Lookin for some advice.

[seekingKNOWLEDGE]

Hey guys and Gals,

This is my first time posting on this sight, but I have been reading and think its a great place to gain some knowledge. I had a few questions about how to put myself in the best possible financial situation. Here's a little about me:

Ill be 25 in April
Earnings: 2K/mo
cost of living: -1.6k/mo
5K savings
1K checking
15K 401K (@10%+4% employee)
car -12K@4.4%
Bike -2.7K@7.49%

I also just opened a brokerage account for 1K, but immediately think its not enough-so that's included in my savings. Some insight here would be appreciated as well.

I am also currently in college. about 12K/year for 5 years (It's an internet college that's just consecutively one class at a time). So payments will be coming for that in about 4 years

Thank you

[seekingKNOWLEDGE]

sorry....

I assume pay off my bike, then car, and max my 401K until school loans come?

[littleroc02us]

I have a different opinion. I would lower your 401k match to 4%, that will give you an extra $40 a month which is $480 a year, that's $1920 after 4 years, put that money towards your debt. Tackle the Bike first with your 5k you have in savings, so that leaves $2300 and put that towards the car which leaves just under 10k. If you put $440 towards your car at 10k it will be paid off in 22 months. Enough time to save $11440 in 26 months putting away $440 a month, that pretty much takes care of most of the school loan. What's not to like about that plan?

[disneysteve]

Originally Posted by seekingKNOWLEDGE

Ill be 25 in April
Earnings: 2K/mo
cost of living: -1.6k/mo

car -12K@4.4%
Bike -2.7K@7.49%

I also have a different opinion. Stop living beyond your means! You can't afford a 12K car loan on a 24K income. And you certainly don't need a bike on top of that.

Sell the bike.
Sell the car. Replace it with something cheap that you can pay for in cash.
Use your savings to cover any shortfall between what you owe and what you get for the car and bike.

[littleroc02us]

Originally Posted by disneysteve

I also have a different opinion. Stop living beyond your means! You can't afford a 12K car loan on a 24K income. And you certainly don't need a bike on top of that.

Sell the bike.
Sell the car. Replace it with something cheap that you can pay for in cash.
Use your savings to cover any shortfall between what you owe and what you get for the car and bike.

I've changed my mind and would also DS's advice due to the fact that your in college. Now that I think about it my advice above would be better for someone who is not going to sell the items no matter what because they are being stubborn.

[feh]

Originally Posted by disneysteve

I also have a different opinion. Stop living beyond your means!

This was my first thought also - you've overspent. Sell the car and get something less expensive.

Is the "bike" a motorcycle or bicycle?

[jpg7n16]

I have sort of a combo answer of the advice given above.

You should take some money and pay off the bike today. Then you should consider selling it. Saves you the interest costs in the meantime, and doesn't make you feel like a motivated seller - letting you wait for the best price.

Why do you need both a car and a bike?

How high is your financial risk tolerance? Moderate? Low? Super high? {this will help determine how soon to begin investing}

And how much is the value of your car? I have a rule of thumb that the value of your car (not the loan, the value) should be less than 30% of your annual income before taxes. If you stick to this, most of the other factors will line up (low payment, if any; low percentage of net worth tied up in depreciating assets; etc.)

If your $2000/month is pretax, that means you shouldn't own a car worth more than $7,200. More likely, I'd think $2000/month is after tax, meaning you earn somewhere around $32k/year. So IMO your car should not be worth more than $9600.

If it's over $9600 - you should consider selling it. But if you're upside down, and it's only worth $9k, IMO there's nothing wrong with keeping the car as is, and paying off the 4.4% loan.

Originally Posted by seekingKNOWLEDGE

I also just opened a brokerage account for 1K, but immediately think its not enough-so that's included in my savings. Some insight here would be appreciated as well.

Brokerage accounts are great -- for people who are in a position to invest disposable income. I don't think you're there yet.

Your school loans don't just magically appear when you leave college, they're out there right now just waiting. So you shouldn't really be investing right now, but should be building up cash to eliminate the school debt once you graduate.

[maat55]

I agree with Steve, sell the car and bike, find a good car you can pay cash for, then just save and get your education.

Use your extra funds to lower your school debt.

[seekingKNOWLEDGE]

Originally Posted by disneysteve

I also have a different opinion. Stop living beyond your means! You can't afford a 12K car loan on a 24K income. And you certainly don't need a bike on top of that.

Sell the bike.
Sell the car. Replace it with something cheap that you can pay for in cash.
Use your savings to cover any shortfall between what you owe and what you get for the car and bike.

I make almost 40K a year. The 2K is take home, in this slow season more like 2.3 in busy season. I owe almost exactly what the car is worth, and plan to drive it into the ground. I drive the bike in the summer, and it cost $7-10 to fill up, which gets me 180+ miles.

I mean no disrespect, but I don't think I'm living beyond my means ANYMORE. I do appreciate your time and opinion though. Thank you

[disneysteve]

How much are the payments on the car and bike?

Could you post your complete monthly budget and show how the $1,600/month is getting spent.

[YourLifeSolution]

a. NEVER go without health insurance
b. only invest the money in that brokerage account in modest no-load funds, dont gamble your money on the market
c. 2k a month is ok in this economy at your age, but work to acheive better skills so you can move up

GOOD FOR YOU for having 5k in the bank, rare for your age

[Hector]

Originally Posted by seekingKNOWLEDGE

I make almost 40K a year. The 2K is take home, in this slow season more like 2.3 in busy season. I owe almost exactly what the car is worth, and plan to drive it into the ground. I drive the bike in the summer, and it cost $7-10 to fill up, which gets me 180+ miles.

I mean no disrespect, but I don't think I'm living beyond my means ANYMORE. I do appreciate your time and opinion though. Thank you

Its sad that people come for advice, but dont want to listen.

[CCCFree]

I agree that-as long as you're not going to be upside down on your loan-sell the bike, or the car.

[seekingKNOWLEDGE]

Originally Posted by disneysteve

How much are the payments on the car and bike?

Could you post your complete monthly budget and show how the $1,600/month is getting spent.

No problem:

Rent- 500
Utilities- 130
Car payment- 310
Bike payment- 110
Cell Phone- 50
Auto Ins.- 95
Gas- 160
Food- 150
Misc- 100

=1605

[seekingKNOWLEDGE]

Originally Posted by YourLifeSolution

a. NEVER go without health insurance
b. only invest the money in that brokerage account in modest no-load funds, dont gamble your money on the market
c. 2k a month is ok in this economy at your age, but work to acheive better skills so you can move up

GOOD FOR YOU for having 5k in the bank, rare for your age

I do have health insurance. It is taken out pre-tax.

I am also attending college in pursuit of a degree. I have also been offered the outside sales position at my current job; where I am currently a driver.

Thank you for the time.

[seekingKNOWLEDGE]

Originally Posted by Hector

Its sad that people come for advice, but don't want to listen.

I don't think the case here is that i don't want to listen. If i wasn't going to take into account the answers i was given, like them or not, then i wouldn't have posted at all. I felt if I could make all my monthly expenses, and have money left over; then i wasn't living beyond my means.

Thnaks

[creditcardfree]

Originally Posted by seekingKNOWLEDGE

I don't think the case here is that i don't want to listen. If i wasn't going to take into account the answers i was given, like them or not, then i wouldn't have posted at all. I felt if I could make all my monthly expenses, and have money left over; then i wasn't living beyond my means.

Thnaks

It is good that you have money left over each month. It would be far worse not to be able to make your payments.

It is important to know the full cost of what your are buying, not just in terms of whether you can meat the monthly payment. For example, you stated that in 5 years you will have $60K (5yr*12K)in student loans. Unfortunately, we all seem to know someone who kept going deeper and deeper into debt simply because they could meet the payments. Then when a job loss or some other unforeseen financial event happens, the income is lost that one depended on to make all of the monthly payments. So, as a result, we tend to be a little conservative on this board, which means the less debt, the better!

Will your car and bike be paid off before your student loans come due? What are your other goals? Do expect or want to own a home? Think about the next 5 to 10 years and have a bit of a plan.

You have an emergency fund of $5-6K. That is a great start.
You are saving for retirement. Also excellent.

Now make a plan to pay off debt you do have before the student loans come due. And in the meantime, try not to add any more debt to the list, since it could take awhile to pay off $60K.

Personally, I think it is fine to have a brokerage account with $1K. It's a good way to get your feet wet. However, make sure you understand what you are investing in. Take the time to do the research, know the costs of the investments. Understand your risk tolerance. I wouldn't add much more to the brokerage account, until I at least had a plan to pay off debt.

[seekingKNOWLEDGE]

Originally Posted by creditcardfree

It is good that you have money left over each month. It would be far worse not to be able to make your payments.

It is important to know the full cost of what your are buying, not just in terms of whether you can meat the monthly payment. For example, you stated that in 5 years you will have $60K (5yr*12K)in student loans. Unfortunately, we all seem to know someone who kept going deeper and deeper into debt simply because they could meet the payments. Then when a job loss or some other unforeseen financial event happens, the income is lost that one depended on to make all of the monthly payments. So, as a result, we tend to be a little conservative on this board, which means the less debt, the better!

Will your car and bike be paid off before your student loans come due? What are your other goals? Do expect or want to own a home? Think about the next 5 to 10 years and have a bit of a plan.

You have an emergency fund of $5-6K. That is a great start.
You are saving for retirement. Also excellent.

Now make a plan to pay off debt you do have before the student loans come due. And in the meantime, try not to add any more debt to the list, since it could take awhile to pay off $60K.

Personally, I think it is fine to have a brokerage account with $1K. It's a good way to get your feet wet. However, make sure you understand what you are investing in. Take the time to do the research, know the costs of the investments. Understand your risk tolerance. I wouldn't add much more to the brokerage account, until I at least had a plan to pay off debt.

My bike loan will be paid off by the end of the year, and then I think the car should be paid off within the 24 months following that. So yes, my car and bike will be paid off about 2-3 years before the school loan payments are due. I wanted to then invest in something somewhat safe, but can return more than inflation. That way when it is time to pay the school loans i will have a significant sum to put towards it. As far as a house, i don't think i will ever own one. Unless I get significantly more wealthy, or it is a rental property.

Thank you

[disneysteve]

Originally Posted by seekingKNOWLEDGE

Car payment- 310
Bike payment- 110

When buying a car, if you must borrow money, the guidelines are to borrow for no more than 3 years with a payment not exceeding 10% of your monthly income.

Car: $310 = 15.5% of take home
Bike: $110 = 5.5% of take home

Total vehicle payments = 21% of take home, more than double the recommended debt limits. So I stand by my initial comment. You bought too much car for your income and the bike just further aggravated the situation.

You have a total of $7,000 in savings and you owe about what the car is worth. Sell the bike (I don't know what that's worth). Sell the car. Take up to $5,000 cash and buy a car, leaving yourself a few thousand dollars as an emergency fund. You can then use the $420/month that was going to debt payments to rebuild your savings. If you get yourself debt-free now, when the student loans come due, you'll be in far better shape to start attacking them.

[littleroc02us]

Originally Posted by seekingKNOWLEDGE

My bike loan will be paid off by the end of the year, and then I think the car should be paid off within the 24 months following that. So yes, my car and bike will be paid off about 2-3 years before the school loan payments are due. I wanted to then invest in something somewhat safe, but can return more than inflation. That way when it is time to pay the school loans i will have a significant sum to put towards it. As far as a house, i don't think i will ever own one. Unless I get significantly more wealthy, or it is a rental property.

Thank you

Then I would go back to my original post and that should take care of things.

I would lower your 401k match to 4%, that will give you an extra $40 a month which is $480 a year, that's $1920 after 4 years, put that money towards your debt. Tackle the Bike first with your 5k you have in savings, so that leaves $2300 and put that towards the car which leaves just under 10k. If you put $440 towards your car at 10k it will be paid off in 22 months. Enough time to save $11440 in 26 months putting away $440 a month, that pretty much takes care of most of the school loan.