The best investment you’ll ever make

I know, the best investment you’ll ever make is in yourself.  Investing in human capital through education has been shown to produce the best long term rate of return, period.

I teach a Personal Investing course at UNM, and occasionally offer tips.  And this is a big tip (better than Blue Bonnet in the 5th at Ascot, trust me.)

Pay off your credit card balances as soon as possible.

Some would say that creating the credit card balance in the first place is a bad idea, but credit cards aren’t bad, per se.  They offer the ability to even out cash flow–you can buy things when you don’t have (or don’t want to carry) lots of cash, but expect to have enough in the future to pay back the loan from the credit card company.  If you pay the loan back the same billing cycle, you don’t pay any interest, but if you take longer then the interest is generally pretty stiff (an Ann Taylor credit card charges 25% annual interest!)

If you do take out a credit card loan by carrying a balance on the account, then paying the balance off is an immediate release of the money you would have paid in interest.  You can’t start saving and investing while you’re in debt, by definition.  Well, you can’t expect to get ahead if the interest you pay on your debts is larger than the interest you earn on your savings or the implied rate of return on your investments, is a better way to put it.

So, use your credit card wisely, and don’t carry balances.  This is step one in achieving financial independence and security.