Hello all,
Im a young engineer who finally paid off his student loans last month. Now I have a relatively large amount of extra cash each month to put towards a few different goals I have. Id like you to think back to your early financial growth phase, that is where I am. I rent an apartment, I have a car loan (I know, car loans bad...but there wasnt any other option when my car broke down a month into my first job after graduation), work 40 to 50 hours a week and I already max my 401k. I am trying to prioritize where to put this extra money I have every month. I have the following financial goals:
- Open Roth IRA (need $3k to start a vanguard IRA)
- 3 Months emergency fund
- Max IRA contributions
- Pay off car
- Save for down payment on home
- invest in index fund
Major expenses:
Rent - $1084 (just signed new lease so stuck here until August 2016)
Car Payment - $400 (about $8000 left on loan, 1.9% interest)
Other - ~$1200 (im looking for ways to save in my bills/spending but thats not why I'm here. Food/going out is in here and a huge expense I am actively cutting back)
Income - I essentially have about $1500 (after taxes, 401k, bills and any other expenses) a month to save/invest/pay off car, sometimes more, sometimes less. I get a quarterly bonus which until this point has gone towards student loans, this will now go entirely towards saving (maybe $3k to $4k a year after tax)
So with that in mind how should I put that $1500 towards these financial goals? Currently the order I have them listed above is how I have them prioritized. After maxing the IRA is where my priorities start to get fuzzy. Paying off the car gives me an extra $400 a month that can earn money rather than cost money, so might even prioritize it higher. I also hate that I am spending over a grand a month for housing when that could be building equity in my own home. I am slowly learning about home buying and looking in to housing in my area, including multi family, but I am in this lease until August 2016. I dont think I can save enough for a down payment without PMI before then. Dont even know enough about local market to pull a number out of the air but I am in a pretty low cost of living area. So a house is probably more on the 2 year horizon, I will look for cheaper housing next year though. So if a house is two years away, perhaps I should stick the money I am saving towards a house into an index fund to grow? I realize that should be long term investing, but I feel having tens of thousands of dollars sitting in a savings account for 2 years might be a bit of a waste. Like I said, still learning alot about real estate and investing in general.
Thoughts? Anything I have over looked? Advice on ways to make saving for house more productive than sitting in a savings account? Should I be investing money into index funds sooner?
Thanks in advance for any advice, gotta get to work now.