How am I doing?

[Jwilliamson22]

Hey Im just hoping to get a financial review I started a new position 4-5 months ago which has allowed me to really start moving towards my financial goals, and I've been taking steps to do that, but just wanted to see what you guys think.

I'm 23 almost 24, and graduated with bachelors in finance a year and a half ago. Since then I worked for Northwestern Mutual and now work for Chase Bank. I currently live at home for free with my giving parents. Although my passion is finance, and I feel I have a good handle on things, I always like a second opinion. Sometimes the traditional way of doing things isn't "the best" way.

Financials:

Income- 32k base + commission. Should be 45k+ per annum. I also am looking into starting a small business with a friend buying and parting used boats (his specialty). I have a few small things that I get paid for as well, but nothing consistent or that i budget in.

CC-Completely paid off

Student Loans-15,900 @ 6% average. The payment is approximately $200 a month.

Roth IRA-$750

Roth 401(k)-$1000

Deposit accounts-$3000 between checking and savings (most in online savings)

Credit score- 737

Accounts receivable- (i know, not guaranteed )
Northwestern mutual commissions: $2,000 by end of February
Gift from Parents: $4200 (in form of car which is for sale)
Tax return: estimated $1500-2000 (since I worked only part of the year I am going to fall into a small income tax bracket and should get almost all my taxes back)


Situation

Currently I'm able to live on 1,000-1,200 a month leaving (commission depending) 1,500-2000k a month of take home pay. The $1000-1,200 includes about $500 of bills and $500ish in living and spending. I was having 10% of my income put into the company 401(k) but actually just changed that back to 0% for the moment (ill explain more). My goals not particularly in order are: to pay off student loans, save for retirement, save a nest egg, and purchase my first home. My biggest dilemma is that I would really like to purchase a home SOON. In the low interest environment of 4% or lower fixed rates and housing prices at near bottom (in my opinion) I can purchase a home I could stay in for a long time for 75-100k which I can more then support with my income, and I also have roommates lined up already that would basically pay my mortgage.

I also would like to pay off the student loans quickly, but since they are considered "good debt" and the payment is low. I feel it ay be prudent to save towards the house down payment and nest egg, take advantage of the market and get a house, THEN look to snowball down my student loans.

What do you think?

[disneysteve]

You should not base your decision about when to buy a house on market conditions or interest rates. You should buy only when you are financially and otherwise ready to buy. That means having a 6-month emergency fund and a 20% down payment saved. Some would also say to have other debts repaid but that may or may not be possible for all.

I think you should be contributing to the 401k at least enough to get the full company match.

There's no such thing as "good debt." Pay off your loans.

Take full advantage of your parents' generosity. Use this time to get rid of debt and pile up cash so that you are well positioned to leave the nest and fly on your own.

[kork13]

I'm with Steve... Buy a home when you have the cash on hand and ongoing income to support a home purchase. Market conditions can play a factor, but before you even consider buying, you still have to be able to afford it. Right now, you're not even close. Save everything you can. Rates will likely be low through at least the next year or two (based on current signals from the Fed), so you have plenty of time to save up and see where you are in 18-24 months. I'm sorry, but buying a house right now (or anytime soon) would be a mistake for you.

Keep in mind, as well, that your expenses are artificially low right now by living with your parents. Buying, owning, and maintaining a house includes closing costs, taxes, insurance, utilities, upkeep, repairs, furnishing, and all the rest. Take advantage of your parents' kindness by saving as much as possible for as long as you and they are all willing to do so, then reassess your situation to determine what you can and cannot afford.

The SL payments may be "low", but the interest rate on them is high, relative both to what you'd earn in interest on savings for a house, and also relative to any mortgage you might find. What that means is you're smarter to pay off your loans first, starting with the highest-rate loan first.

If Chase offers a match in your 401k, you NEED to contribute at least to the amount to max their match. It's a free, guaranteed, 100% gain on your investment. You don't need a finance degree to know that's a winner.

If it's any encouragement, there really is alot you can do in only 2 years. I'm 25, make about $60k (up from $45k 2 years ago), and in the last 2 years, I have gone from $25k net worth (and unable to afford a home or new car) to $130k net worth, and able to buy both next summer when I move back to the states (if I even choose to buy a house -- which as a single guy, I personally don't think it's worth it). All it takes is patience, dedication, and smart adherence to your goals.

[Jwilliamson22]

Great advice guys! Thanks! The reason I stopped my 401k contribution is because it isn't going towards my goals currently. I am a finance major and investing etc is my hobby, and super concerned about retirement, BUT Chase doesn't match contributions until after a year of service, so right now (and for the next 6months or so) there is NO match which is why I stopped so that I could save more towards an emergency fund, paying off debts and growing a down payment.

BTW I understand there is no such thing as "good debt" what I mean is it is a fixed payment with fixed interest rates and is looked upon favorably by credit bureaus. Needless to say.. I'm excited to pay them off!

And Kork, Thanks for the encouragement, its always nice to see a young guy doing well Hopefully I can follow in your footsteps! My net worth is slightly in the negatives soon to change!

Also great advice about the SL rates. Where else can you earn a guaranteed 6%???

[kork13]

Originally Posted by Jwilliamson22

BUT Chase doesn't match contributions until after a year of service, so right now (and for the next 6months or so) there is NO match which is why I stopped so that I could save more towards an emergency fund, paying off debts

Also great advice about the SL rates. Where else can you earn a guaranteed 6%???

My net worth is slightly in the negatives soon to change!

Your reasoning makes sense, so long as you save up everything you can while you're not contributing, and start contributing again once the match starts to be available.

Build up your savings, pay off your student loans, and you'll do great.

As for the net worth, it's a relative measure... don't get wrapped up with it. If I were to go back 3 years, I was VERY negative. It's a combination of saving and paying off debts. But if you're making smart decisions, it can be an encouraging gauge for your financial progress.

[Mr Nice Guy]

What was it like to work for northwestern mutual? I had an interview with them awhile ago but bagged it after i read some testimonials from people who said all they wanted was to get in your address book. Did you really have to slang insurance to your granny?

I almost wish i took the job for sales skills improvement.

[Jwilliamson22]

I liked it ok.. I left obviously, but in my opinion it is THE best life insurance company out there. You do have to come up with your own leads so often people turn to family. If you have another way to build your business, but thats really the easiest way to get started. Then you ask for referrals and expand out until your working with people you don't know. I learned a ton from it! I left bc at the end of the day, I didn't want to be an insurance salesman....

[raza]

1) Contribute up to the 401K company match.
2) Max out your Roth/Traditional IRA (or as much as you possibly can)
3) Pay down the student loan after 1 and 2 have been done.
4) Save 6-12months of living expenses for an EF.
5) Save 20% down for a house.

Also, try to save as MUCH as possible while spending very little while you are with your parents. I am in the same situation.... Appreciate it! Once you leave, you will most likely be hit with unexpected expenses.. so for now, look over what I/other people have posted.

[Jwilliamson22]

UPDATE!!!

Work has been going very well and I've been doing my best to save and keep expenses low. New numbers:

Deposit accounts: $16,500ish

Student loans: about the same

Credit score:760

investments: $1900

I feel like I've done well over the last few months. I have more in the bank then I ever have! Positive 10k net worth now too

[thekid]

If your parents like having you around (and can afford it fine) and you don't mind sticking around for a while, I would definately recommend staying at home for a few years and load up on savings. I only moved out 3 years after starting working and saved well over $100k during that time (had a good salary). That has given me a great leg up since. You start out on the right foot and keep going and things are actually kinda easy. It's not a recipe for everybody, but if your situation and your parents situation allow it, it's a great advantage.

[Jwilliamson22]

Thanks. I doubt I'll stay THAT long, but I do plan to take advantage of it while I can. I will probably start paying them a small rent amount as well. That's just seems fair to me.... I can't decide how much to put towards student loans... Part of me wants to put a huge chunk down. Like 5k. What do you think?

[BMEPhDinCO]

So if you have more in cash than your student loans, pay them off now. Cash isn't earning 6%! Plus, if I looked at that right, you'll have around $500 left in cash, plus some in investment - that's fine and you can bump that up within one month.

Then in May, once your SL are gone, offer that payment ($200) to your parents for rent - if they say no, that's fine but consider taking them out to dinner or contributing to groceries or something in lieu of rent.

Also make sure you are:
contributing 5% to 401k (match or no match, it's good to do)
contributing $416.66 to RothIRA every month (to max out)
building EF to $6k (3-6 months expenses)
contributing $100-200 to a car fund each month

I would suggest googling the 50-30-20 plan from Elizabeth Warren, it's a good way to start longer term planning (although I'd reverse it, and do 30 savings, 20 wants right now, since you can).

Don't forget - retirement at your age is THE MOST IMPORTANT THING YOU CAN DO FOR YOURSELF!

[BudgetSurgeon]

Originally Posted by Jwilliamson22

Hey Im just hoping to get a financial review I started a new position 4-5 months ago which has allowed me to really start moving towards my financial goals, and I've been taking steps to do that, but just wanted to see what you guys think.

I'm 23 almost 24, and graduated with bachelors in finance a year and a half ago. Since then I worked for Northwestern Mutual and now work for Chase Bank. I currently live at home for free with my giving parents. Although my passion is finance, and I feel I have a good handle on things, I always like a second opinion. Sometimes the traditional way of doing things isn't "the best" way.

Financials:

Income- 32k base + commission. Should be 45k+ per annum. I also am looking into starting a small business with a friend buying and parting used boats (his specialty). I have a few small things that I get paid for as well, but nothing consistent or that i budget in.

CC-Completely paid off

Student Loans-15,900 @ 6% average. The payment is approximately $200 a month.

Roth IRA-$750

Roth 401(k)-$1000

Deposit accounts-$3000 between checking and savings (most in online savings)

Credit score- 737

Accounts receivable- (i know, not guaranteed )
Northwestern mutual commissions: $2,000 by end of February
Gift from Parents: $4200 (in form of car which is for sale)
Tax return: estimated $1500-2000 (since I worked only part of the year I am going to fall into a small income tax bracket and should get almost all my taxes back)


Situation

Currently I'm able to live on 1,000-1,200 a month leaving (commission depending) 1,500-2000k a month of take home pay. The $1000-1,200 includes about $500 of bills and $500ish in living and spending. I was having 10% of my income put into the company 401(k) but actually just changed that back to 0% for the moment (ill explain more). My goals not particularly in order are: to pay off student loans, save for retirement, save a nest egg, and purchase my first home. My biggest dilemma is that I would really like to purchase a home SOON. In the low interest environment of 4% or lower fixed rates and housing prices at near bottom (in my opinion) I can purchase a home I could stay in for a long time for 75-100k which I can more then support with my income, and I also have roommates lined up already that would basically pay my mortgage.

I also would like to pay off the student loans quickly, but since they are considered "good debt" and the payment is low. I feel it ay be prudent to save towards the house down payment and nest egg, take advantage of the market and get a house, THEN look to snowball down my student loans.

What do you think?

A couple of comments on your detailed analysis:

1) If you can manage, live at home with your parents for as long as possible. Your ability to
save in that environment is going to outpace any increase in housing costs over the years,
and I don't think we are going to see any appreciable interest rate increases in the next
couple of years (based on what Bernanke has stated);

2) I am a big proponent of paying off your debt. Great that you have no CC debt - keep it this
way, and NEVER, EVER incur any sort of CC interest charges. I would concentrate on paying
off your College loan debt first, and you should be able to pay towards that rapidly, living
home with Mom & Dad.

3) Why incur more debt (a home) when you still have outstanding debt (school loan)? Don't mire
yourself in debt. Make sure your other debt is paid off, and that you have a decently-sized
down payment for a home, before your contemplate going for a mortgage.

4) Unlike many "experts", I am a big proponent of traditional 401K's over Roth IRA's,
particularly if there is a company matching element involved. Traditional 401K's offer
matching elements, tax-deductibility, and the savings from the tax-savings can be invested
currently. Additionally, 401K's can be withdrawn beginning at age 59 1/2, and presumably,
you will be in a much lower tax bracket at the time (assuming that you don't have additional
sources of income then). I still think Traditional tax-deductible 401K is better than
Roth, but there are many who disagree with me on this.

5) Now, you didn't elaborate on your "living" expenses, but I have a college-grad daughter
living at home, and her monthly expenses are much less than yours. She has $ 30/month in
cell phone expenses, about $50/month in car insurance (she is under my policy), and another
$ 50/month in car repairs. Add to that about $200/month on entertainment. That's about
$330/month in expenses. She brings lunch to work, she eats breakfast at home, and really
doesn't have any other expenses. Why are you spending $1,200/month, living home with Mom
and Dad?

Nice FICO score, and you seem like you really have your act together for a 23/24-year old.
Keep up the great works, but reduce that monthly expense if you can.

BudgetSurgeon