Invest or Pay Student Loans First? Calculator
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May 3, 2026
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Unsure whether to invest or pay student loans first? Our calculator helps you compare interest rates vs. potential returns to find your ideal financial move.
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student loan payoff strategy
invest vs debt repayment
student loan interest rates
personal finance calculator
high-interest debt strategy
long-term investment planning
financial planning tools
wealth accumulation
compound interest growth
debt vs investing decision
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Investing
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Look, I’m just gonna say it: For many people, hitting the accelerator on investing before aggressively paying off student loans can actually be the smarter financial play. Yeah, I know. That might sound like heresy, especially coming from a guy who spent years digging himself out from under $23K of credit card debt and vowed to never owe anyone a dime again. But when it comes to the question of "Should I Invest or Pay Off Student Loans First Calculator," the simple answer isn’t always the one that feels best. Sometimes the cold, hard math points in a different direction.
TL;DR
- It's all about interest rates: Compare your student loan interest rate to your expected investment return. If your investment is likely to earn more, investing first might make sense.
- Debt isn't always "bad" debt: Low-interest student loans (like many federal loans) can be thought of differently than high-interest credit card debt.
- Don't skip the emergency fund: Always build a solid cash cushion before making aggressive moves with either loans or investing.
- Psychology matters: While the math is key, the emotional weight of debt is real and shouldn't be ignored in your decision.
- Refinancing is a powerful tool: Consider refinancing high-interest private student loans to lower your rate and free up cash for investing.
What We'll Cover
- Your Gut Says One Thing, My Experience Says Another
- Quick Comparison: Invest vs. Pay Off Loans
- So, Should You Invest or Pay Off Student Loans First?
- The Numbers Don't Lie: Calculating Your Best Path
- When Paying Off Loans First Makes More Sense
- When Investing First Makes More Sense
- Refinancing Your Student Loans: A Smart Detour?
- What If I Have Multiple Loans?
- What About My Emergency Fund?
- An Actual Calculator? Well, Kinda.
- My Wife's Wisdom: The Mental Game of Money
- Don't Forget About Taxes!
- The Uncomfortable Truth About Financial Advice
- FAQ
Your Gut Says One Thing, My Experience Says Another
I’m Alex. Austin, Texas. And I’ve been wrestling with money questions since 2022, after I finally — finally — paid off every single cent of that stupid $23,000 credit card debt. That experience, man, it burned me. It made me want to get rid of all debt, no matter what. And for a long time, I carried that feeling into every financial decision. Student loans? Get rid of them! Mortgage? Pay it off early! Debt is bad. End of story. Right?
Well, not exactly.
My Own Debt Nightmare
I still remember the day I decided I was done. It was late 2021, and I was staring at a statement from my primary credit card. Balance: $11,487. My jaw just about hit the floor. Another card had something like $7,000, and a third was a few thousand more. All told, it was a mountain, and I was just making minimum payments, hoping it would magically shrink. Spoiler: it didn't. Instead, the interest was just eating me alive. I was paying hundreds of dollars a month just to stand still. It felt like trying to empty a bathtub with a teaspoon while the faucet was on full blast. My wife, Sarah, saw how stressed I was. She pushed me to really look at the numbers, to make a plan. And for the next 18 months, every spare dollar went to those credit cards. I cut back on everything – no more fancy coffees, almost no eating out, even canceled streaming services. It was brutal. But when that last payment cleared, on August 14, 2022, I literally felt like a new person.
That feeling of liberation? It’s powerful. It’s what makes people instinctively want to attack any debt with everything they’ve got. And I get it. I really, really do.
The "Feeling" of Debt vs. The Math
But here's the kicker: not all debt is created equal. My credit card debt was charging me like 24% interest. That’s pure financial poison. Student loans, especially federal ones, often have much lower interest rates – sometimes under 5%. And that, my friend, changes the whole ballgame. Because while the feeling of debt is always there, the mathematical impact is drastically different. It’s the difference between trying to outrun a cheetah and trying to outrun a sloth. Both are running, sure, but one is a much bigger problem.
Quick Comparison: Invest vs. Pay Off Loans
This is just a quick snapshot, because, as we’ll talk about, your personal situation is the real calculator.
Pay Off Loans First | Invest First |
You get guaranteed return (saving interest) | You get potential higher return (but no guarantees) |
Reduces stress, psychological win | Builds wealth over time through compounding |
Frees up monthly cash flow sooner | Capitalizes on market growth |
Good for high-interest loans (>6-7%) | Good for low-interest loans (<5%) |
Less risky, predictable outcome | More risky, market fluctuations |
So, Should You Invest or Pay Off Student Loans First?
The direct answer to "should I invest or pay off student loans first calculator" is: It depends on your student loan interest rate compared to your expected investment returns, your risk tolerance, and your emotional relationship with debt.
There's no single, universal answer. Anyone who tells you otherwise is probably selling something or hasn't had to live through the struggle.
The Interest Rate Game
Think of it like this: your money is a race car. You want to send that car to the track that's going to give you the biggest return.
- Track 1: Paying off debt. When you pay off a loan, the "return" you get is the interest you don't have to pay. It's a guaranteed return, tax-free. If your loan charges you 6% interest, paying it off is like getting a guaranteed 6% return on your money.
- Track 2: Investing. When you invest, say in the stock market through a broad index fund, your "return" is the growth of your investments. Over long periods, the stock market has historically returned around 8-10% annually (before inflation and taxes). But it's not guaranteed. Some years it's up, some years it's down.
So, if your student loan interest rate is, say, 3%, and you expect to earn 7% annually in the stock market over the long run, then investing that extra money could put you ahead. You'd be making 7% on your investment while only "losing" 3% to loan interest. That's a net gain of 4%. But if your loan interest rate is 7%, and you only expect 7% from the market, then it's a wash, mathematically. And paying off the loan gives you the guaranteed return and the peace of mind.
It’s just like driving your car down different roads. If one road has a huge toll booth charging you 7% every time you pass, and the other road is a smooth, open highway where you can make 7% on your speed, you gotta pick the highway. But if the toll booth is only charging 3%, and the highway is still 7%, you take the highway, even with the small toll.
What Your Loans Are REALLY Costing You
My buddy Mark from college—we used to share a tiny apartment near campus, ramen noodles for dinner every night—he had something like $40,000 in student loans after graduation. Mostly federal loans, some subsidized, some unsubsidized. His average interest rate was around 4.5%. He was stressed about it, wanted to pay it all off as fast as possible. But he also had an employer 401(k) that offered a 5% match. My wife actually pointed this out to me when I was talking to Mark about his options. She said, "Alex, doesn't that 401(k) match essentially mean he's getting a guaranteed 100% return on that first 5% of his salary?" And she was totally right. That's free money! If Mark skipped that match to pay off a 4.5% loan faster, he'd be leaving money on the table. A lot of it. Mark ended up contributing enough to get the full match, then put extra towards his loans, and also funded a Roth IRA. A balanced approach. Check out the IRS website for more info on how 401(k)s work.
The Numbers Don't Lie: Calculating Your Best Path
This isn't about feelings; it's about arithmetic. You need to know your numbers cold.
Simple Interest Rate Comparison
Grab a pen and paper, or open a spreadsheet. List out all your student loans with their current balances and interest rates. Then, think about your realistic expected return from investing. For simplicity, many financial pros use 7% as a conservative long-term average for broad market index funds, factoring in inflation. The SEC website has good info on investment basics.
Here's a rough guide:
Loan Interest Rate | What to Consider | Why |
< 4-5% | Prioritize investing (especially if employer match is available) | The market typically outpaces these rates over time. Low risk for high potential reward. |
5-7% | Balanced approach or slightly favor investing | This is where it gets fuzzy. Consider your risk tolerance and other financial goals. |
> 7% | Prioritize paying off loans | The guaranteed "return" of avoiding high interest is hard to beat in the market. |
> 10% | Aggressively pay off loans first | This is like high-interest credit card debt. Get rid of it ASAP. |
The Power of Compounding (for investing) vs. Interest Accrual (for loans)
This is the financial equivalent of a snowball rolling downhill versus a leaky faucet.
- Compounding: When you invest, your earnings start earning their own earnings. It's an exponential growth engine. A small amount invested early can grow into a fortune over decades. Albert Einstein allegedly called it the eighth wonder of the world. And it's true, time is your greatest asset here.
- Interest Accrual: On the flip side, with loans, interest accumulates on your outstanding balance. If you're not paying more than the minimum, that balance can stay stubbornly high, and you're just feeding the beast. If your loans are unsubsidized, interest starts accruing immediately, even while you're in school. It's a slow drain, constantly taking from your future wealth.
The longer you delay investing, especially when you have low-interest debt, the more you're missing out on compounding. That's the opportunity cost. Investopedia has a great breakdown of opportunity cost if you want to geek out.
When Paying Off Loans First Makes More Sense
Okay, so I just spent a bunch of time talking about investing first. But there are definitely scenarios where wiping out those student loans is the smartest move.
High-Interest Rates
This is the most straightforward case. If your student loan interest rate is high – I’m talking 7%, 8%, or even higher – then paying them off aggressively is almost always the best financial decision. Why? Because that’s a guaranteed return you’re getting by not paying that interest. It's incredibly hard to find an investment that will consistently and reliably beat an 8% guaranteed return without taking on significantly more risk. For context, the average credit card interest rate is often well over 20%. Student loans rarely get that high, but private student loans can creep up there, especially for those with less-than-stellar credit. The Consumer Financial Protection Bureau (CFPB) has some fantastic resources if you're struggling with high-interest loans.
Your Risk Tolerance
Not everyone is comfortable with the ups and downs of the stock market. And that’s totally fine! If the thought of your investment portfolio potentially dropping 10-20% in a given year makes your stomach churn, then maybe the guaranteed return of paying off debt is better for your mental health. Financial decisions aren't just about math; they're also about how you sleep at night. If carrying debt keeps you up, then get rid of it. Peace of mind has a value that spreadsheets can't capture.
Feeling Overwhelmed by Debt
Sometimes, the sheer volume of debt, or the number of different loans, just feels like too much. Even if the math technically says to invest, the emotional burden can be paralyzing. My journey out of credit card debt wasn't just about the numbers; it was about reclaiming control, about feeling like I wasn't constantly behind the eight-ball. If paying off your student loans means you can breathe easier, focus better at work, or just feel lighter, then that's a huge win. Financial well-being isn't just about net worth; it's also about your mental state.
When Investing First Makes More Sense
This is where my initial bold opinion really comes into play. If you're in this camp, you're looking at the long game.
Low-Interest Rates
If your student loan interest rates are low — think 3% to 5% — you’re likely in a good position to prioritize investing. These rates are often below the historical average returns of the stock market. This is especially true for many federal student loans. You’re essentially borrowing money cheaply, which allows your invested money to grow at a potentially higher rate. Over decades, that difference compounds into a significant amount of wealth.
Employer Match & Tax Advantages
This is non-negotiable free money. If your employer offers a 401(k) match, you absolutely, positively must contribute enough to get that full match before doing anything else. It's a 100% immediate return on your investment, effectively. There's no loan interest rate on earth that can beat that. After the match, then look at tax-advantaged accounts like a Roth IRA or traditional IRA. These accounts offer incredible benefits – either tax-free growth and withdrawals in retirement (Roth) or tax deductions now (traditional). Uncle Sam is literally giving you a leg up to save for your future. You can learn more about IRA contribution limits and rules on the IRS website.
The Opportunity Cost
Every dollar you put towards early loan repayment is a dollar you can't invest. And if that dollar could have been growing in the market for 20, 30, 40 years, the opportunity cost can be huge. Imagine putting an extra $100 towards a 4% student loan instead of investing it for 30 years at an average 8% return. That $100 would have saved you a little bit of interest, sure. But in the market, it could have grown to nearly $1,000! That's the power of compounding you'd be missing out on. It's a silent killer of potential wealth.
Refinancing Your Student Loans: A Smart Detour?
What if you have high-interest student loans, but you also really want to invest? There's a middle-ground strategy: refinancing.
How Refinancing Works
Refinancing a student loan means taking out a new loan, usually from a private lender, to pay off your existing student loans. The goal? To get a lower interest rate, a different payment term, or both. This is especially useful if your credit score has improved since you first took out your loans, or if you have high-interest private loans. A lower interest rate means more of your payment goes towards the principal, and you pay less over the life of the loan. This frees up cash that you can then direct towards investing or other financial goals.
I've looked into this a lot for friends. Companies like SoFi and Earnest are big players in this space. They let you check your rates without a hard credit pull, so it's a no-risk way to see if you can save. Just be aware that if you refinance federal student loans, you give up federal protections like income-driven repayment plans, forbearance, and deferment options. So, it's a decision to weigh carefully.
Is it Right for You?
Refinancing is generally a good idea if:
- You have high-interest private student loans.
- Your credit score has improved since you got your original loans.
- You have a stable income and job security.
- You don't anticipate needing federal loan protections.
If you have federal loans with very low rates, or if you rely on income-driven repayment, refinancing might not be the best move. It's always a good idea to understand the terms and conditions of your current loans before considering a refinance. The Federal Reserve publishes reports that can help you understand the student loan market.
Pros of Refinancing | Cons of Refinancing | Who it's Best For |
Lower interest rate | Lose federal loan protections (if applicable) | High-interest private loan holders |
Lower monthly payments | May extend repayment term (paying more interest over time) | Good credit, stable income |
Simplify loans (one payment) | Requires good credit to qualify for best rates | Those who prioritize saving money over federal benefits |
Save money on total interest | Not guaranteed to get a better rate | Individuals confident in their financial stability |
What If I Have Multiple Loans?
Most people don’t just have one student loan. They have a collection of them, each with its own balance and interest rate. This is where strategy becomes key.
Avalanche vs. Snowball
These are two popular methods for paying down multiple debts:
- Debt Avalanche: This method focuses on the math. You make minimum payments on all loans except the one with the highest interest rate. You throw all your extra money at that highest-interest loan until it's gone. Then you take the payment you were making on that loan (plus any extra cash) and apply it to the next highest-interest loan. This method saves you the most money on interest over time.
- Debt Snowball: This method focuses on psychology. You make minimum payments on all loans except the one with the smallest balance. You pay that smallest loan off first, get a quick win, and then "snowball" that payment into the next smallest loan. This builds momentum and keeps you motivated, even if it might cost you a little more in interest overall.
For student loans, especially if you have a wide range of interest rates, the Debt Avalanche is usually the mathematically superior choice. It aligns with the "pay off high-interest debt first" principle we've been discussing.
Prioritizing Your Debt
No matter which method you pick, the first step is always the same: list all your debts. Seriously, every single one. Credit cards, personal loans, student loans, car loans. Note the balance, the interest rate, and the minimum payment for each. This transparency is key. Once you have that list, you can really see where your money is going and identify the biggest drain on your finances. Prioritize getting rid of any high-interest consumer debt (credit cards, personal loans) before getting too deep into the student loan vs. investing debate. Those rates are almost always higher than student loans and will eat you alive.
What About My Emergency Fund?
Before you even think about aggressively paying off student loans or pouring money into investments, you need a financial safety net.
Non-Negotiable Protection
An emergency fund is your first line of defense against life’s curveballs. It’s cash, easily accessible, usually in a high-yield savings account, that’s there for unexpected expenses: job loss, medical emergency, car repairs, home repairs. This isn't optional. Without it, one unexpected bill can derail your entire financial plan and send you right back into high-interest debt. Imagine having to put a $1,500 car repair on a credit card because you aggressively paid off your student loans but had no cash saved. That would be a huge step backward. The FDIC website has some excellent info on how your savings are protected.
How Much Is Enough?
The general rule of thumb is 3-6 months' worth of essential living expenses. Essential means rent/mortgage, utilities, food, transportation, insurance – not your subscription services or daily latte. For someone with a less stable job, or dependents, 6 months or more might be wiser. For someone with a very stable, in-demand job and no dependents, 3 months might be fine. Start with a smaller goal – say, $1,000 – and build from there. That first $1,000 can cover a surprising number of minor emergencies. Don't touch this money unless it's a true emergency. It's sacred.
An Actual Calculator? Well, Kinda.
Okay, so I promised a calculator in the title, and honestly, the best calculator is you – with a spreadsheet and a willingness to do some math. There isn't one magical online tool that perfectly accounts for every nuance of your emotional state, risk tolerance, and every single specific loan term. But I can give you the framework.
The "Rule of Thumb" for Student Loans and Investing
Here’s my simplified decision-making flowchart, if you want a quick mental calculator:
- Do you have an emergency fund? No? Build it. Now. Seriously.
- Do you have high-interest consumer debt (>10%)? Yes? Pay it off aggressively.
- Does your employer offer a 401(k) match? Yes? Contribute enough to get the full match.
- What's your highest student loan interest rate?
- If it's > 7%: Focus on paying this loan off aggressively. It's a guaranteed return that's hard to beat.
- If it's 5-7%: This is the grey area. Consider a balanced approach: contribute to a Roth IRA or 401(k) beyond the match (if you have one) and put extra towards your loans. Or, if the debt stresses you out, pay it off.
- If it's < 5%: Prioritize investing. Max out your tax-advantaged accounts (Roth IRA, 401(k) up to limits), then consider taxable brokerage accounts. Your money is likely to grow faster in the market than the interest you're paying.
- Are you comfortable with market fluctuations? If not, favoring debt payoff for peace of mind is totally valid.
My Spreadsheet Approach
When I was trying to figure out if I should keep putting more into my investment account or just demolish the last of my student loans (which were thankfully low-interest federal ones after I paid off my credit cards), I built a spreadsheet. I listed each loan, its balance, its interest rate, and how much I'd save if I paid it off in X years versus Y years. Then, I had another column where I calculated how much that same money, if invested, would be worth over those same X or Y years, assuming a conservative market return.
It wasn't rocket science. Just simple future value calculations. For example, I had one loan with a balance of $5,432.81 at a 3.8% interest rate. If I put an extra $347.23 a month towards it, I'd pay it off in like 15 months instead of 3 years, saving me maybe $150 in interest. But if I invested that $347.23 for those 15 months, and then kept investing it for decades, the difference was astronomical. The spreadsheet helped me visualize that opportunity cost very clearly. The guarantee of saving $150 in interest felt good, but the potential of making thousands more over a lifetime from investing felt better.
My Wife's Wisdom: The Mental Game of Money
I mentioned Sarah earlier. She's not a finance guru, but she has this incredible common sense about money, and she understands the emotional side of it in a way that I, a numbers guy, sometimes miss.
The Emotional Weight of Debt
One evening, after a particularly stressful week at work, I was muttering about how I should be investing more, but I also had this lingering student loan. It was a low-interest one, maybe 3.5%, nothing terrible. Mathematically, investing was the play. But I was tired. And that loan, small as it was, just felt like a weight.
Sarah looked at me and said, "Alex, what would make you feel better right now? The idea of having an extra few hundred bucks in the market, or knowing that loan is just gone?"
And she had a point. Sometimes, the mental peace you gain from eliminating a debt, even if it's not the "optimal" mathematical choice, is worth more than a few percentage points of theoretical return. It's about reducing stress, clearing mental clutter, and feeling truly free. That feeling can boost your energy, your creativity, and your overall well-being, which indirectly can lead to more financial success anyway. She reminded me that personal finance is, well, personal.
Financial Peace of Mind
This concept of financial peace of mind is often overlooked in the race for maximum returns. But it's vital. If you're constantly stressed about debt, you're not going to be at your best, in any area of your life. So, while I advocate for a mathematically driven approach, I also say: if paying off that specific loan, even if it's low interest, gives you a profound sense of relief and calm, then do it. You can always start or ramp up investing after that mental hurdle is cleared. The goal isn't just to be rich; it's to live a good, less stressful life.
Don't Forget About Taxes!
Taxes play a sneaky role in all this. They can subtly nudge your decision one way or another.
Student Loan Interest Deduction
Good news! For many people, the interest paid on qualified student loans can be deducted from their taxable income. This deduction can reduce your overall tax bill, making your effective interest rate slightly lower than the stated rate. There are income limitations and other rules, so it's not for everyone, but it's worth checking if you qualify. This essentially makes your student loan debt a little less "expensive" in the eyes of the government. You can find detailed information about the student loan interest deduction on the IRS website.
Capital Gains
When you invest, any profits you make when you sell an investment are called capital gains. These gains are taxed. If you hold an investment for less than a year, it's considered a short-term capital gain and is taxed at your ordinary income tax rate. If you hold it for more than a year, it's a long-term capital gain, and those rates are usually lower. This means that while investing might give you a higher return, you have to factor in the tax bite. This is why tax-advantaged accounts like 401(k)s and IRAs are so powerful – they defer or even eliminate capital gains taxes in retirement. The SEC.gov website has a good overview of capital gains tax.
The Uncomfortable Truth About Financial Advice
Okay, here's where I have to admit something. As much as I try to give solid, actionable advice based on my own hard-won experience and a ton of research, there's a limit.
No Single Right Answer
There just isn't a magical, one-size-fits-all "Invest or Pay Off Student Loans First Calculator" that works for every single human being on the planet. Your specific loans, your income, your career stability, your age, your family situation, your risk tolerance, and yes, your emotional state – all these variables make your situation unique. What was right for my friend Mark with his 4.5% loans and a 401(k) match might not be right for someone with 8% private loans and no employer benefits. And what felt right for me after my credit card debt nightmare isn't necessarily the mathematically "best" choice now.
Your Personal Situation is Unique
I can give you principles, frameworks, and things to consider. I can tell you what the math generally says. But ultimately, you have to look in the mirror, look at your numbers, and make the decision that feels right for you. It might be a hybrid approach. It might be all-in on one side for a while, then switching to the other. Be flexible, review your situation regularly, and don't be afraid to adjust your strategy as your life changes. The most important thing is that you're making a conscious decision and not just letting inertia or fear drive your financial bus.
FAQ
Q: Should I pay off student loans aggressively or invest slowly?
A: It depends on your loan interest rate. If your student loan interest rate is consistently higher than what you realistically expect to earn from investing (e.g., above 7%), aggressively paying off the loan is generally the smarter move. If your loan interest rate is lower (e.g., 3-5%), investing consistently in a diversified portfolio (especially in tax-advantaged accounts like a 401k or IRA) will likely build more wealth over the long term due to compounding returns.
Q: Is there a general rule for student loan interest rates and investing?
A: A common rule of thumb suggests that if your student loan interest rate is above 6-7%, prioritize paying it off. If it's below 4-5%, prioritize investing, especially if you're getting an employer 401(k) match. For rates in the middle (5-7%), a balanced approach of contributing to retirement accounts while also making extra payments on your loans can be a good strategy.
Q: What is the average return on investment I should expect?
A: Historically, the stock market (represented by broad market indices like the S&P 500) has delivered average annual returns of about 8-10% over long periods (decades). However, past performance doesn't guarantee future results, and returns can vary significantly year to year. When making financial plans, many people use a more conservative estimate, such as 6-7%, especially after accounting for inflation.
Q: How does student loan refinancing impact this decision?
A: Refinancing can significantly lower your student loan interest rate, which can change the entire equation. If you can refinance a high-interest private loan down to a much lower rate (e.g., from 8% to 4%), it might shift the financial advantage towards investing rather than aggressive loan payoff. However, be aware that refinancing federal loans means losing federal protections like income-driven repayment.
Q: Can I do both – invest and pay off student loans?
A: Absolutely, and for many people, a hybrid approach is the most realistic and beneficial. This often means contributing enough to your 401(k) to get any employer match (free money!), building an emergency fund, and then splitting any remaining extra cash between increasing your loan payments and investing in other tax-advantaged accounts like an IRA. The exact split will depend on your individual circumstances and interest rates.
Q: What if my loans are federal vs. private?
A: This distinction is very important. Federal student loans often come with benefits like income-driven repayment plans, forbearance, deferment, and potential forgiveness programs. Private student loans typically do not. If you have federal loans with low interest rates and want to retain those protections, it often makes more sense to prioritize investing. If you have high-interest private loans, paying them off or refinancing them is usually a higher priority.
Bottom Line
Deciding whether to invest or pay off student loans first isn't just a math problem; it's a personal journey. You've got to consider the numbers, for sure – those interest rates are telling you something important. But don't forget the human element: your comfort with risk, the relief of being debt-free, and the pure joy of watching your investments grow. Take the time to understand your own financial picture, grab a pen and paper (or a spreadsheet!), and make the decision that truly serves you and your financial peace of mind.
I'm not a financial advisor — just a guy who made a lot of money mistakes and learned from them. Some links here earn me a small commission, but I only recommend stuff I'd tell my friends about.
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