Author Topic: LOST in the manual of badassity :\  (Read 8569 times)

graceylou

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LOST in the manual of badassity :\
« on: November 29, 2012, 02:07:55 PM »
Hello everyone,

I am pretty new to the blog in general and have been reading for a month or so and am super excited to grow my whiskers so to speak. However, I am a little intimidated by the whole investing thing and building these accounts. I am currently just dipping my toe in with a small investment (like $100...) in Vanguard Total Bond Market ETF and S&P 500 Index SPDR. I guess my main questions pertain to how much to put in investments and what a typical portfolio would look like? Also, are there some good beginner type books on the subject?

I suppose another piece of this is...should I even be focusing on investing right now in this way? Here's my current situation:

$123k in student loan debt (currently I work in the public service sector and under loan forgiveness programs, I pay about $434/month (income contingent) for 120 months and the rest is forgiven so I don't feel the urgency to use money I could be otherwise investing to pay this down sooner. Bad plan?)
$1848 in other credit debt (paying all off in the next month)

Monthly gross income: $3392

Deductions:
My share of insurance premiums (med/dent/vis) through employer: $25
PERA (retirement, pre-tax): $269
403(b) (post-tax): $339
Union dues: $47
Taxes: $463

Net monthly income: $2249

Expenses:
Rent: $550 (all inclusive for utilities, cable, internet)
Student Loan: $434
Groceries (including toiletries): $120
Gas and car maintenance:$100
Pet supplies: $60
Car insurance: $25
Renters insurance: $22
Mobile phone: $85 (covers two phones, only one with data; my brother uses the other phone; just got locked into 2-yr contract before I found the Mustachians)

Leaves $853 left over. I try not to go over $100 max for unplanned expenses or fun.

I try to put away at least $300/month for an emergency fund since I have none currently due to actually having to use it when I was in between jobs and then had to relocate. I'd also like to save for a down payment, but have no clue where to start with that.

So the last line pretty much describes my burning question...where on earth do I start to get on the path to FI?

Thanks for any advice!
« Last Edit: November 29, 2012, 02:41:55 PM by graceylou »

kisserofsinners

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Re: Freaked Out Beginner Investor!
« Reply #1 on: November 29, 2012, 02:20:45 PM »
You might want to try searching the investing category.

http://www.mrmoneymustache.com/forum/investor-alley/

graceylou

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Re: Freaked Out Beginner Investor!
« Reply #2 on: November 29, 2012, 02:43:30 PM »
You might want to try searching the investing category.

http://www.mrmoneymustache.com/forum/investor-alley/

I tried that and was unfortunately overwhelmed by jargon. I had no idea what anyone was talking about and I'm a pretty intelligent person!

matt_g

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Re: LOST in the manual of badassity :\
« Reply #3 on: November 29, 2012, 03:02:05 PM »
Books, check em out.

Your Money or Your Life
The Millionaire Next Door
A Random Walk Down Wall Street

I'd also challenge your decision regarding your student loans, that's crazy to think your loans are just going to go away in 10 years.  That's like planning on Social Security for your retirement.  I wouldn't bet the farm on that.

mlipps

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Re: LOST in the manual of badassity :\
« Reply #4 on: November 29, 2012, 03:05:49 PM »
I love me some MMM, but Bogleheads forum, wiki, and book, are probably more comprehensive places to start for investing.

Personally, I'd think twice about trusting that loan forgiveness program will be around in 10 years. I'd have to have a huge chunk of money being written off and a pretty low interest rate before I'd consider trying it.

Why are your 403(b) contributions post-tax? Is it a ROTH 403(b)?

Props for your super low grocery expenses.

Provide more info on the following:
-Interest rate on the student loan
-Expenses & fund options in your 403(b)
-Any employer match in your 403(b)?

And then I'll be happy to give some more thoughts! :)

kisserofsinners

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Re: LOST in the manual of badassity :\
« Reply #5 on: November 29, 2012, 03:21:17 PM »

Your Money or Your Life
The Millionaire Next Door
A Random Walk Down Wall Street


Yes
Yes
Yes

graceylou

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Re: LOST in the manual of badassity :\
« Reply #6 on: November 29, 2012, 03:27:08 PM »
I love me some MMM, but Bogleheads forum, wiki, and book, are probably more comprehensive places to start for investing.

Personally, I'd think twice about trusting that loan forgiveness program will be around in 10 years. I'd have to have a huge chunk of money being written off and a pretty low interest rate before I'd consider trying it.

Why are your 403(b) contributions post-tax? Is it a ROTH 403(b)?

Props for your super low grocery expenses.

Provide more info on the following:
-Interest rate on the student loan
-Expenses & fund options in your 403(b)
-Any employer match in your 403(b)?

And then I'll be happy to give some more thoughts! :)

Yeah, the loan thing has been a big pain in my butt trying to decide on. One day I want to pay them all off as soon as possible and then other days I like my current plan...anyway, here's the rundown:

$25,362 @ 6.3%
$18,486 @ 7.65%
$12,219 @ 2.14%
$66,309 @ 6.55%

So I guess another plan of attack would be the obvious paying down of the highest interest loans first correct? I also don't think I have a lot of consolidation options that would really be beneficial financially.

My 403(b) is a ROTH and my employer doesn't contribute to that one because it already contributes to my PERA account. It's supplemental I guess.

mlipps

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Re: LOST in the manual of badassity :\
« Reply #7 on: November 29, 2012, 03:45:52 PM »
Ouch, those interest rates are rough. I might be willing to try the forgiveness for the 2% one, but there's no way with the others. What type of loans are they? Subsidized, unsubsidized, private? If they're subsidized & your IBR payment doesn't cover the interest, the govt. pays it for the first 3 years. But those weird rates make me think they're private. I'm also confused about your comment about consolidation; don't they have to be consolidated to get IBR? I consolidated mine out of laziness so I could be wrong.

My plan of attack would be:
-Suspend contributions to 403(b); at those interest rates I'd even consider liquidating the balance you do have there to pay those loans off
-Small contribution to emergency fund monthly seems smart, $300-$500. Just put this into a savings account that's easily accessible until you have 1-2 months expenses saved. After that, you might put it into a Roth since your contributions can be taken out at any time anyway.
-Pay off those loans ASAP, highest interest rate first.

graceylou

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Re: LOST in the manual of badassity :\
« Reply #8 on: November 29, 2012, 03:58:09 PM »
What type of loans are they? Subsidized, unsubsidized, private? If they're subsidized & your IBR payment doesn't cover the interest, the govt. pays it for the first 3 years. But those weird rates make me think they're private. I'm also confused about your comment about consolidation; don't they have to be consolidated to get IBR? I consolidated mine out of laziness so I could be wrong.

Those are all government loans mix of subsidized and unsubsidized (majority). The highest interest one is the Grad PLUS. The 2.14% are subsidized Stafford. I don't qualify for IBR, but income contingent and my thoughts on consolidation was that it would basically keep my interest rate at the same level and wipe out those lower interest rate loans. It would be a negligible savings if not an expense move. I've looked into that. Thanks for the help! I'm going to look into what I can do to get those paid off ASAP.

Paul der Krake

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Re: LOST in the manual of badassity :\
« Reply #9 on: November 29, 2012, 06:10:43 PM »
How much is the penalty fee for leaving your current bloodsucking phone company? Run the numbers and see how much you save over the next two years.

I would also look at all your tax options for repaying your debt. It sounds like you are young and just starting your career. What if 10 years from now you don't qualify for the loan forgiveness program because your income has dramatically increased since?

Don't give up on your debt yet, people have come back from much worse than this.

RadicalPersonalFinance

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Re: LOST in the manual of badassity :\
« Reply #10 on: November 29, 2012, 06:20:36 PM »
$25,362 @ 6.3%
$18,486 @ 7.65%
$12,219 @ 2.14%
$66,309 @ 6.55%
 

What is the minimum payment for each loan?

This is a fairly easy question to answer with the minimum payment.  Just run the amortization schedule and figure out how much will be forgiven at the end of the loan forgiveness term.  You need to know that number to make decent decision.

graceylou

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Re: LOST in the manual of badassity :\
« Reply #11 on: November 29, 2012, 07:27:05 PM »
What if 10 years from now you don't qualify for the loan forgiveness program because your income has dramatically increased since?

The income piece doesn't matter for this particular forgiveness program. I just need to make 120 monthly payments on time while simultaneously working at a public service job.

This is a fairly easy question to answer with the minimum payment.  Just run the amortization schedule and figure out how much will be forgiven at the end of the loan forgiveness term.  You need to know that number to make decent decision.

This part is a bit tricky because my minimum payment changes every year based on my income and family size. I assume both of those things will increase as I get older, but I don't have a way to really predict what my payment would turn in to and therefore how much I would have forgiven in the long run. I read a post on another board that kind of resonated with me stating that I legitimately used this money and now it's my responsibility to pay it all back. It also said something regarding th lovely feeling of not having that payment looming over my head for 10 years. I'd rather challenge myself to get rid of it in say 5 years and have more options. As I was re-reading another investment post by MMM, he said "the best guaranteed no-volatility place to invest your money may be paying off existing debt. Your mortgage, your student loan, or if you still have superbad loans like car or credit card debt, you need to get on those, emergency style, before you consider saving for anything else."

I guess the gauntlet has been thrown down! Excited to see what I can accomplish!

mlipps

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Re: LOST in the manual of badassity :\
« Reply #12 on: November 29, 2012, 07:32:11 PM »
I can see what the situation is a little more clearly now. I just want to reiterate that I would NOT try to pay down the 2% loan early, personally. That's tax deductible (for the first five years, as of 2013 tax filing), so it's a super low rate once you account for that. Otherwise, I'd work on tackling those others ASAP.

Nords

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Re: LOST in the manual of badassity :\
« Reply #13 on: November 29, 2012, 08:21:52 PM »
The income piece doesn't matter for this particular forgiveness program. I just need to make 120 monthly payments on time while simultaneously working at a public service job.
I read a post on another board that kind of resonated with me stating that I legitimately used this money and now it's my responsibility to pay it all back. It also said something regarding th lovely feeling of not having that payment looming over my head for 10 years. I'd rather challenge myself to get rid of it in say 5 years and have more options. As I was re-reading another investment post by MMM, he said "the best guaranteed no-volatility place to invest your money may be paying off existing debt. Your mortgage, your student loan, or if you still have superbad loans like car or credit card debt, you need to get on those, emergency style, before you consider saving for anything else."
I think this subject is worth reconsidering.

It seems to me that if you're working in a public service job, then you're repaying the government's investment in you with sweat equity.  You've been persuaded to go into a career that may still be fulfilling, but is likely to pay less than being a Wall Street broker or a business owner.  Even if the program's enabling legislation is canceled, I think you'd be grandfathered in under the current system until your 10 years is finished.

Many people pay off high-interest debt because it's almost impossible to earn more at investing when you're carrying high interest payments.  Some people like paying off their home mortgages early because they sleep better at night when they're debt free.  But there are other people who enjoy having low-interest 30-year home mortgages because they can earn more (with a diversified investment portfolio) than the carrying cost of the funds.  Low-interest debt is not for everyone, but the math works no matter how you feel about it.  It takes guts & discipline, but the math works.

MMM makes a good point about paying off student loans early, but there are several kinds of student loans.  I interpret his guidance to mean the high-interest private loans that will financially cripple anyone trying to establish their emergency funds and their savings.  I do not think he intended his advice to apply to low-interest government loans with alternative payment programs... but I'll let him clarify that if clarification is necessary.

So if I was in your situation, I'd pay the absolute minimum on your student and not a penny more.  I'd stick to that public service job (if you can tolerate it) until your balance is forgiven.  I'd stop worrying about carrying the debt, and every morning when you head off to the job I'd remind myself that you're paying off your debt with your labor in service. 

It is not your responsibility to accelerate the payments, and it's not your responsibility to sacrifice even more of your personal capital above & beyond your human capital.

I may be a little biased on this subject.  I was given huge government loans for my 1980s undergraduate and graduate degrees-- to the tune of at least $250K.  (Nobody kept a tab on the exact number.)  I didn't pay a nickel.  I was given free room & board and a stipend for the first four years, along with free organizational clothing.  Later I was given a fair living wage with a food & housing allowance.  I got regular salary raises and even a few bonuses, and I was earning a living wage suitable for raising a family.  All I had to do in return was give up about nine years of my life for public service.  I certainly used the money that I was given, but I feel that the government got fair value for their investment.

simonsez

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Re: LOST in the manual of badassity :\
« Reply #14 on: November 30, 2012, 07:00:07 AM »
Good luck to you.  By good luck, I guess I mean hopefully you don't get too much of a pay raise! Seriously though, if you can do PSLF, your agency is stable/your skills could transfer somewhere else, and you love what you do, by all means do it.  I didn't read the fine print of PSLF as my income is too high now (not bragging, just on the federal GS 9/11/12 ladder in a technical field which is too high for ICR/IBR) for me to take advantage but what happens in the 10th year?  Does the forgiven amount count as taxable income?  Let's say you had $50k forgiven at the end of the program.  Does that mean you owe taxes on that 50k in the year it is forgiven or is the slate completely wiped clean?  I hope you wouldn't owe taxes on it but if you do, that could be a serious consideration.  It probably wouldn't outweigh the forgiveness benefit if it were the case but could be quite the financial shock. 

Also congratulations on the health/dental/vision insurance for $25/month.  That is incredible.

As for your investing, I'd say bump up your PERA/403(b) contributions.  Once you get close to maxing that out, see if you can contribute to a 457(b) as well since you are a state employee.  This means you can contribute another $17.5k to a tax-deferred plan in addition to the $17.5k with your PERA/403(b).  This might be moot if you income is relatively low but maybe it would be useful in keeping your AGI low (and ICR eligibility) if your income were to increase.

unpolloloco

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Re: LOST in the manual of badassity :\
« Reply #15 on: November 30, 2012, 09:09:27 AM »
$434/month for 120 months = $52k, which is way less than the $123k you owe.  If you made payments on those loans to pay them off in 10 years, you'd be paying ~$1300/month., which would eat up all your monthly excess and then some.  Therefore, I see no reason to pay them off early, so long as you can keep your public sector job that long and continue meeting the requirements.  Just treat the loan repayment program as compensation for working a (probably slightly lower-paid) job in the public sector and make sure not to run afoul of the repayment program requirements (do whatever it takes).  Also, you probably will want to look into the tax implications of the repayment program to be prepared for whatever happens when it takes effect.

mlipps

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Re: LOST in the manual of badassity :\
« Reply #16 on: November 30, 2012, 09:19:20 AM »
I have to respectfully, but vehemently disagree with those of you saying OP should stick out the PSLF program, especially at those interest rates. That program can be cancelled at any time by the government. There's no contract, no guarantee, it's not even something you're actively enrolled in. You just apply for it after you make your 120 payments. You're right that OP could could have a lot of debt cancelled IF the program still exists, but at the very least, OP, you need to calculate how much interest is going to accrue over the next 9 years on those loans in case the program ends. I just don't see it as being likely that it will survive, and with those interest rates, that's a HUGE risk. Like I said before, for the 2% loan, that's a risk I'd take in a heartbeat, but at those other rates, it's not.

cadamsgis

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Re: LOST in the manual of badassity :\
« Reply #17 on: November 30, 2012, 09:38:54 AM »
You need to double check the facts but if I remember correctly - I had looked into the repayment of student loan if you work in public sector but I had consolidated my loans before I became public sector and the consolidation elminated that option for me even though I met all the other requirements.

great job on low grocerices and other monthly expenses

simonsez

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Re: LOST in the manual of badassity :\
« Reply #18 on: November 30, 2012, 09:40:53 AM »
As unpopular as the government is right now, I think it would be pretty safe to say that if the PSLF program were to go away, there would be some prior notice several years in advance or some grandfathering (which would include officially signing up from the program as well).  Think about it, the program is set up for those that entered a relatively low-paying public service job and this is the reward for that: student loan help.  To implement a system and then remove it at a moment's notice would not only leave those currently counting on the program distraught and angry but potentially financially devastated.  The very nature of these certain types of low-paying jobs is that the employees do not make a large sum of money and thus, do not have the ability to fully pay back the loans in a more timely manner.  Perhaps if these employees knew the program wouldn't exist in the future, they would have made different choices in college and at the start of their careers.  This program started in 2007 (I think?) so the first cohort will not see any benefit until 2017.  In the incredibly unlikely event the program was scrapped completely before 2017, that would be the ultimate middle finger from Capitol Hill to the public service sector.  With each year passing after 2017, if the program were to be dissolved, the middle finger curls back into the palm somewhat as a less offensive gesture.  I agree next to nothing is a guarantee, especially anything involving benefits, but I don't see this program disappearing in the middle of the night.  If it does go away, I foresee a very early notice and/or a gradual weaning of some sort.

mlipps

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Re: LOST in the manual of badassity :\
« Reply #19 on: November 30, 2012, 09:43:40 AM »
As unpopular as the government is right now, I think it would be pretty safe to say that if the PSLF program were to go away, there would be some prior notice several years in advance or some grandfathering (which would include officially signing up from the program as well).  Think about it, the program is set up for those that entered a relatively low-paying public service job and this is the reward for that: student loan help.  To implement a system and then remove it at a moment's notice would not only leave those currently counting on the program distraught and angry but potentially financially devastated.  The very nature of these certain types of low-paying jobs is that the employees do not make a large sum of money and thus, do not have the ability to fully pay back the loans in a more timely manner.  Perhaps if these employees knew the program wouldn't exist in the future, they would have made different choices in college and at the start of their careers.  This program started in 2007 (I think?) so the first cohort will not see any benefit until 2017.  In the incredibly unlikely event the program was scrapped completely before 2017, that would be the ultimate middle finger from Capitol Hill to the public service sector.  With each year passing after 2017, if the program were to be dissolved, the middle finger curls back into the palm somewhat as a less offensive gesture.  I agree next to nothing is a guarantee, especially anything involving benefits, but I don't see this program disappearing in the middle of the night.  If it does go away, I foresee a very early notice and/or a gradual weaning of some sort.

I think it actually started later than that, I was pretty sure it was part of the reform that happened in 2010 or 2011? But I could be wrong. At any rate, I just think, politically, anything can happen in 10 years. I doubt anyone would have predicted in 1999 as Clinton left office that anything would be as it stands today. It's just my personal opinion of course, and I think you make some valid points too.

grantmeaname

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Re: LOST in the manual of badassity :\
« Reply #20 on: December 02, 2012, 12:18:23 PM »
Nope, simonsez is correct. PSLF started in 2007 under George W. Bush.

Will

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Re: LOST in the manual of badassity :\
« Reply #21 on: December 02, 2012, 01:00:11 PM »
I doubt anyone would have predicted in 1999 as Clinton left office...

Bill was POTUS until January 2001.

Psychstache

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Re: LOST in the manual of badassity :\
« Reply #22 on: December 02, 2012, 04:49:40 PM »
As someone who is also in the middle of PSLF hooplah, I have a few tips for you.

1. Keep very good records of all of your payments. Don't count on the loan servicer to keep that straight.

2. You may want to go ahead and start getting the PSLF employment certification filled out by your employer. I get my boss to fill out a new one every year. WARNING: the first time I did this, I got switched over to a different loan servicer within the fed gov whose job it is to handle debtors that are planning on doing PSLF.

Here is the link to the certification letter:

http://studentaid.ed.gov/repay-loans/forgiveness-cancellation/charts/public-service 

"NEW: On January 31, 2012, the U.S. Department of Education released an Employment Certification Package to help borrowers track their progress toward qualifying for PSLF. The PSLF Employment Certification Package includes:"

Good luck whatever road you go down.

Nords

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Re: LOST in the manual of badassity :\
« Reply #23 on: December 03, 2012, 11:19:45 AM »
The CFPB puts out a nice PDF summarizing student loan payback options. 

It's intended for military servicemembers but much of this is also applicable to anyone with a student loan:
http://files.consumerfinance.gov/f/201210_cfpb_servicemember-student-loan-servicing.pdf

If you're in the military and have a government-funded student loan, then you're in "public service" and eligible for the 10-year forgiveness option.  That's not necessarily a good reason to stay in the military for a decade, but it's one of the more important factors to consider.