Hi, I'm a 25-year-old software developer who is going back to grad school to get a PhD in CS at Purdue (I will be starting May 1 as a research assistant to work early with my advisor on a computer graphics project). I think I've historically been a pretty frugal person (and guides like Mr Money Mustache's seem appealing to me). For the next few years I will be living on a PhD stipend, and while it will be meager, when considering my monthly expenses (and including yearly expenses, split up monthly) I will be just about breaking even.
Right now the one thing I've got going for me is that from the past couple years of working as a software developer (and living with the parents) I have about $55,000 in my credit union's savings account. I recognize that while I'm in school I will not be really having more income than what is needed to maintain. Therefore, a big priority for me is figuring out how to do something with that blob of saved money that benefits me more than just having it sit in an account with barely any return.
I recently got my first car (2008 Prius) used from CarMax, and am financing through my credit union. It is at $15,000 with 2.99% interest, for 48 months. One question I have: how quickly should I be paying this off? As I have $55,000 in my savings account, I imagine I could pay the whole thing off in one go (am I deluding myself by pretending that I have 55k with a 15k loan, when I truly have 40k?). On the other hand, I had also heard from my parents about the value of establishing credit by paying it back over time according to the standard payment schedule, or somewhat faster (maybe in 2-3 years instead of 4).
I also have a Schwab account, a SIMPLE IRA set up by my previous employer. I did the maximum matched contributions, and here is the information about it:
- Total Accounts Value: $5,844.60
- Total Cash & Cash Investments: $1,250.77
- Total Market Value: $4,593.83
- SWEGX (Schwab MarketTrack All Equity Portfolio Investor Shares): 11.25%
- SWBGX (SCHWAB MARKETTRACK BALANCED): 8.87%
- SWERX (SCHWAB TARGET 2040 FUND): 35.64%
- SWMRX (SCHWAB TARGET 2045 FUND): 12.75%
I had also purchased a few shares of FB, which was my (perhaps ill-advised?) gamble that their acquisition of Oculus and my belief in the growth of VR technology in the future would be a good long-term bet.
The simple fact of the matter is that I have no idea what I'm doing when it comes to investing. I look at phrases like "index funds" and "dividends" and my eyes start to glaze over. I've just been following the Schwab "Portfolio Performance" guides on what asset classes to get.
I've heard of the importance of maximizing contributions to an IRA each tax year. Could someone help explain what that means? For the single brokerage account I have (the SIMPLE IRA), do I put funds into that or do I open a new account with Schwab and put money into it? It just feels like there's a lot of terminology involved in finance that is impenetrable to me, and I don't really know how to get started getting my money to do something and start seeing good returns over time.
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Finally, a quick breakdown of my estimated monthly expenses. Please let me know if you see areas where I'm being foolish:
- estimated income (after taxes) for stipend: $1790
- apartment rent: -$531
- renter's insurance: -$23
- water utilities: -$45 (estimated)
- electric utilities: -$125 (estimated)
- campus parking permit (yearly, shown here as monthly expense) : -$11
- internet: -$40
- groceries: -$150
- medical insurance (through university, yearly, shown here as monthly expense): -$50
- car insurance: -$84
- gas for car: -$92 (estimated from edmunds)
- car taxes/fees: -$75 (estimated from edmunds)
- car payments: -$353
- car maintenance: -$38 (estimated from edmunds)
- car repairs: -$27 (estimated from edmunds)
- phone bill / data plan: -$30
- university fees (reduced because I'm funded, yearly, shown here as monthly expense): -$67
- surplus per month: $49
If I pay off my car completely, I could say that I'm getting a surplus of $400/month. Is it sensible to do so, or should I pay it off more slowly given that I have an existing buffer in my savings account?