Advice Wanted: 25 yrs old with only college debt and about 40k to invest/save

[gobrowns]

Below is my current finances. I know in short I need to move the money from my checking account info an interest gaining account. I would love to hear some opinions of what to do.

Some of my questions:
1. Should I pay off my student loans? I feel I should keep my interest free loan open as long as possible to help establish credit. Should I pay off the federal student loan, make more the minimum payment?
2. I keep reading about roth accounts. Should I establish one. If so what vendor do you recommend?
3. I belong to the Anheuser Busch credit union. Would u recommend I use them or another bank. Would you suggest a savings/cd/mma?
4. I just changed companies and need to set up another 401k. They match up to 3%. Would you suggest I put more away.


background
i am 25.
live in Chicago. i do not plan on being here past 30 years old
work in advertising, make a little over 30k per year which means I am saving only a little money.
I do not see myself getting married for at least 3 years.

debits
federal college loan: $7,800 at 4.5% fixed interest = 122 per month
private loan: $3,500 but 0% interest. = 40 per month

credits
savings: $200
checking: $41,000
rollover ira: $900
credit card: i pay it off monthly
stock: have about $200 worth from previous employer

[jpg7n16]

Why do you want to invest? Retirement? Home? Other? How long until you need the money?

What are your typical total expenses for a month? (1500, 2k, 2500)

Any car debt? Personal debts to friends/family?

[gobrowns]

I want to invest for retirement and savings.

I will eventually want to own property I just don't think it makes sense in Chicago if I don't see myself here long term. (Its way to expensive and I would not raise a family here).
I figure I want to have access to some of the money for when I do want to own a home or get married. I plan on working for a while (at least 50s).

I have no other debt. I have a car sitting at my parents place (1986 volvo wagon. has 250k miles on it and my mechanic thinks ill get at least 400k miles out of it). It has been paid for. I do not owe any family any money.

Monthly expenses are around 1600

So I would say there is about 400 a month I could save. and I could cut down on my fun. I spend more going out in the summer but hole up in the winter.

[littleroc02us]

Wow your doing great. Here is what I would do. Take 3-6 months of expenses and put in a MoneyMarket account (something like IngDirect)making 1.1% and don't touch except for emergencies. Then I would pay off your loans, both of them. Whatever you have left, I would sign up with Vanguard and max out your Roth IRA for the year. You can put in 5k a year. If you do this for 35 years you could have over 3.3 million tax free by the time your 60. I believe that would be enough to retire on. Get rid of the debt and become wealthy over the long haul. Do not play the stocks game. Over time your investments will compound if you leave them alone. Steady is the course.

[gobrowns]

i agree that I should set up an emergency fund. I believe 10k would cover me for 6 months at my current lifestyle.
Can someone tell me would I be better of using ing direct (1.1%) or a mma from the Anheuser Busch credit union (0.75% dividend/interest rate and APY 0.75%)?

What kind of fees are involved with a Roth. I know you can use a variety of companies to set one up. Do you see an advantage to Vanguard as to say fidelity (old 401k here) or meryll lynch (new 401k here)? I am pretty clueless on the roth besides i know its money u put in retirement that u already have paid taxes on. Anyone have a website or book I should read?

My mom has sworn to me that I should keep some of my college loan debt to establish credit. Is this flawed advice. In my mind, I think I should pay off my federal student loan and only pay the minimum on my interest free loan since its free money.

If I put 10k in emergency fund, 5k in roth, and pay off federal loan (7.8k) i have about 25k left. What do you suggest for the rest?

I could see throwing a small amount (under 5k) into stocks. I am inquiring if there is an employee stock program at my current job. but overall I rather look at some safer options.

Thanks again for all the advice

[jpg7n16]

In that case, I say keep around $1000 in checking. Keep about $6500-7500 in savings as EF.

Fully fund Roth for the year. (5k) Ramp up the 401k to like 15-20%.

Paying off the school loans would be a low priority for me. I'd keep about 10k in a Bond index (like https://personal.vanguard.com/us/Fun...FundIntExt=INT) with the idea that over the next 2 years, I will be moving that money into my Roth at $5k a year.

The rest of the money, I would personally put into some taxable growth stock mutual fund. I'd research and likely go with some 4 or 5 star fund as rated by Morningstar. I'd want it to pay next to no dividends or interest -if possible, so it'd be virtually tax free until sold.

If you really want the loans gone, you can just pay them off. Nothing wrong with that.



The Roth is just a type of retirement account that allows tax free withdrawals after age 59 1/2. All you need to know is, during retirement you can pull from a Roth tax free. No taxes on growth, interest income, anything = awesome.

[jIM_Ohio]

I want to invest for retirement and savings.

I will eventually want to own property I just don't think it makes sense in Chicago if I don't see myself here long term. (Its way to expensive and I would not raise a family here).
I figure I want to have access to some of the money for when I do want to own a home or get married. I plan on working for a while (at least 50s).

I have no other debt. I have a car sitting at my parents place (1986 volvo wagon. has 250k miles on it and my mechanic thinks ill get at least 400k miles out of it). It has been paid for. I do not owe any family any money.

Monthly expenses are around 1600

So I would say there is about 400 a month I could save. and I could cut down on my fun. I spend more going out in the summer but hole up in the winter.

I would do the following:

Save 20% of gross pay each pay period
put 15% of gross into a retirement account. I suggest a Roth IRA or 401k (if your employer has a match, capture the match). The sum of 401k+Roth contributions should be 15% of gross pay. If you need a referral for a Roth, look at T Rowe Price, Fidelity or Vanguard. I use T Rowe Price.

put 5% of gross pay into a savings account for short term expenses. Could be moving expenses, new car expenses, or any other short term items which is tough to budget for.

15% of 30k is $4500 per year- this is annual retirement contribution
5% of 30k is $1500 per year- this is annual amount going to savings account.

As you get raises, maintain saving 20% of gross pay.

This implies you will live on $24k per year (gross) which is tough to do, but the #1 key to financial success is spending less than you earn. If you can do it on 30k, it will be really easy when your salary doubles or triples.

[gobrowns]

Thanks to everyone who has helped so far.
This is helpful.

I will do some more research and reading tomorrow and hopefully start moving some of this stuff to some interest bearing accounts by early next week.

ill keep you all posted.

Thanks again