i'll put it out there.  I am of the belief that investing in yourself if one of the fastest ways you can achieve FIRE.  You already want to go to college to get a higher paying job, I assume, and hopefully a meaningful career.  The other side of the equation is learning to lower your expenses so you can get your savings rate as high as possible.

These can be skills in cooking, construction, negotiations, ect.  How can you attain these skills you may ask?  One way is to take classes, but that costs money.  The other way is to get paid to learn like an entry level job.  Another way is to teach yourself by working on small manageable projects.  You have 15 months, you can keep working your current job and get another part-time job that will help you build useful skills.  Or get a job related to your intended major and you might still get college paid for by someone else.  Another option is to start taking general requirement classes now, make sure you can get credit for them when you are officially matriculated. 

You are off to a great start, now just use this time to learn as much as possible and the dividends will get you to FIRE in no time.  Who knows you might be a millionaire in five years.

Great point!

[4alpacas]

I would highly recommend taking some of your general education classes at the local junior college as soon as possible. There's no reason to delay college while working a minimum wage job.

+1 Look into taking a course or two a semester at the local community college.  In order to make sure the credits will transfer, I would talk to someone at a school that you would consider attending. 

I second the Roth IRA option.  For your income level, a Roth is a great way to start saving for your future. 

Good luck!

[Left]

Not sure you need to join army to get money for college :S I got through college fully paid by scholarships/grants. There's plenty of them and not much competition (relatively...) for them. A lot of people fill out FASFA and that's it. Most/all? schools have scholarships so go to the financial office and ask about them. You'll need to maintain a good gpa but you should anyways if you plan to go to college. There's federal grants like pell and smart (for STEM degrees, not "smart" students). I "netted" money too, coming out of college with about $20k more than I went in and this is after 6 years of college and 2 degrees. Or get your job to pay for some of it?

while I like the roth route, I'm inclined to say invest in a taxable account... you didn't mention any emergency funds or anything. You might decide to buy a house later on too or anything else. And taking money out of roth is a hassle because of the tax penalty and you won't have enough principle built in to be effective for either of the two above or anything else you might be a "large" amount for.

[Gerard]

Excuse the dumb Canadian question, but if you're earning that little, are you actually paying any income tax? If you're not paying any/much tax, wouldn't you be better off keeping the money outside of a tax-protected vehicle, so you can access it without penalty if you need it? You never know, you may end up with some amazing opportunity partway through your degree, like a work study or coop placement somewhere that will cost you some money but give you amazing experience, and you'll be better able to take advantage of it if you're a bit liquid.

[SpicyMcHaggus]

I can not stress enough how you need to figure out what major you will take and what school you will attend; Then take as many general education classes as possible that will transfer. In Wisconsin, the tuition cost is 30% of a UW school at a 2 year college. That would have saved me $7000 and nearly a whole semester.

Avoid the pay to play for profit colleges. Use state schools. Take subsidized loans with deferred interest for the amount of tuition and books only(it's free money!) and invest your wages in the market. When you graduate, the interest will start to acrue on the student loans, but you'll have been making gains in the market from the wages you invested the past 4 years. Then double down and start paying down those student loans.