Student looking for some advice

**creditcardfree** · 02-11-2009, 07:08 PM

Well, good job saving so well so far! Your savings is a great emergency fund and/or downpayment on a townhouse.

It is important to start paying off your student loans. Of course, the quicker the better.

Then you also want to be saving for retirement in a 401K or IRA. Begin with at least 10% of gross income and then slowing work towards saving more.

Those are my first thoughts. If it were me, I would want to pay off those student loans before taking on a mortgage. Best wishes!

**Hot dog** · 02-12-2009, 05:11 AM

What kind of degree are you getting? I would love to make that much now let alone just starting out. I would definitely want to pay down the student loans before buying a house. It is really hard to downsize after you have something but if you are living very simpley now continue to do so to put yourself in a great place in the future. That is why it took me forever to get a cell phone cause I knew once I got one I would have one for the rest of my life.

**boosami** · 02-12-2009, 06:04 AM

Originally posted by wintercs View Post

I am slated to take a job starting in the fall that will pay me around $120k.

What does "slated" mean? I'd urge you not to do anything until you have a signed offer and know the exact compensation package. Once you know the details and are absolutely sure you will be starting the job, make a budget with the proposed salary. Don't forget taxes, retirement, and savings! Folks here would be happy to review the budget for you once you post it.

**wincrasher** · 02-12-2009, 10:37 AM

You may be able to consolidate your loans to a very low interest rate - depending on that rate would determine if you should make investments or buy a home sooner rather than later.

**Cylenchar** · 02-12-2009, 12:01 PM

One question: what kind of interest does your savings account have? I would look into moving those funds into a saving account that pays for interest if possible.

**zetta** · 02-12-2009, 12:20 PM

I'd suggest reading All Your Worth. She recommends that of your take-home, allocate 50% to needs, 30% to wants, and 20% to savings. Since you have such large student loans and are used to living a student lifestyle, I might recommend 40% to needs, 30% to wants, and 30% to savings (15% to retirement, 10% to paying the student loan early, and 5% to saving up for downpayment, next car, etc.)

So if your gross is $120k, let's say your take-home is $100k to make the example easy.

$40k toward housing, food, gas, utilities, minimum loan payment, insurance, etc.
$15k to retirement
$10k to prepaying the student loan
$5k to savings
$30k to clothing, entertainment, travel, etc.

**jIM_Ohio** · 02-12-2009, 02:07 PM

I would start doing the following- start thinking of what you want and what you have to make it happen:

INCOME
120k will probably net a take home of ABOUT 80k (losing close to 33% from taxes). That is about 7k per month.

You might see the 33% become 28% or 25% if you get a townhouse (you will be taxed less once you get the house).

SAVINGS.
Put 15% of your gross pay into a retirement plan (401k, IRA or similar). Write down the annual and monthly contribution. You need to know this number. 120k=18k annual and 1.5k per month.
Put 5% of your gross pay into short term savings. Write down this annual and monthly amount. 120k=6k annual and $500/month.

BUDGET
list all your expenses for a year- car insurance, car registration, groceries. minimum student loan payments, utilities, car, rent and list EVERYTHING you expect to spend money on for the next year. Include the $1.5k and $500/mo from the savings into the budget. The budget needs to balance even with the $2000 going into savings each month.

Financial plan:
I would write down some goals. Might be a vacation you want to take, a house you want to buy, a debt you want repaid or an engagement ring you want to buy. Include a retirement date at age of 68 for now. You can adjust this later once you learn more, for now plan on retiring at age 68 (figure out what year that is) so if you do any basic planning, the date is second nature (my age 53 date is 2026).

Retirement-The 15% contribution should be doing 2 things- starting the saving process and lowering your taxes.

Your short term goals right now will probably be materialistic. New house, new car, vacation types. That is OK. The 6k/year is a good budget to start with, you might decide you want MORE. Just make sure you have 6 months expenses in the bank (use the budget above to figure out what 1 months expenses is, then set aside 6X that amount). If the emergency fund ever gets below 3 months expenses, I would reduce the materialistic spending until it hit 4 months expenses again.

Paying down student loans will probably appear to be a daunting task (100k is a significant amount of debt). If you pay more than $2500 in interest per year, you will not be able to write off the excess of $2500 on your taxes... so that is something to consider.

You will want to include a tax plan as part of your financial plan.

120k and single will definitely hit you with taxes (28% tax bracket). 38k of deductions/adjustments will lower you into the 25% bracket and you will see a signifant reduction in taxes- and you might consider this a more efficient use of your money.

For example if you spend all 120k, you will pay the following:
6.2% FICA=$7440 ($600+/month)
1.45% medicare= $1740 ($150+/month)
Fed taxes ~$27000 going to federal taxes; this is $2000+/month
state taxes on the 120k too.

I am suggesting on an income of $10k per month you lose at least $2700/month to taxes and similar. This does not even include the benefits you will pay for (health care or other).

If you use a 401k like I mentioned and do some financial tax planning, you can probably use some of that $2700/month to improve your financial position.

6.2% FICA and 1.45% medicare are fixed on the 120k- so that $750/month ($9100 annual) will always be there.
Put $1500/month or 18k annually into a 401k (max is $16500, so last $1500 of the 18k will be taxed)
$2500 taken off income from student loan interest
std deduction $5700
single exemption $3650

120k

-$16,500 401
-$2500 student loan interest
-$5700 std deduction
-$3650 exemption
--
bottom line is now $91650. taxes on this is about $18000 (saved you about 9k in federal taxes).

-$9100 SS/medicare and you are now dealing with $82000 as your "net expense" after 401k and factoring in some tax planning. If you could get any of the following, you will see taxes lower considerably more:

If you get $14000 of mortgage interest per year (You need $9000 more than the std deduction) to see a lowering of tax bracket.

Use an HSA (health savings account) to shelter 9k more of income from taxes. 9k is more than federal limit for single though.

Have another pre-AGI adjustment on tax return worth 9k.
Have another schedule A deduction on tax return worth 9k.

Because you will not earn 120k in 2009, this type of planning won't be visible until 2011 (when you file 2010 taxes).

**manageME7** · 02-13-2009, 03:22 AM

Elliminate your debt faster.

You should accentuate on striking a balance between short term and long term goals. First try to eliminate your debt faster and then make your plans about buying a home. Once the debt has been paid it will become easier for you to buy home even if you have to take home loan.

Try to save some percentage of your income on regular basis. This will help you to use this accumulated funds in case of emergency or setting up your own business at the later stage.

Life is so simple, do not make it difficult. Just try to manage yourself.

**Emily26** · 02-23-2009, 07:48 AM

I'm in the last semester of grad school too - definitely not looking forward to paying back my student loans! I think continuing to budget like I do now will be extremely important to do so though, so that I can pay all my expenses plus have a little extra to enjoy life.

Student looking for some advice