Author Topic: Need advice for future  (Read 4658 times)

Rudem3

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Need advice for future
« on: March 12, 2014, 07:58:47 PM »
I'm a noob and looking for some advice. Currently, I'm putting all my effort into paying off my student loans which are as follows:

$10,235 4.65%
$9,597   2.75%

As of now, I'm putting ~$800/month into the 4.65%. I graduate in September and if I find a job right away (the market in my field is pretty high) I'll be looking to pump $1,100-$1,200/month until I'm rid of the 4.65% loan. I won't start out making a boat load of money in my new position, a little less than 40k/year with no a crazy amount of raises either. 

I currently have 4k in my savings but building that up until I have a solid 5k. (I like the cushion.)

My big goals are saving for a wedding in the near future (2-3 years?), down payment on a home and investing, possibly the VTSMX. With the 2.75% loan being so low, would be I be better off slowing down on those payments once the 4.65% is gone and investing instead? That of course would require me to save an additional 3k. That would only take 2-3 months.

Also, when saving for a wedding or down payment, do you keep that cash liquid?

Cwadda

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Re: Need advice for future
« Reply #1 on: March 12, 2014, 08:07:03 PM »
I think a decent amount of people on here max their 401k plans and Roth IRAs before hitting debt with that low of percentages. I personally have a $5400 loan at 6.8% and I'm prioritizing my Roth IRA because the market has looked promising for returns greater than 6.8%. Last year returns were very high. I'm still allocating some funds for my loan payments to keep interest from compounding but as long as my Roth is doing better I'm going to prioritize that because there's a limit each year.

How much are you budgeting for the wedding?

Rudem3

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Re: Need advice for future
« Reply #2 on: March 12, 2014, 08:13:34 PM »
I think a decent amount of people on here max their 401k plans and Roth IRAs before hitting debt with that low of percentages. I personally have a $5400 loan at 6.8% and I'm prioritizing my Roth IRA because the market has looked promising for returns greater than 6.8%. Last year returns were very high. I'm still allocating some funds for my loan payments to keep interest from compounding but as long as my Roth is doing better I'm going to prioritize that because there's a limit each year.

How much are you budgeting for the wedding?

There's no way I could max my 401k regardless ($17,500 is I'm correct?). Currently I make ~27k/year while in school. I could, of course, put more than I am now in the 401k (6%). But when putting so much into the 401k, how is one supposed to save for a down payment/wedding? With what I'll be making, it would take quite a while. My girlfriend is a hairstylist and it will take a few years until her income is significant.

As a frugal guy, I want to spend a little as possible on the wedding! I have no idea how weddings go for now a days? I asked some co workers and they said they spent about 20k on theirs! I was speechless! I'll say one thing, it will NOT be that much.

Cwadda

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Re: Need advice for future
« Reply #3 on: March 12, 2014, 08:29:56 PM »
Take what I'm saying with a grain of salt...I'm only 19. But I'm kind of in a similar situation. It depends on how much your employer matches. If they match, then that's "free money" to take advantage of and you should put in at least the maximum amount they match.

Also take what your coworkers say with a grain of salt. There are too many people out there that are bogged down by the whole anti-mustachianism consumerism mentality. I've been to some fully decked out  $20K+ hundreds of people weddings and some small simple weddings. I 100% prefer a small, beautiful, meaningful wedding. Don't mean to let my personal beliefs interfere, but a wedding to me isn't supposed to be some extravagant, Gatsby-like, status-boosting, zillions of people, unlimited alcohol kind of thing. Don't mean to offend anyone here. I'm sure you can make an awesome, wedding that people will remember for the rest of their lives for under $5,000 all said and done. And that's being generous.  It's all preference. Just hope your wife-to-be is on board ^.^
« Last Edit: March 12, 2014, 08:36:15 PM by Cwadda »

Cwadda

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Re: Need advice for future
« Reply #4 on: March 12, 2014, 08:40:42 PM »
Maybe something like this?

50 guests
$800 in church expenses (includes reserving the church, clergymen, musician(s), and flowers)
$1000 to rent out a place (something estate-like, something near the water, a hall, nice resturant, high-end country club?)
$1100 in food - all catered/made and set up for you
$1100 in alcohol (less if you get it in bulk yourself rather than a dining service)
$500 in gratuities/miscellaneous expenses

That would be $4500. I think I'm being pretty generous with these too; they COULD be lower.

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Re: Need advice for future
« Reply #5 on: March 12, 2014, 10:50:30 PM »
I'm sure you can make an awesome, wedding that people will remember for the rest of their lives for under $5,000 all said and done.

Re: wedding, Absolutely!  My wife and I paid $5000 total for our wedding (including the dress and tux rentals).

Some cost saving tips:
- Discount dress shopping
- Choose a color and rough style of bridesmaid dress.  Leave it up to them to find/buy it. (we chose black and not strapless since most women already have one)
- Friday night 7pm wedding, 7:30pm reception (a hard time slot for most wedding venues, so often available at reduced cost)
- Signature cocktail (free) + no open bar (allows you to source your own alcohol and avoid venue markup)
- Hors d'oeuvre's only (light food is cheaper than full course dinners)
- Adults only (the time slot kind of necessitates this, but also reduces the total attendance)
- Immediate family and best friends only (again, reduces the total attendance)
- Made our own decorations for the venue
- Networked for flowers on the cheap
- Ipod DJ

That was 5 years ago, and at least once a year since, someone mentions what a great, memorable wedding it was, and how different and fun. (and not just our parents :-)

I wouldn't sweat it.  And while we're on the subject...YMMV, but if you haven't proposed already, try giving her something sentimental as a placeholder for the ring, then let her pick it out with a price point you can both live with.  No need to drop 3mo salary and dig that hole as well.

Thegoblinchief

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Re: Need advice for future
« Reply #6 on: March 13, 2014, 06:07:38 AM »
At your income level, open a Roth for 2013 tax year and fund it ASAP if you can. In the long run, that's going to be a heck of a lot more useful until you grow your income.

The 4.65% loan isn't a bad rate. I'd let the loans pay off on their schedule. Invest what you can, build cash savings for wedding. If a house is more than 5 years away, you can use a Roth ladder for some of the downpayment.

Rudem3

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Re: Need advice for future
« Reply #7 on: March 13, 2014, 07:30:19 AM »
Maybe something like this?

50 guests
$800 in church expenses (includes reserving the church, clergymen, musician(s), and flowers)
$1000 to rent out a place (something estate-like, something near the water, a hall, nice resturant, high-end country club?)
$1100 in food - all catered/made and set up for you
$1100 in alcohol (less if you get it in bulk yourself rather than a dining service)
$500 in gratuities/miscellaneous expenses

That would be $4500. I think I'm being pretty generous with these too; they COULD be lower.

I was thinking 5k being a good budget myself. I'm glad you and I think alike.

I'm sure you can make an awesome, wedding that people will remember for the rest of their lives for under $5,000 all said and done.

Re: wedding, Absolutely!  My wife and I paid $5000 total for our wedding (including the dress and tux rentals).

Some cost saving tips:
- Discount dress shopping
- Choose a color and rough style of bridesmaid dress.  Leave it up to them to find/buy it. (we chose black and not strapless since most women already have one)
- Friday night 7pm wedding, 7:30pm reception (a hard time slot for most wedding venues, so often available at reduced cost)
- Signature cocktail (free) + no open bar (allows you to source your own alcohol and avoid venue markup)
- Hors d'oeuvre's only (light food is cheaper than full course dinners)
- Adults only (the time slot kind of necessitates this, but also reduces the total attendance)
- Immediate family and best friends only (again, reduces the total attendance)
- Made our own decorations for the venue
- Networked for flowers on the cheap
- Ipod DJ

That was 5 years ago, and at least once a year since, someone mentions what a great, memorable wedding it was, and how different and fun. (and not just our parents :-)

I wouldn't sweat it.  And while we're on the subject...YMMV, but if you haven't proposed already, try giving her something sentimental as a placeholder for the ring, then let her pick it out with a price point you can both live with.  No need to drop 3mo salary and dig that hole as well.

Great ideas! I will definitely look into these. I actually did give her my mothers wedding ring as a pre engagement ring for Christmas. I still have my Grandmothers wedding rings as well for the actual engagement and wedding rings. So I don't need to spend any money on rings.

At your income level, open a Roth for 2013 tax year and fund it ASAP if you can. In the long run, that's going to be a heck of a lot more useful until you grow your income.

The 4.65% loan isn't a bad rate. I'd let the loans pay off on their schedule. Invest what you can, build cash savings for wedding. If a house is more than 5 years away, you can use a Roth ladder for some of the downpayment.

I have a 401k open and currently funding 6% while my company puts in ~4.5%. I'm not sure what a Roth ladder is but I will look into it. 

Sorry for the amount of questions forthcoming:

-Should I start adding 15% to my 401k and just make minimum payments on my loans?
-If I do have enough for a down payment on a home, say in 3-4 years, is it smart to buy a home while still having ~15k in student loan debt?
-Which is more important in the long run, saving enough to start investing (VTSMX, $3,000 minimum) or buying a home?
« Last Edit: March 13, 2014, 07:32:35 AM by Rudem3 »

mbl

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Re: Need advice for future
« Reply #8 on: March 13, 2014, 07:44:35 AM »
I have a 401k open and currently funding 6% while my company puts in ~4.5%.
Excellent and a good start to building your wealth.  You need to start looking at it from that perspective.
Cars, weddings, stuff have a long term cost to building toward your FI.   


Sorry for the amount of questions forthcoming:

-Should I start adding 15% to my 401k and just make minimum payments on my loans?
   I would most certainly make the minimum payments on your student loans which are cheap capital and the investment cost for your degree and hopefully employability

-If I do have enough for a down payment on a home, say in 3-4 years, is it smart to buy a home while still having ~15k in student loan debt?
that $15k will be less and yes, it does make sense.   Why would you want to pre-pay cheap money when you could invest that and have the greater potential for capital appreciation.    Within a few years of average market returns you might have enough to pay off the student loan if you wanted to AND have money for a down payment.  What is the opportunity cost of pre-paying such cheap money?

-Which is more important in the long run, saving enough to start investing (VTSMX, $3,000 minimum) or buying a home?
Personally I'd be much more concerned at your age with getting a good strong start investing.    I would say that for the most part a home is a cost center.  You always need a place to live so realizing an investment gain unless you leverage the value of it isn't something that might be realized for a long time or until you decide to buy another home with the proceeds.

Also, I'd ask why you'd want to even spend $5k on a wedding?  What percentage of your net worth is $5k going to be?   


I suggest that you take a step back and create a financial plan for yourself.
List all of your assets and liabilities.
What investment plan do you want to construct?
What are your life priorities?
How much of what you list as priorities involves mindless consumerism?


« Last Edit: March 13, 2014, 09:02:59 AM by mbl »

nereo

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Re: Need advice for future
« Reply #9 on: March 13, 2014, 07:49:18 AM »
I'm a noob and looking for some advice. Currently, I'm putting all my effort into paying off my student loans which are as follows:

$10,235 4.65%
$9,597   2.75%

Hi Rudem3

I'll echo a few things other posters have said.  I'm getting married this summer and the family dynamics have been interesting to say the least.  I've learned a few things, like the median wedding (including the rings, dress, etc) now exceeds $18k, but many of these weddings are also the same crowd the buy new expensive cars, carry lots of debt and are otherwise non-mustachian.
We are planning our wedding for $5k, and that's with about 75 guests with dinner.  It certainly can be done for much cheaper.

As for savings, your rates are low and you'd get tax advantages investing more in ROTH or 401(k).  I would not pay extra on the loans just now; instead put all extra money towards an IRA.  Invest it in a an index fund (I like the SP500 as a first-choice) starting with 2013 contributions (you can make them until April 15th).  When your pay increases you can apply more money towards paying down your 4.65% loan .

Regarding saving for the wedding; with 2-3 years you have time to save.  Make a goal of saving ~$25/week in a seperate savings account.  Don't invest it (too short a time line) but in 18 months you will have about $2k.  you can accelerate savings once the date and plans become more permanent. 

Rudem3

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Re: Need advice for future
« Reply #10 on: March 13, 2014, 08:45:10 PM »
I have a 401k open and currently funding 6% while my company puts in ~4.5%.
Excellent and a good start to building your wealth.  You need to start looking at it from that perspective.
Cars, weddings, stuff have a long term cost to building toward your FI.   


Sorry for the amount of questions forthcoming:

-Should I start adding 15% to my 401k and just make minimum payments on my loans?
   I would most certainly make the minimum payments on your student loans which are cheap capital and the investment cost for your degree and hopefully employability

-If I do have enough for a down payment on a home, say in 3-4 years, is it smart to buy a home while still having ~15k in student loan debt?
that $15k will be less and yes, it does make sense.   Why would you want to pre-pay cheap money when you could invest that and have the greater potential for capital appreciation.    Within a few years of average market returns you might have enough to pay off the student loan if you wanted to AND have money for a down payment.  What is the opportunity cost of pre-paying such cheap money?

-Which is more important in the long run, saving enough to start investing (VTSMX, $3,000 minimum) or buying a home?
Personally I'd be much more concerned at your age with getting a good strong start investing.    I would say that for the most part a home is a cost center.  You always need a place to live so realizing an investment gain unless you leverage the value of it isn't something that might be realized for a long time or until you decide to buy another home with the proceeds.

Also, I'd ask why you'd want to even spend $5k on a wedding?  What percentage of your net worth is $5k going to be?   


I suggest that you take a step back and create a financial plan for yourself.
List all of your assets and liabilities.
What investment plan do you want to construct?
What are your life priorities?
How much of what you list as priorities involves mindless consumerism?


Awesome. Thanks for the input.

Why pay 5k for a wedding? Basically because my girlfriend wants it. LOL. It's not my choice to pay that much for a wedding but 5k for a wedding now a days is not too bad I guess. I just wish it were $0!
I'm a noob and looking for some advice. Currently, I'm putting all my effort into paying off my student loans which are as follows:

$10,235 4.65%
$9,597   2.75%

Hi Rudem3

I'll echo a few things other posters have said.  I'm getting married this summer and the family dynamics have been interesting to say the least.  I've learned a few things, like the median wedding (including the rings, dress, etc) now exceeds $18k, but many of these weddings are also the same crowd the buy new expensive cars, carry lots of debt and are otherwise non-mustachian.
We are planning our wedding for $5k, and that's with about 75 guests with dinner.  It certainly can be done for much cheaper.

As for savings, your rates are low and you'd get tax advantages investing more in ROTH or 401(k).  I would not pay extra on the loans just now; instead put all extra money towards an IRA.  Invest it in a an index fund (I like the SP500 as a first-choice) starting with 2013 contributions (you can make them until April 15th).  When your pay increases you can apply more money towards paying down your 4.65% loan .

Regarding saving for the wedding; with 2-3 years you have time to save.  Make a goal of saving ~$25/week in a seperate savings account.  Don't invest it (too short a time line) but in 18 months you will have about $2k.  you can accelerate savings once the date and plans become more permanent. 

I really want to get involved with an index find but it sucks the minimum is 3k. I'll need to save for a few months then start rebuilding my liquid cash savings. But in the end it will (hopefully) be worth it, right?

I'm a person who likes clarification even if the info is crystal clear, just to be sure! My plan of attack is:

- Start making minimum payments on my remaining loans
- Start saving some liquid cash for wedding
- 15% in 401k
- Look into some sort of index fund.(VTSMX, S&P500?)
- Once wedding is over, save cash liquid for down payment

Is this the general idea?

gobius

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Re: Need advice for future
« Reply #11 on: March 14, 2014, 08:13:35 AM »

I really want to get involved with an index find but it sucks the minimum is 3k. I'll need to save for a few months then start rebuilding my liquid cash savings. But in the end it will (hopefully) be worth it, right?

I'm a person who likes clarification even if the info is crystal clear, just to be sure! My plan of attack is:

- Start making minimum payments on my remaining loans
- Start saving some liquid cash for wedding
- 15% in 401k
- Look into some sort of index fund.(VTSMX, S&P500?)
- Once wedding is over, save cash liquid for down payment

Is this the general idea?

I'm a relative noob as well so take this with a grain of salt:

As for the $3K minimum, you could buy ETFs that follow the same index.  Almost every Vanguard mutual fund has an ETF, usually at a lower expense ratio.  I don't think there is a minimum investment requirement.  I have a few ETFs such as the total REIT one.  The ETF for VTSMX is VTI.  The main difference, I believe, is that ETFs trade like stocks (hence the "exchange-traded" part), so the price changes throughout the day and the transaction happens immediately rather than at the end of the day.  I don't see issues with buying them but perhaps more sophisticated investors can chime in.

As for the plan, I think you have a good one.  Remember that you can deduct student loan interest on your taxes too.  I had a lot more student loan debt than you ($45K) and paid mine off ASAP, but looking back I probably should have been maxing my 401(k) since it lowers your tax base, especially since my interest rate slowly went from 7% to 3%.

One thing to consider is motivation.  I had a lot of motivation to pay off my loans, so I kept to a tight budget.  Had I decided to invest instead, would I have kept the same budget, or would I have been less disciplined?  I'd like to think I would have been just as disciplined, but at the time I was more debt-averse than I was interested in investments, so maybe not.  Since you're on these forums you may have the same budget no matter what, and if so, I would stick to the plan you wrote above.  It may not hurt to buy some REIT and bond index funds to keep your asset allocation more diversified.  I'd check out http://jlcollinsnh.com/stock-series/ as well if you haven't already.

nereo

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Re: Need advice for future
« Reply #12 on: March 14, 2014, 08:35:38 AM »

I really want to get involved with an index find but it sucks the minimum is 3k. I'll need to save for a few months then start rebuilding my liquid cash savings. But in the end it will (hopefully) be worth it, right?

I'm a person who likes clarification even if the info is crystal clear, just to be sure! My plan of attack is:

- Start making minimum payments on my remaining loans
- Start saving some liquid cash for wedding
- 15% in 401k
- Look into some sort of index fund.(VTSMX, S&P500?)
- Once wedding is over, save cash liquid for down payment

Is this the general idea?
Rudem3
You do not need $3,000 to start investing in an index fund, particularly if you are opening up an IRA. For example, to open a Vanguard IRA (or ROTH IRA) you only need $1k.  I would make this your first move if possible.
Otherwise:
- Start making minimum payments on my remaining loans Yes, provided you *save* the rest and don't spend it.
- Start saving some liquid cash for wedding Yes - and have several conversations with SO about how and why you think spending no more than XX$ is the best plan.  Mention FI and be sure to listen to what she says too.
- 15% in 401k I would invest enough to get any company match, but then use any additional money to fund an IRA until you max that our at $5500.  THEN increase your 401(k) contributions.
- Look into some sort of index fund.(VTSMX, S&P500?) yes.  Make sure the fees are very low (under 0.2%  I like the SP500 index from Vanguard.  Others like the total market index.  Both give you a lot of diversity and will be good picks for the long run, but both are subtly different
- Once wedding is over, save cash liquid for down payment Once the wedding is over, consider what makes the most sense to save for.  Owning is great for some people in some markets, and is a very bad idea for some people in other markets.  There's lots of advice here and elsewhere to help you with that decision. /color]

Cwadda

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Re: Need advice for future
« Reply #13 on: March 14, 2014, 09:39:37 AM »
Quote
I would invest enough to get any company match, but then use any additional money to fund an IRA until you max that our at $5500.  THEN increase your 401(k) contributions.
This makes sense to me, I completely agree.

Definitely read up on the jcolins stock series link that was posted above if you're interested in learning about investing. You can take advice from random strangers over an internet forum, but it goes a really long way becoming knowledgeable about investing and know exactly why you're making certain investment choices.