Author Topic: Soon to graduate 22 year old  (Read 3594 times)

gene parmesan

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Soon to graduate 22 year old
« on: March 23, 2013, 11:35:23 AM »
Hey Everyone!

I have been reading the blog and working to become more mustachian for about a year now it has really changed my thoughts on money (I was always pretty frugal).

So anyways, I just secured a decent paying job really close to my house.

Income: about 2800/mo after taxes and money taken out for the maximum match for my 401k.
Current savings: about $2k

debt: student loans of 29.5k.
8500 @4%
4000 @6.8%
16500 @3.4-5% (interest is 0% until december)

I will be living at home, paying 300/mo in rent and I will be biking to work everyday (it's only 2 miles to my house). Food costs are about $150/mo (I don't go out to eat much at all and cook at home). I will be car free at least at the beginning. Other costs are pretty low but I'd factor in maybe $200/mo for other.

I am trying to get some advice on starting my road to accumulating wealth. My current plan is to, as quick as possible, pay down the 6.8% interest student loan. Next, I'm not really sure what I should do. I really want to get out of this debt emergency, but, a lot of the student loans are at 3.4%, which is somewhat low. Should I fund my roth ira? Should I build up slightly more of an emergency fun? Also, I'd like to move out of my house soon and rent should be around $600/mo.

Any advice to someone just starting out on his financial journey?

tkirk62

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Re: Soon to graduate 22 year old
« Reply #1 on: March 23, 2013, 12:05:50 PM »
AHHH, GENE! I love the the name. He was far from the best.

Looking at it, I think you're right in paying off the 6.8% debt, then personally I would at least pay off the $8000 debt, if only to get it down to a single debt, and it is accumulating interest. After that you have $2150 per month to play with. As long as you are living at home an emergency fund isn't necessary. I might split that up $1000 to the debt, $800 to your ER/FI fund (I'm Canadian so not sure what the roth ira is), and the $350 to savings toward either an emergency fund, or a car if it's a goal of yours, maybe even towards a down payment on a house if that is a goal of yours too. That bit I would use as something towards savings but saving towards something fun to keep you motivated.

Another Reader

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Re: Soon to graduate 22 year old
« Reply #2 on: March 23, 2013, 01:44:08 PM »
You have a wonderful opportunity, thanks to the generosity of your folks, to accumulate a little over $19k over the remainder of 2013.  In your shoes, I would take advantage of that as long as you are welcome.  I would pay off the $12,500 in those two student loans and fund the 2013 IRA.  Once I had those things done and I was confident the job was working out, I would start thinking about moving out on my own.  I would probably make that my goal for the first half of 2014.

the fixer

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Re: Soon to graduate 22 year old
« Reply #3 on: March 23, 2013, 02:41:43 PM »
My advice is to implement the plan you already proposed: pay down the 6.8% loan as fast as possible. You already have about three months' basic expenses in savings, but you should add three months' loan payments to that after you've paid down the 6.8% one. After you've done all that, you're good to put the rest into retirement/stocks which should outpace your loan interest. The earlier you start investing, the wealthier you'll end up and you'll appreciate it if you get burned out from your career after 10-15 years of it; trust me ;) If I were to go back to when I was 22 I'd be dumping money into the market like mad.

When you're ready to move out, just make sure you beef up that emergency fund a bit to account for increased rent.

I personally don't think a large cash fund is needed anymore once you have enough investments. So about $1500 in bonds or $5000 in well-diversified stock to me is worth $1000 in a savings account for dealing with an unknown, unplanned event. With that rule you can move your emergency fund into investments as they grow and get more overall return.

gene parmesan

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Re: Soon to graduate 22 year old
« Reply #4 on: March 24, 2013, 11:12:53 PM »
Thanks everyone for the great advice! I am really hoping to pay off at least the 8k and 4k loans. I think then (and after funding the Roth IRA), I'll work on saving for a used car. I'll definitely have to do a lot more research on that front. My not so mustachian parents told me to finance a new car (definitely not doing that), but it'll probably take a long time to save up enough money.

Dianas Report

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Re: Soon to graduate 22 year old
« Reply #5 on: March 25, 2013, 01:44:15 AM »
Hi Gene, your on the road to accumulating wealth, WAY TO GO!

If I could reverse time and in your situation, I would:

- pay off student debt ASAP
- ask parents to lower rent so you can pay off debt first
- Invest into a Vanguard Roth IRA Like a Target Fund (minimum is $1,000 for Star, most other are $3,000 min. investment)
- Save for a good used car, original paint, one owner (check private sellers before carmax) with high resale value like Toyota, etc.

I actually made a video inspired by my teenage niece which you may find helpful: http://www.youtube.com/watch?v=JWKaf7QLCAs&feature=share&list=PL0b5dk2EUedBW6HPaF-Se4Qjg3H9jv4x0

blueeyetea

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Re: Soon to graduate 22 year old
« Reply #6 on: March 25, 2013, 12:23:17 PM »
- ask parents to lower rent so you can pay off debt first

I would advise against this.  Get used to pay rent  because it's one of the best lessons a parent can teach their kids, since they're not getting used to having all their disposal income at their disposal, even if it is to pay down debt.   

If Gene is lucky, his parents are socking his rent money and they'll give it back to him later when he needs it more.