Author Topic: Upcoming college grad, needs advice  (Read 3319 times)

StashthatCash

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Upcoming college grad, needs advice
« on: April 15, 2014, 07:13:00 AM »
Hello MMM community,

I have only been reading this blog for the last 6 weeks or so but am obsessed with it.  I am starting my new job after I graduate in one month and along with that I get a $2,500 after taxes signing bonus.  I also received $3,100 for my tax refunds (being a student really helps get money back).  So in total I consider that I got $5,600 in extra money this year.  My question is, should I take that $5,600 and start a Vanguard Index Fund account or put that towards my $11,182 in student loans?  Also if the Vanguard Index Fund is the right choice what accounts would you recommend?  I have been researching the VFINX per MMM advice in one of his early blog posts.

nereo

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Re: Upcoming college grad, needs advice
« Reply #1 on: April 15, 2014, 07:39:46 AM »
Hello and welcome StashthatCash

What are your rates in SL?  When will they come out of deferment?
Generally, if your SL are anywhere near the 6-6.8% I'd recommend paying them down as quickly as you can.  Since you have a new job (hopefully with decent pay) throwing money at your loans would be a good strategy.
BUT, I'd also balance that with funding an IRA each and every year.  For 2014 you can contribute $5500.  So in conjunction with your job make sure that you are contributing to your IRA, and your 401(k) if available.

Finally, make sure you have at least a few thousand$ in reserve in case this job goes south (company bankrupts, boss doesn't work out, etc).

More details will help us help you more.

samburger

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Re: Upcoming college grad, needs advice
« Reply #2 on: April 15, 2014, 10:42:36 AM »
Finally, make sure you have at least a few thousand$ in reserve in case this job goes south (company bankrupts, boss doesn't work out, etc).

This. Do you have an emergency fund yet? If not, that $5,600 is your emergency fund. You should always have cash on hand when you're going into a new job.

StashthatCash

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Re: Upcoming college grad, needs advice
« Reply #3 on: April 15, 2014, 10:53:24 AM »
My current emergency fund was only based off of my college living so it is at $1,500 right now.  With moving closer to my new job (salary of $50,000 a year)  my rent is $775 per month, so I guess it is just shy of 2 months rent.  I also am moving close enough that I can easily bike to work and it is also located within 5 miles of a grocery store which is also easily bikeable.  My current student loan is at 6.2%.  Also myy employer matches 100% of the first 4% for 401K and 50% of the next 2%.  Any other information anyone needs for advice just let me know, I am an open book.  Thank you

TrulyStashin

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Re: Upcoming college grad, needs advice
« Reply #4 on: April 15, 2014, 11:16:09 AM »
So long as you have credit available to you, I disagree with the advice to keep several thousand in an emergency fund, here's why:  http://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/

And, given the interest rate on your loans, you're unlikely to get a better return if you pay off your SL's rather than invest -- paying off your SL gives you a guaranteed 6.2% return.  It's not clear whether you have one student loan with a balance of $11,182 at 6.2% or several loans with a cumulative balance of $11,182.

Check into whether your student loan(s) is accruing interest right now -- I bet it is, or if you have more than one loan some of them are, even though they're in deferment.   If they are, then put 100% of your "extra" money toward whatever loans are accruing interest.  If there is any "extra" money left over, then stash it until your deferment period is over.  The minute interest starts accruing, use it to pay off the SL's.

Get that monkey off your back ASAP. 

TrulyStashin

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Re: Upcoming college grad, needs advice
« Reply #5 on: April 15, 2014, 11:19:47 AM »
I seem to be grammar-challenged today.  Paying off your loan gives you a guaranteed return of 6.2% which is pretty good and the security of being debt-free.  A savings account can't beat that and the market might not beat it either.

LibrarIan

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Re: Upcoming college grad, needs advice
« Reply #6 on: April 16, 2014, 07:56:39 AM »
I'm extremely debt averse, so if this were me I'd put all that money toward the student loans. I understand though that depending on the interest rate there could be better options.

5inatrailer

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Re: Upcoming college grad, needs advice
« Reply #7 on: April 16, 2014, 08:30:00 AM »
Both are excellent decisions future grad.  Well done.

Pretending both options give you the same rate of return, which would bring you more satisfaction?

For myself, I would get more personal satisfaction from paying off the debt, also it helps by not becoming comfortable with having unnecessary debt (your loan was necessary to go through school. now it is not)

Good luck, congrats on the new job.

samburger

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Re: Upcoming college grad, needs advice
« Reply #8 on: April 16, 2014, 08:45:17 AM »
My current emergency fund was only based off of my college living so it is at $1,500 right now.  With moving closer to my new job (salary of $50,000 a year)  my rent is $775 per month, so I guess it is just shy of 2 months rent.  I also am moving close enough that I can easily bike to work and it is also located within 5 miles of a grocery store which is also easily bikeable.  My current student loan is at 6.2%.  Also myy employer matches 100% of the first 4% for 401K and 50% of the next 2%.  Any other information anyone needs for advice just let me know, I am an open book.  Thank you

At 6.2%, pay that sucker off.

If you don't have several thousand dollars in credit available to you, stick an extra $1,500 (or whatever feels good to you) in your emergency fund and get yourself some credit. Use the rest to pummel that debt.

With your salary, you should be able to kill that student loan quickly, even if you don't use this pot of money for debt repayment.