Author Topic: New to the game - need some advice (+face punch)  (Read 3954 times)

bravenewworld

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New to the game - need some advice (+face punch)
« on: January 10, 2015, 04:30:37 PM »
HEY MUSTACHES!

I am currently saving for a down payment on a home, however I still have student loan debt.  Is this smart?  Should I be socking away all my extra cash (from cutting my expenses) to pay this debt first?

Bit of background -
Salary: 40k/year before taxes, contributing 5% to my 401k (I know, face punch?).
Age: 27
Student Loan: 14k, paying $287/mo
Current savings for house: 3k, continuing to contribute $440/mo
Current rent: 1k (split with my partner. Also, we will be purchasing/saving for the house together - combined income is about 90k)

(Also, side note, I am currently in graduate school in IT, but I am fortunate enough that my company pays for it.  I am hoping this will translate to more salary in the future, but am not necessarily counting my chickens before they've hatched).

I know I havent given much information to go off of (budget, etc), I guess my question is, no matter how much extra I can save through these new mustachian ways, whats the best way to utilize the savings?  Any bonuses, salary increase, tax refund, etc I plan on putting into my house down payment fund. 

IS THIS WRONG?

Thanks Mustachians, I am eager to keep learning from you.
 

thedayisbrave

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Re: New to the game - need some advice (+face punch)
« Reply #1 on: January 10, 2015, 04:32:14 PM »
What's the interest rate on the student loan?

bravenewworld

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Re: New to the game - need some advice (+face punch)
« Reply #2 on: January 10, 2015, 04:34:00 PM »
Oh, yeah, 7% :)

thedayisbrave

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Re: New to the game - need some advice (+face punch)
« Reply #3 on: January 10, 2015, 04:48:02 PM »
Oh, yeah, 7% :)
Damn.  I'd focus on paying that sucker off asap.  Then you can use the $287/mo to funnel towards home savings.  That means after it's paid off, you can throw $727/mo to the house fund - that's nothing to sneeze at.  What $ amount does your partner contribute?

Hey It's Me

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Re: New to the game - need some advice (+face punch)
« Reply #4 on: January 10, 2015, 04:48:08 PM »
Oh, yeah, 7% :)

At a 7% interest rate, you should probably be putting your extra monthly money towards the loan, and not the downpayment. Consider the loan payments a guaranteed 7% return on your asset - not bad! Plus you can deduct the interest on that loan (7%) from your taxes, so it's really closer to an 8% return annually.

surfhb

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Re: New to the game - need some advice (+face punch)
« Reply #5 on: January 10, 2015, 04:56:19 PM »
Yes....the loan....ASAP!

StacheOfInnerPeace

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Re: New to the game - need some advice (+face punch)
« Reply #6 on: January 10, 2015, 05:05:55 PM »
and take that $3K for the house and use that to pay off the loan on Monday...then contribute all to the loan until it's paid off...then consider saving a portion for a house vs. a portion for investing.

At your age, I would really favor investing in the market vs. collecting depreciating savings (assuming you have your "house fund" in a savings account or equivalent). If you can get used to a good chunk going to the market at your age, compounding will make a house fund and a good start to retirement.

nzmamma

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Re: New to the game - need some advice (+face punch)
« Reply #7 on: January 10, 2015, 05:12:13 PM »
At 7% student loan all the way.

marty998

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Re: New to the game - need some advice (+face punch)
« Reply #8 on: January 10, 2015, 05:18:13 PM »
To give you a different option, could you look at refinancing that loan?

Even a balance transfer to a credit card for 18 months?

MDM

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Re: New to the game - need some advice (+face punch)
« Reply #9 on: January 10, 2015, 05:31:55 PM »
At a 7% interest rate, you should probably be putting your extra monthly money towards the loan, and not the downpayment. Consider the loan payments a guaranteed 7% return on your asset - not bad!
Agree completely up to this point.

Quote
Plus you can deduct the interest on that loan (7%) from your taxes, so it's really closer to an 8% return annually.
This part is backward.  The deductibility of the loan interest means that it costs you less than 7% to maintain the loan balance.

Think of it this way: you have to pay both the loan holder and the IRS.  Let's say that without the tax deduction you would pay $980 (=7%*$14K) in interest and $5,214 in federal + state taxes (guessing at state tax).  With the tax deduction you would pay $5,067, or $147 less. 

In rough numbers, that makes your loan cost ~($980 - $147) / $14K = 6%.

But I still agree with the overall suggestion to pay down the loan ASAP.

bravenewworld

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Re: New to the game - need some advice (+face punch)
« Reply #10 on: January 10, 2015, 06:01:24 PM »
Thanks for the respones everyone - the SO and I are tempted by the home purchase because we are looking to purchase a cheap home, thereby reducing our monthly expenses (I think we pay an outrageous amount for rent - my SO somewhat agrees, but enjoys the "perks" of the property too much);   I gather no one here is a fan of spreading out student loan payments as some "financial advice" givers suggest....

surfhb

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Re: New to the game - need some advice (+face punch)
« Reply #11 on: January 10, 2015, 06:07:26 PM »
Thanks for the respones everyone - the SO and I are tempted by the home purchase because we are looking to purchase a cheap home, thereby reducing our monthly expenses (I think we pay an outrageous amount for rent - my SO somewhat agrees, but enjoys the "perks" of the property too much);   I gather no one here is a fan of spreading out student loan payments as some "financial advice" givers suggest....

Not at 7%!!   LOL   Who told you to do that?   A mortgage broker?  Ha Ha
« Last Edit: January 10, 2015, 06:09:16 PM by surfhb »

surfhb

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Re: New to the game - need some advice (+face punch)
« Reply #12 on: January 10, 2015, 06:23:13 PM »
You guys make almost 100K a year.    You should be living on one income and saving the other.  (saving $50K a year) 

 The 14k is so trivial in this situation


bravenewworld

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Re: New to the game - need some advice (+face punch)
« Reply #13 on: January 10, 2015, 06:28:06 PM »
You guys make almost 100K a year.    You should be living on one income and saving the other.  (saving $50K a year) 

 The 14k is so trivial in this situation

Thank you, I guess I did ask for a face punch :\