Author Topic: Case Study: What to do with 11k  (Read 1989 times)

Mwstas

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Case Study: What to do with 11k
« on: August 22, 2014, 06:56:38 AM »
Hey folks,

So I came across MMM not too long ago and I've been reading many of the articles and posts on the blog and forum over the past couple of weeks or so. Rather foolishly I've never really considered what to do with my savings since starting work almost two years ago so I've got 11k sat in a bank account. I think I've figured out what I want to do with it but I'm keen to gather a few insights from others before moving money about (neither of my parents,nor anyone else I know are particularly clued up about personal finance let alone FIRE).

I'm almost 26, my 2 year contract at a small charity expires in mid-November with the possibility of an extension subject to available funding, and I have a long-term girlfriend but both of us live with our parents for the moment. I'm looking for a new job but there's no guarantee I'll get one before my contract expires due to the state of the local economy.

Income (Monthly):
  • 1153 after tax
Expenses (Monthly):
  • Car (fuel, maint., etc) - 200
  • Rent/food money to folks - 110
  • Phone - 6.50
  • Misc (new PC, holiday, random food/drink/days out, education) - 455*
Assets:
  • 11,000 cash
  • 3,000 cash (new car fund - I'm reluctant to buy one on finance)
Liabilities:
  • Student loans - 21k @ 1.5%. Once I reach a income threshold of 16,900 I'll automatically start paying this off at a rate of 9% of my come over said threshold. I can, however, pay the loan off early although with such a low interest rate I imagine I'm better off investing my savings?
*My miscellaneous expenditure has got a bit out of hand this year. Most of it was gratuitous unfortunately although a good proportion has gone towards education which should improve my employability once completed. Last year I was able to achieve a saving rate of about 65%.

Obviously I need to work on my recent spending habits and I know what and where I need to make improvements. I've started on this already. My main question to guys is what to do with my cash...

The conclusion I've drawn is to invest approximately 8-9000 in a Vangard LifeStrategy 80 equity fund via a S&S ISA and keep the remainder as cash (some in an easy access cash ISA) to cover expenses, expenses relating to the purchase of a new car, and in case I need cash should I encounter a period of unemployment (social security will kick in at some point though). As and when I save money I'll shove it straight into the S&S ISA while retaining what I think is prudent depending upon my circumstances.  Although less than ideal, my parents are (still) willing to offer me cheap accommodation and food in return for my helping out on their smallholding in my free time.

I'd like to FIRE as soon as possible and I'm willing to go to some lengths to do so (I am planning build/buy a Tiny House in the future). I've not calculated my likely expenditure and required 'stache as there are too many variables at this time.

So that's my plan such as it is. I'd appreciate any comments or suggestions that readers might be willing to offer. I've very new to all this investing malarkey! Thanks very much for reading,

Franakapan
« Last Edit: August 22, 2014, 06:58:50 AM by Franakapan »

fireferrets

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Re: Case Study: What to do with 11k
« Reply #1 on: September 12, 2014, 09:24:45 AM »
Wow, you've virtually got every pound tracked! I can see how your reasoning behind the strategy you've developed and why you might want to invest instead of pay down your loan.

If I could just suggest you consider, however, that the longer you leave that loan to stew, the more money will accrue to your debt, regardless of the low interest rate. If you invest your money in stocks, even the most conservative are unpredictable, so you do not have a guarantee it will grow in the short term to help you pay off the loan. But you are guaranteed to accrue the interest on the loan, no matter how the market behaves.

My advice would be to clear your debt before investing. I can see you take every factor into consideration, so I'm sure that no-matter-what things will work out for you. Good luck!

daverobev

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Re: Case Study: What to do with 11k
« Reply #2 on: September 12, 2014, 09:00:36 PM »
Hmm, is the interest rate in a cash ISA going to be much better than outside? If not, I'd try to max your invested part in the ISA. I've never dealt with mutual funds, just ETFs, so no comment on that one (is it in or $? There are lots of good ETFs, though a mutual fund might well be easier).

IMHO you can get a very decent car for 2k.

Try to make a monthly contribution in to your ISA; set and forget, if possible.