is investing worth it for me?

[wiirenet]

edit Sorry I meant to post this in the 'investing-banking/' forum -- Not sure if this can be fixed

Hello,
For the first time in my life I've had 'extra' cash from my paychecks now. I'm 25 and have been paying off debt (Credit cards and school loans) Currently I have one car loan at 1.5% $4,942 and one credit card at zero percent, that I pay the amount I need to monthly until the zero % expires.

It feels like a waste to use my extra money towards my CC since its 0%, and slightly a waste towards my car since the % is so low. I get lost in the math: 1.5% of 4,942 is about $75-- but what does that mean? I pay $75 in interest for one year? That doesn't seem like enough to warrent paying the loan off sooner.


I would say I have about $800 right now, and will keep having a couple more hundred extra with each paycheck, but I expect to have huge expenses in the next 6 months. Moving out (I live with parents, so I plan to buy big things like furniture).

I considered opening a savings account starting with $800 and adding a couple hundred in the next few paychecks. But the best %s I'm seeing is 1%. So even if I got 2,000 in savings, in a year it would only be $20 made right?

So because I plan to move out and buy furniture and things like that, that may add up to thousands of dollars in the next 6 months, I'm wondering if I shouldn't waste my time with a savings account and just make sure I keep my savings in checking without spending them.

Does anyone have any opinions? I imagine maybe saving 3,000, moving out in 3 months and having it all go to furniture/rent/food, so I just can't figure out if the math is worth it. If I could invest it for a couple months and make more than 1% I would consider it, but the %s are so low it just seems not worth it. If I could invest at 5% sure maybe I would do it, but 1% seems pointless if I'll need the money within 6 months.

I consider that I may need a savings account when i move out - but I worry if I put too much into savings, I will resort to using credit cards to live my life. So that math doesn't really work out with interests rates right now.

I also put 5% into my work's 401K (I plan to increase it to 6% once I see how much lower my paycheck is after just changing it to 5%)

I can't decide if its worth it to put in a very large amount, so that I no longer have extra money. Again, I worry if I put it up to 10% I will end up using credit cards.

Thanks for reading!

[siggy_freud]

Well the primary thing is to not do anything that forces you to use credit in lieu of cash.

You have the general idea of interest down, but you have to keep in mind the interest might compound daily. So they don't actually calculate it per year. 1.5% interest actually means you pay .015 (1.5%) / 365 (days) = 4.10 x e-5 % per day, or about 20 cents. However, each day that 20 cents is added to your balance, so you're actually paying interest on your interest, until you make your payment and it wipes out that interest accrued and pays some towards the principle.

The only reason to invest the money over paying off debt with interest is if the interest gained on the investment will be greater per year than the debt. Will investing the extra, say $200 a month, make you enough money to offset what you would save in interest by paying an extra $200 a month on a debt.

It sounds like you have some bigger concerns, and for people here to help you, we'd need to know more about your income, debts, and expenses (as well as future expenses once you move out, like rent, utils, food, etc).

[wiirenet]

Thanks for the reply!, the daily interest formula is interesting, I wouldnt have figured that out. So in a year, I will probably pay more than $75 interest on this amount because of the daily interest.

I would say, conservatively, my paycheck is about 2,000 per month sometimes less, sometimes more. This is with my 401K, insurance, taxes, everything taken out. My only expenses now are cell phone $57, car $140, credit card $90 per month, plus food, gas, other things. But I've noticed I easily pay all of these with money left over now.

The biggest issue is I have NO idea what my expenses will be when I move out. At most, I hope to have rent between $500-700 (will be sharing with one person)

Food and other expenses I have no idea how much they will go up once I am on my own.

Maybe because I can't know my expenses and they may drastically change in the next few months that I should just forget a savings account/investing and just focus on having a cushion of money when I move out.

[phantom]

I think opening a savings account would be a great idea at this point. Sure, you're not really going to earn much interest when you have so little to put in and interest rates are so low. But, you'll get more than you would keeping your money in your checking account (nothing).

I think the important thing for you right now is to build up an emergency fund plus some money that you can freely spend to furnish your apartment. The emergency fund is so that if you should lose your job or run into some unexpected expenses, you'll be able to handle it without using credit cards or running back to your parents.

There are other investments out there that can offer better returns than a savings account. But, they also come with bigger risks, so they're not at all suited for an emergency fund or for money that you know you'll be spending in a few months. Once you have the emergency fund and your other expenses taken care of, you can start thinking about really investing.

When you do move out on your own for the first time, I would suggest limiting what you spend furnishing your apartment. Check Craig's List, garage sales, thrift shops, and friends/family who are buy new furniture for great deals on older furniture. The stuff you buy to furnish your apartment might not be appropriate for your next place, so you really don't want to spend a ton of money on it. If you find yourself eying a cool furniture set for $2000, ask yourself if it's really worth a month's worth of work to pay for it.

Also, try to keep the costs of your rental as low as possible. If you end up paying $700 a month for rent, that will be more than half of your income, which is really tough.

[bjl584]

There you go. It's moved.

[jpg7n16]

I consider that I may need a savings account when i move out - but I worry if I put too much into savings, I will resort to using credit cards to live my life. So that math doesn't really work out with interests rates right now.

If you budget each month out, you shouldn't have to worry about that.

I also put 5% into my work's 401K (I plan to increase it to 6% once I see how much lower my paycheck is after just changing it to 5%)

How did you pick 5%? Is 5% enough?

Since it sounds like you're starting out, I'd highly recommend using some sort of retirement calculator. Such as:

AARP Retirement Calculator - How to Retire, Plan for Retirement

I can't decide if its worth it to put in a very large amount, so that I no longer have extra money. Again, I worry if I put it up to 10% I will end up using credit cards.

I'd be worried that if you don't do at least 10%, you would run out of money in retirement.

You should really be saving enough to put you on track for retirement, and then adjust your budget based on what's left so that you don't go into debt. Sounds like you're young, so you've got time to recover from budget mistakes.


I'd rather see you put extra funds into the 401k as opposed to paying on your debts. Just watch out for the 0% card. Make sure they don't have some option to back charge you interest if not paid off in full on time.

[wiirenet]

Thanks for the replies!
Yes, I think I will read this forum more when I move out since I really need to find the right ways to save money then. I know used furniture might be better, but its just been a big goal of mine to have new things.. its bad I know, so I'm going to read around here more!

Retirement savings are so hard since I feel like I need the money now. I just am at 5% because I started at 1% and slowly went up to get used to it. I hope to up the % more and more but its really hard seeing money sitting there being unused.. I don't want to live a low standard of life, thinking about retirement in 50 years, because what if I don't enjoy life from being frugal now, but die early and never get to enjoy the money I set aside lol? Things I think about!

[ecoadapt]

I think opening a savings account would be a great idea at this point. Sure, you're not really going to earn much interest when you have so little to put in and interest rates are so low. But, you'll get more than you would keeping your money in your checking account (nothing).

I think this idea would do you good. Choosing between a low interest over nothing,definitely you'll go with the low interest.