Trying to figure out the best way to manage my money

[NikolaeVarius]

I've been trying to figure out how I should be properly managing my money.

I have a half years money in a checking account that will never go below a certain minimum.

So basically I've been researching the best way to invest my money. I could start moving money into savings, however, I do have a fairly large amount of student loads (Almost 30k at a 7% interest rate).

I currently pay about 600 bucks a month toward it, and I was thinking instead of putting anything toward savings I could double that and bump it up to 1200 a month. I've been thinking this would be a good move because a savings account has pretty negligible interest compared to my student loan interest, and I think that paying my loads off within the 3-4 years would definitely put me in a much better financial position.

I was also considering putting money into my 40k1 instead of my student loans, but my employer has HORRIBLE 40k1 matching, so I might just put as much as my employer will match but not more.

I don't have any other sources of debt, and don't intend on taking any more for the short term.

So would it be best to simply pay off my student loans as fast as possible, and not really going far above my 6 month living money + a bit of emergency money, or should I continue paying the minimum rate and start pumping money into my 401k/savings/cd and pad my checking account a bit more?

Thanks for the help.

 

[velillen]

What i would do....

-6 month emergency fund in a safe investment (cd's, i bonds, ect)
- Do 401k to get full employer matching
- Rest goes to debt.

Once debt is paid off roll that payment right into your retirement instead (or do half retirement half into a account you can access money if needed)


Thats just me.

 

[dullard]

At 7%, I would personally be tempted to pay off the student loans. You might do better than 7% in other investments, but with the stock market still near record highs, that is not a sure thing. The 7% is a sure thing. Plus paying off that debt has advantages such as easier loan qualifications later in life. But student loan interest is probably tax deductible, so in reality you only get a ~5% return. That might be low enough to look elsewhere.

Don't ignore retirement savings. You can still do a Roth IRA even if your employer doesn't match much on your 401k. Heck, you might qualify for a traditional IRA in certain cases (although it is harder if you have a 401k offered even if crappy). Finally, you can look into the best retirement savings of all, a health savings account if you qualify.

Try to get ~15% of your income into retirement accounts. Say your employer matches at just 3%. Suppose social security pays 3%. Then you should try to put in the remaining ~9% somewhere. Anything extra should go into the student loans.

 

[Brovane]

Are the 401k investment options horrible with your employer? Who really cares if the match is horrible. You can still put pre-tax money into the 401k and I will put as much as you can unless the funds available in 401k are bad. The quicker you can get as much money in as possible the better so you can enjoy the compounding interest. After that I would focus on the student loans. Good job thinking ahead and having saved money instead of just spending it on hookers and blow.

 

[Fenixgoon]

definitely worth paying off your students loans faster, IMO, but don't skimp out on the 401k - yes, your matching might suck, but a little extra money compounding for 30+ years will make a HUGE difference when you go to retire.

i'd say split the difference, or go a little biased towards the 401k. if you're already maxing out your 401k, consider starting an IRA (traditional or roth)

 

[Exterous]

At 7%, I would personally be tempted to pay off the student loans. You might do better than 7% in other investments, but with the stock market still near record highs, that is not a sure thing. The 7% is a sure thing. Plus paying off that debt has advantages such as easier loan qualifications later in life. But student loan interest is probably tax deductible, so in reality you only get a ~5% return. That might be low enough to look elsewhere.

I keep going back and forth on this one. Your rolling 5 year averages in the DJI are mostly above 5% and the average 10 year rolling S&P is ~10%. Rolling 10 years have really only been below 5% ~15 years out of the last 80. Still with the somewhat shaky market and economy I hesitate given a guaranteed 5% ROI. I don't think either is a bad decision you can make with a cloudy crystal ball as long as its understood that choosing to invest could end up being the worse of the two

And at least invest up to the match of your employer in your 401k

 

[Attic]

1) Keep same payment towards student loans, don't raise it to 1200 a month.

d) Give yourself 1 year instead of 6 months for emergency fund.

2) Do an auto investment into the S&P, same day each week or month, that keeps you from trying to time the market.

3) Earn more money and eat more pussy. This can also go to #1 if you like to cheat.

 

[Born2bwire]

Yeah, 7% is rather competitive with what you may expect out of a moderate targeted investment fund lately. I would still max out the 401K (Employer match does not contribute to the max contribution limit) because you still get the reduced tax (which is taken out of the highest bracket). Then put what's left to the student loan (checking that you do not have any penalties for paying it off early). The savings account, I have seen some online accounts that have a 0.95% return. That's better than a lot of CDs. I currently have one of the GE online accounts. After that, a Roth IRA to diversify your tax payments.

 

[NikolaeVarius]

Would it be a good idea to match my 401k contribution to my employer max and than go Roth?

I guess I'm trying to weigh pros and cons between a "Savings Account" as in shoving money into a straight up Savings/CD, A "Retirement Account" which are 401k/Roth (And I think these are paired with index funds?), and a "Investment Savings" something like a managed fund that I guess is less safe than a straight up savings accoun, but

I have an idea of how all these function, I just don't have good grasp on what is actually worth doing, especially when still young.

 

[jaedaliu]

Would it be a good idea to match my 401k contribution to my employer max and than go Roth?

That's what I do. If you make too much money, you have to reduce your Roth contributions. Some argue you should put in the full 401(k) limit every year, but I figure I'll retire richer than I am now, so there's not much point.

I guess I'm trying to weigh pros and cons between a "Savings Account" as in shoving money into a straight up Savings/CD, A "Retirement Account" which are 401k/Roth (And I think these are paired with index funds?), and a "Investment Savings" something like a managed fund that I guess is less safe than a straight up savings accoun, but

I have an idea of how all these function, I just don't have good grasp on what is actually worth doing, especially when still young.

In a Roth, you can invest in whatever you want that the financial institution you have it with has agreements with. So.... pretty much whatever you want. In the 401(k) your employer has a financial institution that's holding your money and has set up certain funds that you can invest in. Choosing which to invest in isn't easy if you want to do it "right"

I'm planning on meeting a financial planner soon to pay someone to suggest where I might want to put my money. All for the low low cost of 1% of what I have. or something like that.

 

[Exterous]

Would it be a good idea to match my 401k contribution to my employer max and than go Roth?

Pretty much always go for the match first. After that it depends on the fund options in your 401k, you age, and if you think you'll be paying more in taxes now or later.

I guess I'm trying to weigh pros and cons between a "Savings Account" as in shoving money into a straight up Savings/CD, A "Retirement Account" which are 401k/Roth (And I think these are paired with index funds?), and a "Investment Savings" something like a managed fund that I guess is less safe than a straight up savings accoun,

There is really no point to a CD right now unless you must have the money in 3-5 years and have to have the principle mostly safe from inflation. As CDs are not as liquid as a savings account I wouldn't use them for your entire emergency fund. You could do 3-4mo in savings and the rest in a CD but IMO thats adding in complexity while you are relatively new to all of this for not much return. Don't forget that if you don't reach your term on teh CD there will be a penalty

As for investing - almost always invest up to the tax deferred cap before going with a non-tax advantaged plan assuming this is for retirement. The cap is quite high at $17,500 for 401k + $5,000 for Roth\IRA. If your 401k plans are truly terrible with a shit ton of fees and high ERs than maybe not but I believe thats illegal now and all 401ks are required to have 'low cost' options.

I am not sure what you mean by 'Investment Savings' although the 'managed fund' part concerns me. There are very few funds that out perform the market and even fewer that can do so year after year yet you almost always pay significantly higher Expense Ratios for the privilege of them losing you money. (or not making you as much money then you could have made investing in a non-managed fund).

The one benefit to investing outside of a tax advantaged account is that there are no penalties on withdrawls before age 59.5. You just pay the appropriate Capital Gains tax. The downside is they are less suited for retirement given the lack of preferential tax treatment.

Finra has a great fund cost calculator that will show you the cost of owning a mutual fund compared to another at http://apps.finra.org/fundanalyzer/1/fa.aspx

FWIW you can have Index funds in retirement\tax advantaged accounts and non-tax advantaged accounts

 

[jaedaliu]

As for investing - almost always invest up to the tax deferred cap before going with a non-tax advantaged plan assuming this is for retirement. The cap is quite high at $17,500 for 401k + $5,500 for Roth\IRA. If your 401k plans are truly terrible with a shit ton of fees and high ERs than maybe not but I believe thats illegal now and all 401ks are required to have 'low cost' options.

good information. highlighting a small error for 2013. (I guess now it's 2014 because 2013 contribution window ended yesterday)

source: http://www.irs.gov/Retirement-Plans...yee/Retirement-Topics-IRA-Contribution-Limits

 

[Exterous]

good information. highlighting a small error for 2013. (I guess now it's 2014 because 2013 contribution window ended yesterday)

source: http://www.irs.gov/Retirement-Plans...yee/Retirement-Topics-IRA-Contribution-Limits

Opps - thank you

 

[Newell Steamer]

Buy bottle caps.

They will be the currency of the future.

 

[Born2bwire]

Would it be a good idea to match my 401k contribution to my employer max and than go Roth?

I guess I'm trying to weigh pros and cons between a "Savings Account" as in shoving money into a straight up Savings/CD, A "Retirement Account" which are 401k/Roth (And I think these are paired with index funds?), and a "Investment Savings" something like a managed fund that I guess is less safe than a straight up savings accoun, but

I have an idea of how all these function, I just don't have good grasp on what is actually worth doing, especially when still young.

Personally, I prefer to max out the 401K and then go to the Roth. The Roth is helpful because it is a hedge against future taxation. We have very low income taxes, historically, right now. But at the same time, I personally would prefer to compound my current tax savings. For example, 40 years ago, $140K (adjusted for inflation) put you in the 42% marginal bracket while the same amount is 28% currently. Ignoring the marginal tax rate and just treating that as effective, that's around $17K difference. The 401K max of $17.5K this year saves you $4.9K in taxes in the top bracket. In 30 years, at 6% annual growth, that becomes $28K. So a very rough calculations shows that via compound interest, your current tax savings can overcome even a very large increase in your retirement tax rate.

Now, this should really be checked against what the actual tax savings would be using the brackets and for different returns/years invested. But that's something you can whip up in Excel and find out.

I would also shop around for different savings, money markets, and short term investment accounts. Right now, I'm fairly disillusioned with CDs. There are a few online savings accounts that are almost 1% interest that keep you fully liquid and still beat a lot of interest rates.

 

[Jeff7]

Personally, I prefer to max out the 401K and then go to the Roth. The Roth is helpful because it is a hedge against future taxation.
...

Assuming the politicians don't dick us over on that.


There are hundreds of billions of dollars, if not more than $1 trillion, in Roth IRAs. That's an awfully strong incentive for some people who are already prone to engage in unethical behavior.

 

[Mai72]

Play the lottery.