Author Topic: Where To Go: Questions about using my money!!  (Read 3535 times)

mbump11

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Where To Go: Questions about using my money!!
« on: March 06, 2013, 04:05:09 PM »
Hello all.

I'm writing today as a male 22-year old college graduate (BBA, Finance), currently employed at a Fortune 500 company (PTL I landed a job).

I have some questions about my financial picture, and where I should go from where I am.

Background:

~$23K in physical/liquid assets (includes $5k "emergency fund" @ Ally earning .90%, $2k in 401k where I'm contributing as much as I can right now)
~$22K in student loans with an average APR of 5.85% (required pmts of $250/mo, but I am trying to attack it as aggressively as I think I can by paying $300/mo instead)
~Current salary of $45K
~Monthly expenses are as follows: Rent - $1200/mo, Insurance - $140/mo, Bills (total - including credit card of gas/groceries) ~ $600/mo, Loan repay - $300/mo. Total = ~$2100-2200/mo
~NO CREDIT CARD DEBT...I don't carry balances (use it only for groceries and gas and pay it off each month when due)
~serious girlfriend, but not getting married for a while (but, saving for a ring...which I would love to not have to take out a loan for at the time I buy it)

I want to get invested in a small account just to get it rolling for the future (maybe a Betterment ETF?), but I know I need to get rid of the student loans ASAP. Should I take some out of my Ally account and pay off a couple of the individual loans/take out $1k and open the investment acct then pay down loans? I managed to save that amount I have since I started working last July, so I'm kind of impressed with myself, but also know I could do better.

Help! Any suggestions are welcome.

Thanks in advance!

Crash87

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Re: Where To Go: Questions about using my money!!
« Reply #1 on: March 06, 2013, 04:19:29 PM »
If your job is fairly stable and you have no unusual issues, like bad health or something, that could drain you financially I would recommend a 3 month living expense emergency fund. Pay down the debt as fast as you can! I wouldn't worry about investing beyond making sure your get the employer matching contributions (free money!), if you have any.

If you look around this website you'll find tons of little tips on saving money. Cut cable for Netflix, ride a bike, etc...

If moving to a cheaper apartment and/or closer to work is possible I would look into it. Or maybe roommates?

MsSindy

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Re: Where To Go: Questions about using my money!!
« Reply #2 on: March 06, 2013, 06:03:07 PM »
I agree with Crash87, don't worry about investing, pay off those student loans!!  It makes sense on paper given the interest rate, and it makes sense from an emotional perspective to be rid of that debt.  You need to figure out how to pay more than $300/mo, at that rate it is going to take you f.o.r.e.v.e.r!  The rent definitely jumps out as being really high - consider a roommate, even if it's just for 1 year - that would be a lot of extra money for not having to do anything.  Then, if you got a part time job, you could throw more money at it, combined with a little of that liquid cash and you could have that debt paid off in no time!  Or you can be comfortable (no extra work, no sharing an apt) and just keep plodding along.

If you want a different outcome than you have, you have to change something.  Remember, anything "extra" you do now may cause you some short-term discomfort but it's not forever, and it will set you up long term to be way ahead of the game.

Investing is fun, paying off debt isn't.  But sometimes you have to do your chores before you can go out and play!

FrugalToque

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Re: Where To Go: Questions about using my money!!
« Reply #3 on: March 07, 2013, 06:40:36 AM »
That Ally account, earning .9%, sounds like an awful in which none of your money should spend its time.

The idea of an low interest emergency fund, when you have loans at 5.85%, is automatically ridiculous.  Have a line of credit standing by, but I can't see how having 23k in student debts, 5k in an emergency fund and no job is in any better than 18k in student debts, no emergency fund and no job.

If you had a proper investment account, returning you an average of 7% via a stock index fund, that would be a different story.  That would be an okay place to have an "emergency fund".  But even then, the fluctuations of the index fund vs the guaranteed 5.85% would make paying off the student loan the safer bet.

The only reason you wouldn't plow everything at that student loan is if
a) your employer kicked in some percentage on every dollar you saved in your 401k
b) you are in such a high tax bracket that it makes more sense to get the tax deduction than pay off the loan

Meanwhile, you're learning to live off a fraction of your income, which is great!  Congrats on maintaining your college-level frugality!

Also, rent/borrow "Blood Diamond".  It's a movie where Leonardo DiCaprio teaches us that diamonds are evil.  Might save you a lot of money that can be better used on a down payment for a house (if that's where you're headed).

Self-employed-swami

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Re: Where To Go: Questions about using my money!!
« Reply #4 on: March 07, 2013, 06:55:15 AM »
I have diamonds in my wedding ring, and they are Canadian polar diamonds, so they aren't from Seirra Leone.

mbump11

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Re: Where To Go: Questions about using my money!!
« Reply #5 on: March 07, 2013, 08:41:44 AM »
That Ally account, earning .9%, sounds like an awful in which none of your money should spend its time.

The idea of an low interest emergency fund, when you have loans at 5.85%, is automatically ridiculous.  Have a line of credit standing by, but I can't see how having 23k in student debts, 5k in an emergency fund and no job is in any better than 18k in student debts, no emergency fund and no job.

If you had a proper investment account, returning you an average of 7% via a stock index fund, that would be a different story.  That would be an okay place to have an "emergency fund".  But even then, the fluctuations of the index fund vs the guaranteed 5.85% would make paying off the student loan the safer bet.

The only reason you wouldn't plow everything at that student loan is if
a) your employer kicked in some percentage on every dollar you saved in your 401k
b) you are in such a high tax bracket that it makes more sense to get the tax deduction than pay off the loan

Meanwhile, you're learning to live off a fraction of your income, which is great!  Congrats on maintaining your college-level frugality!

Also, rent/borrow "Blood Diamond".  It's a movie where Leonardo DiCaprio teaches us that diamonds are evil.  Might save you a lot of money that can be better used on a down payment for a house (if that's where you're headed).

FrugalToque -- I agree that the Ally account is a bit ridiculous. However, it's the most liquid/highest rate I could find outside of risking it in an investment account. Trust me, I've done my research...plus getting a degree in Finance has set me up very well for understanding this junk. At the end of the day, though, Earning <1% on ANY amount of money is terrible. Literally earning pennies...

Anyway, I am debating pulling $2K to drop one of the mini-loans (with one of the higher rates) off of my back (the $22K of loans are really a few individual ones), but I am concerned with keeping a little bit of a balance just so I can make sure I have a small reserve of moolah in case anything happens.

The main reason I posted here is because I have ideas of what I'd like to do with the money to pay down debt/invest, but I am not certain if my ideas match up with real-world success. I just want to get rid of these loan debts!!!

Thanks for the props on living on a fraction of my income...I'm too savings minded to blow it all, plus I understand the power of compound interest and how it works FOR me...which motivates me even more to get the "crap" off and the "gold" on if you get what I'm saying!

And to the Leo comment...great movie...but my birthstone is Diamond, and my sweet girl will one day have a diamond on her finger...BUT AFTER I GET THIS DEBT PAID OFF, haha!

I digress -- will that first "nudge" of $2k to drop one loan off be a good step?

FrugalToque

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Re: Where To Go: Questions about using my money!!
« Reply #6 on: March 07, 2013, 09:10:09 AM »
Ah, well, I had to get in my anti-diamond dig.  Learn from my errors, grasshopper!  :-)

Your goal, obviously, is to target the highest interest loan with any extra money you have.  If you really need that emergency fund for peace of mind, I guess that's your thing, but it's really sad to see a 5% interest disparity when you're just starting out.

Are you sure your employer (Fortune 500 after all) doesn't kick in on your self-directed pension plans?  Even if it's 25 cents on the dollar, you've got to max that out (assuming it causes no trouble for your credit rating, what with your loans and all).

Real world success?  I can't tell you that, because your real world may be different from mine.  In Canada, we have tax-free savings accounts in which we can a) put a good amount of emergency money and b) get stock index funds through.  So your Ally account might not have an equivalent.

Even I'm not completely rational.  Mrs. Toque and I are paying off our < 4% mortgage with every spare dollar we have instead of putting money into potentially 7% RRSPs.  To each his own.

What matters?  Pay off your highest interest loans first - even if you have "small loans" at lower interest rates.  Keep that emergency account as low as you are comfortable with while you're doing it, presuming that your job is fairly reliable and will at least give you a bit of severance if things go sour.

Good luck.

mbump11

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Re: Where To Go: Questions about using my money!!
« Reply #7 on: March 07, 2013, 09:18:17 AM »
Ah, well, I had to get in my anti-diamond dig.  Learn from my errors, grasshopper!  :-)

Your goal, obviously, is to target the highest interest loan with any extra money you have.  If you really need that emergency fund for peace of mind, I guess that's your thing, but it's really sad to see a 5% interest disparity when you're just starting out.

Are you sure your employer (Fortune 500 after all) doesn't kick in on your self-directed pension plans?  Even if it's 25 cents on the dollar, you've got to max that out (assuming it causes no trouble for your credit rating, what with your loans and all).

Real world success?  I can't tell you that, because your real world may be different from mine.  In Canada, we have tax-free savings accounts in which we can a) put a good amount of emergency money and b) get stock index funds through.  So your Ally account might not have an equivalent.

Even I'm not completely rational.  Mrs. Toque and I are paying off our < 4% mortgage with every spare dollar we have instead of putting money into potentially 7% RRSPs.  To each his own.

What matters?  Pay off your highest interest loans first - even if you have "small loans" at lower interest rates.  Keep that emergency account as low as you are comfortable with while you're doing it, presuming that your job is fairly reliable and will at least give you a bit of severance if things go sour.

Good luck.

My company definitely matches 401k contribution, and that is in full effect up to the amount which they will match. I'm not quite maxed out on MY contributions, yet, but that's because I have to have some income to live on still! ;)

My credit rating is absolutely solid, thanks to my parents teaching me the art of using the card (which I explained in the original post). I have an exceptionally sized line of credit if I need it, but I don't anticipate needing it. I'd rather be frugal and pay off debt rather than pay off the max while incurring more debt on a credit card.

Thanks for the advice, I am more comfortable getting a certain 5%+ "return" by paying down the debt. Starting that process today, and then I will build up from there! Woo!