New grad struggling to get started off on the right foot

[vetmedbf]

I'm a 25 y/o and recently got a job that starts in January. I discovered MMM recently and have been lurking and learning as much as I can. Now that I know how much I'll be making I'm trying to come up with what I should be doing with my earnings and I'm overwhelmed as I have a number of different things going on.

I have around 12.5k in student loans and 10.5k in CC debt (first thing I'm taking care of via avalanche method). I've decided to live at my parents' for at least the first 6 months so I can keep costs low and pay off my debts as fast as possible. My parents are also letting me use a car for a couple of months, but I will need to get one of my own sooner rather than later. It's a '98 Wrangler (17mpg) and a 18.5 mi commute each way = costly, plus my parents would use it if I wasn't so I don't want to take advantage of them.

The last piece is that I will be getting engaged next year to someone who has around 250k in vet school debt. And the huge debt is what I'm having a hard time wrapping my head around what to do with. She graduates in May 2014 and begins a year long internship making probably <$35k. May 2015 or so she starts working as a vet hopefully making around 65-70k. I was thinking the best course of action was for both of us to live off my salary and put her entire salary into her loans. Not sure if there's a better plan. I don't know how much her costs will be once she graduates and begins the internship. She will be living at a different location than me during that year. Any money being split would happen after we got engaged.

I've tried to list out a detailed account of everything below.

Job

• $73,000 salary
• $3000 starting bonus
• 1 to 1 match up to 3% Simple IRA

According to online net salary calculator after tax, medical and 3% IRA contribution I'll have: $3800 per month ($45,600 per year)

Personal Debt

• $2600 22.99%
• $8000 10.99%
• $7000 6.8%
• $5500 3.4%

Sig Other Debt

• $60,450 7.9%
• $155,916 6.8%
• $12,134 6.41%
• $20,516 5.41%

Upcoming Costs (starting January)

• $200-250 monthly gas (estimated) 17mpg, 18.5 one way commute. Not really taking into account other travel.
• $100 monthly food (chip in towards parents)
• Car - not sure how much to spend/finance, thinking a sedan/hatchback with good mpg, would be nice for it to be "fun" (mazda3 or similar for example), but not an absolute requirement. Need no later than May-April 2014, but may be more cost effective sooner considering mpg.
• Auto insurance - on the purchased car only
• Engagement ring
• Sig other living expense (May)

So with all that, I'm just not sure how to allocate what money where and how much to save (emergency fund, car, retirement, invest) and for what vs put towards loans. And I don't want to make a mistake when we have this amount of debt. Also being as it will take 8-9 years (if paid aggressively with her total salary going towards them) from when I start working for us to pay off the debt, where should I be putting my salary? If I put everything remaining from my salary after both of our living expenses into loans as well, neither one of us would be putting it into 401ks or retirement, compound interest, etc. And that feels like a bad move. I basically wouldn't have started saving until I'm 35 which everyone seems to say is a terrible idea. Not to mention it'd be nice to actually live a little and have fun, maybe travel before we have kids in our 30s.

Thanks for your help, sorry for the length! Any questions or clarifications let me know!

[mowgil]

EDIT-adding to my initial comments since i didn't address everything originally.

Here is my advice.
The 3k signing bonus should go directly to the high interest debt. Your entire pay check after basic expenses should go to the debt. At the bare minimum you should knock all the CC debt out, then begin the higher interest student loan. As long as you can use your parents car i would. I wouldn't even consider buying any car until the CC debt is gone, and likely 6.8% the student loan debt. Then i would entertain the thought of a 10-20 year old commuter car that has better mpg.

Once you have tackled all your debt (with the possible 3.8% debt), you can turn your attention to the longer term. Once you get married (or possibly before) you will presumably want to move out from your parents house. You should take the time to optimize where you live to minimize both your commutes, aka possibly walking distance for at least 1 of you (or biking). Its totally reasonable for you to live more than comfortably on less than her salary, and have 70K or so a year to pour into paying off debt and or investing in your future.

With regards to retirement, i think paying down the 7.9 & 6.8 percent interest debt is a solid return on investment. I would still put enough into a 401k to get any matching your company offers (and her too) but beyond that i would focus on the debt.

With regards to the ring, that is a value choice for you to make, but i personally think that spending (much) money on a ring at this point in your life is a poor financial decision.

Hope this gives you an idea of where to get started.
Best of Luck!

[ASquared]

Please hold off on buying a car until you take care of some of your high interest debt and save enough CASH to purchase the car :) This is the best thing you could do to get off on the right foot - which is what you are asking.

[tracipam]

Join the party; I just graduated and started my first job about a year ago.  It's fun to make money.  :-)  I agree with the others--spend a few months throwing everything you can at your debts and getting enough cash for an (economical) car/apartment. 

The best thing about being where you are right now is that you don't have to 'downsize'--I think my biggest helper towards eventual FI is that I decided BEFORE I finished school that I was perfectly happy living 'like a graduate student' forever, as long as I don't have to work forever.  Keeping my graduate student furniture, basic cell phone, driving a toyota and shopping at goodwill were habits I consciously decided not to change. Thinking about your desired lifestyle right now--as you are--is great.  I 'hide' my money from myself--in my case, we get 26 paychecks a year and my allowance is to spend one a month on all of my needs/wants--which almost exactly matches my previous once-a-month graduate student stipend in amount and frequency.  The rest I quickly shunt away--first to my loans, now to retirement savings.  With your costs being even lower right now thanks to your family, you have an even better opportunity for a few months.  Use i!  Even if you don't want to live quite at graduate-student level forever, it might be a great idea to do it for a couple of years to knock out as much as you can. 

In your case, I think you can pretty easily knock out all of your debts pretty fast and get yourself sorted, possibly by around the time your fiance graduates.  In the meantime, you two should start talking about priorities.  I agree that not saving for retirement is a bad idea--I would probably start making at least the company match as soon as you pay off your own debts.  Are there any options for your fiance to work in a way that would allow for partial payback on her loans?  Such things are often options for teachers/doctors, and maybe for her too.  Otherwise, are there ways for her and/or you to do side jobs in addition to your jobs?  Maybe in addition to her day job she could have an evening/weekend practice on her own?  I agree that you two, if you optimize apartment/job/etc well, can probably not only throw her entire salary at loans, but also put part of your salary into retirement savings AND have extra of your salary to put towards loans, too.  And have a great life on top of that! 

If the two of you together are grossing something near $140K you should manage to throw quite a bit at her debt yearly, save for retirement, and still have a decent (MMM-style) life.  While in school making ~20K I still gave myself a $100/mo allowance for travel which was equal to several flights a year to see family as well as to amazing places--Dominican Republic, Costa Rica, etc--as long as I shopped around and was willing to travel on a shoestring, which happens to be my favorite way to travel anyway.  I've actually cut my other costs since then, so I've generously increased my vacation allowance to $200/month now, which (for me) is so much that my allowed time off from work is more of a constraint than my travel budget.  I think you'll be pleasantly surprised when the paychecks start rolling in, as long as you throw them towards things that are important to you (getting out of debt, retirement, and things that matter) and not consumer-things that don't.  It goes a long way! 

Have fun!

[stevewisc]

"250k in vet school debt. And the huge debt is what I'm having a hard time wrapping my head around what to do with. She graduates in May 2014 and begins a year long internship making probably <$35k. May 2015 or so she starts working as a vet hopefully making around 65-70k."

Oh crap!!

Waiting until 35 to begin saving is a bad idea but keeping 7% interest debt seems far worse.  I would  throw every penny possible at that dang thing.  The only exception might be for retirement matching funds but that will be a small enough chunk that it probably won't make a material difference one way or another. 

I wouldn't raise your standard of living very fast or it will take far longer.   It would be interesting to hear what she thinks of that career path four and ten years from now. 

Best of luck!

[the fixer]

After you start the job, you might want to consider looking for balance transfer options for those credit cards. The best would be the 0% interest for a year type deals, but I'm not sure if you'll qualify with your credit. If you do, any debt you're certain to pay off within a year should get transferred over.

I agree with those above about the starting bonus. That should go straight to the 23% credit card debt. After taxes it probably won't pay off the whole thing, but within one paycheck it should be gone. Then, using some scissors and a lighter, you can probably turn that credit card into an engagement ring :)

Focus on the credit cards, and make minimum payments on student loans. At least you can deduct student loan interest from your taxes.

Make a deal with yourself, your SO, and your parents about a financial benchmark for when you're going to move out of their house. My suggestion is after you get all the credit card debt paid off, plus you've accumulated an emergency fund of 3 months' expenses. It's up to you, but consider offering to pay at least a little bit of "rent" to your parents in the mean time, even if it's just $100/month. Start looking at apartments or other cheap housing close enough to your job to bike there. When it's time to move out, if you were successful at finding a closeby place, try going without a car.

[Bikes in a dress]

One suggestion about the engagement ring.  I learned after my first marriage collapsed that engagement rings, particularly diamonds, are not worth anything closed to their retail value.  This blog has a long post on the subject: http://blog.priceonomics.com/post/45768546804/diamonds-are-bullshit.

However, the plus side of this is that you can get used engagement rings on ebay for much cheaper than retail.  I sold my "I" (read: shitty) class diamond on ebay for about $175.  My ex bought it for about $450 when the jewelry store was going out of business, and the insurance "appraisal" was for $1000.  Note: the insurance appraisals are a scam. The idea is that if the diamond ever gets stolen from the retailer, the retailer makes out like bandits.  If not, they can point to the high appraisal when they sell you the thing to say you are getting a "deal."  You are not.

But that gives you an idea of how much cheaper you can get a ring for on the used market.  Many of the ones on ebay come with valid authentication certificates.  Plus you can avoid the ethical problems with buying new diamonds.  If you can avoid diamonds altogether, you can lower the cost, but I wouldn't mess with that if your lady is set on a diamond.

[Peony]

One suggestion about the engagement ring.  I learned after my first marriage collapsed that engagement rings, particularly diamonds, are not worth anything closed to their retail value.  This blog has a long post on the subject: http://blog.priceonomics.com/post/45768546804/diamonds-are-bullshit.

Wow, I just followed that link and that is a fascinating article. @Vetmedbf, I hope you can get your fiancee to read it and maybe the two of you can get creative on the engagement ring front. If she's not too much of a modernist one other idea might be to find a pretty ring among the "estate" jewelry at a reputable jeweler.

Good luck with your planning. That's a lot of student loan debt but it sounds do-able on your salaries.

[vetmedbf]

Sorry for the delay in responding, had some things come up. Just wanted to say thanks to everyone for their input and advice. Looking forward to starting my job so I can put it to use.

[Mayan]

Congrats on surviving vet school and on the upcoming first job!  I agree with pretty much all of the above advice, and have a few additional thoughts.  First, I'm assuming the 6.8% interest loans are Staffords - check how much of that is subsidized, as you won't owe interest on the subsidized portion for 6 months after graduation.  Those can go to the bottom of the priority list until repayment kicks in.  Second, in your position I would just contribute to the match for now.  Saving aggressively for retirement at an early age is great, but it just can't keep up with the amount of high interest debt you and your fiance carry.

 Third, I understand this is not your decision, but is your fiance absolutely 100% dead set on doing an internship?  I understand wanting that year of supervised/mentored experience, but financially it doesn't make sense unless you plan to do a residency in a higher paying specialty.  The $30-50,000 in income she'll sacrifice as an intern vs an associate could make a big dent in those student loans.  Finally, if you want to get even more aggressive about paying down the debt, this is a profession that has plenty of opportunities for side-income (if your contract permits and you have enough time outside your regular job).  Overnight shifts at the e-clinic, weekend vaccine clinics, and some shelter spay/neuter days can all be a source of additional income depending on where you are.  Of course, you'll want to get comfortable in your job first, but it may be a viable option down the road. 

[dude]

OMFG -- $250K for vet school?!!!!  Is that $65-70K a starting salary (after the $35K first year), or an average vet salary (i.e., what's the high end she can expect?)?  That is an INSANE amount of student loan debt and will take a lifetime to pay off unless you guys are ridiculously frugal (like, if you make MMM look like a rank amateur).  What's the interest rate on those loans?

Sorry, but I am just astounded at that figure.  I don't know if the federal government hires veterenarians (sp?), but she should find out if they do, so she can qualify for the 10-year loan forgiveness program.  That might be her only hope of paying those loans off before she dies.

[Megatron]

@Dude, 70-80k / year, yea, that's about what a starting veterinarian makes, in the midwest US at least. Although you could make 6 figures if you were in New York or California or somewhere with a higher cost of living. My fiancee is also a vet and makes around that. and yea, that 250k student loan sounds about right. It's basically a doctorate in medicine without the high paying salary. she jokes that whatever difference between her salary and a doctor's she gets it back in puppy licks.

My only advice would be to stay with mom and dad as long as you can. payoff those 20k in your loans asap and save whatever you can to put towards a better mpg used car. or another alternative would be to find an apartment with roommates within walking/biking distant from your work after the loan is payoff. I did option 2 a few years ago when I graduated. but I still drove the 3 miles to work because I haven't found MMM yet. : (

as for your fiancee with the looming 250k debt, I don't have much advice other than try to pay if off asap. we were lucky, my fiancee's grandparents were generous and set up a trust fund for all her schooling.

good luck!