Am I on right track?

**Homebody** · 08-20-2010, 08:07 PM

You have 100% employee match up to $15,500 a year?????? Wow I have never heard of this. Lucky you. Sounds like you are doing great to me.

**Slug** · 08-21-2010, 04:53 AM

Originally posted by Homebody View Post

You have 100% employee match up to $15,500 a year?????? Wow I have never heard of this. Lucky you. Sounds like you are doing great to me.

Astonishing. What an incentive to save. My match stops at 2.5%

Keep exploiting this for as long as you can.

**dczech09** · 08-21-2010, 06:15 AM

I would start utilizin a zero-based budget. I don't understand why you have $1,500 just hanging around in your checking account when you have so much money in savings. I would zero out the checking account every month and aggressively pay-down the student loan.

**snshijuptr** · 08-21-2010, 10:15 AM

Do you have any goals at the moment other than retirement? Do you want to start saving for a house or condo? You might want to think about this even if you don't see marriage and kids in the immediate future.

In my opinion, you have too much in cash. You have a stable job and no other apparent goals, yet you have over 6 months and growing in cash (MMA + checking). If the MMA is making less than your student loans are costing you, then I would consider moving $6700 into your student loans. I would keep 3 months expenses in cash ($1500 in checking, $4800 in MMA). If you have a short term goal, consider a CD for the extra money.

Oh and congrats on the awesome retirement. Keep it up.

**littleroc02us** · 08-23-2010, 06:07 AM

Great job on the salary and the retirement savings. But, when are you going to pay off your school loans. Don't let people tell you that it is good debt. Paid off debt is the only debt I want. By doing so, you have more disposable cash montly. Since your doing so well with retirement, is there anyway you could pull back for a while and attempt to put $1000 each month towards the school loans. In 2 years you could pay it off entirely. Then you can continue pumping as much money towards retirement again. Believe me, debt holds you back in life.

**jpg7n16** · 08-23-2010, 07:03 AM

Originally posted by dczech09 View Post

I would start utilizin a zero-based budget. I don't understand why you have $1,500 just hanging around in your checking account when you have so much money in savings. I would zero out the checking account every month and aggressively pay-down the student loan.

Do not drop your checking account to $0. That's foolish.

You need money to pay any outstanding checks/debit card transactions. And you are limited by federal regulations as to how often you can withdraw from savings, so it's good to keep a buffer in the checking account.

I see no problems with your current setup. Good work!

Wish I had 100% match to max

**NYBuilder** · 08-24-2010, 07:43 AM

Thanks all for the feedback. To answer a couple of the questions, and maybe help focus suggestions, here are some responses:

- Three goals, in no particular order:
1. Continue maximizing 401(k) contribution to take advantage of 100% match
2. Pay off student loans
3. Save up for a house/apartment purchase

- Regarding those three goals, I have the following approaches:
1. Maintain my approx. 20% (pre-tax) contribution. Though I'm not maxing out to $16,500/year personal contribution, the match is tough to pass up.
2. I've upped my weekly loan payment such that I'm knocking off about $100 of principal each week. When/if I get a salary increase (or bonus), I'll up that.
3. I'll keep my $50/week checking to MMA transfer, and up that as well if I get a salary increase (if I get a bonus at year-end, the majority of that will go to the MMA).

- I don't plan on reducing my checking to $0. I use that money to pay rent, pay off my credit card bill, and take care of any small debit purchases I have during the month (exactly as jpg7n16 said).

Thanks again to all who provided input!

**jIM_Ohio** · 08-24-2010, 08:18 AM

I see a few issues you may want to resolve (the devil is in the details).

What you are doing will work, the issue is whether you want to get somewhere faster financially. For example is getting a house 3 years earlier with plan B better than the current plan A, or is getting out of debt faster (plan C) better than the current plan A or the alternative plan B?

Details for discussion:

1) I would NOT pay down more debt and pass up more 401k match. The match is the best return on your money. You might be in debt longer this way, but the return on your cash is higher if you max the 401k.

2) If the 401k has lots of money in it, you could consider a 401k loan to pay down the loans or put the money down on a house. Your 401k match is too good to pass up, so its possible a 401k loan to wipe the debt out helps (and locks in a low interest rate too).

example-
if your current loan payments are $300/mo at 3.84% and you could pay off with a 401k loan which is 3% and $275/mo, then put the extra $25/mo as a 401k contribution which is matched at $25, that is a better return on your money than what you are currently doing.

you could play with numbers and see if $25/mo extra for 8 years is better than $300/mo matched at $300 for 2 years if you pay off loans in 6 years. Run numbers and check.

Once that loan is paid off, I might use similar logic to borrow against 401k to get a house.

Maximize the match for best results. It's the best thing you have going for you.

**jpg7n16** · 08-24-2010, 09:30 AM

Originally posted by NYBuilder View Post

1. Maintain my approx. 20% (pre-tax) contribution. Though I'm not maxing out to $16,500/year personal contribution, the match is tough to pass up.
2. I've upped my weekly loan payment such that I'm knocking off about $100 of principal each week. When/if I get a salary increase (or bonus), I'll up that.
3. I'll keep my $50/week checking to MMA transfer, and up that as well if I get a salary increase (if I get a bonus at year-end, the majority of that will go to the MMA).

If I were you, I would stop paying extra on the school loans. Pay the min, and work towards maxing out the 401k contribtuion. 100% match on the whole thing is unreal, and should be utilized as much as possible.

Your choice is between: A) 3.84% loan -or- B) instant doubling your money with expected 7-11% returns after that

Originally posted by jIM_Ohio View Post

Details for discussion:

1) I would NOT pay down more debt and pass up more 401k match. The match is the best return on your money. You might be in debt longer this way, but the return on your cash is higher if you max the 401k.

Agreed.

2) If the 401k has lots of money in it, you could consider a 401k loan to pay down the loans or put the money down on a house. Your 401k match is too good to pass up, so its possible a 401k loan to wipe the debt out helps (and locks in a low interest rate too).

No way. I'm super against 401k loans.

You can make the numbers work as long as things are going fine, but throw a wrench in the system and it's terrible.

If you lose job with school loans: put them on hardship deferral, make payments over time
If you lose job with 401k loan: must be repaid immediately, which taps out any EF you had in place to protect you from losing job, and tax + 10% penalty owed on any amount you couldn't afford to repay.

It's not worth an extra $25/month.

**snshijuptr** · 08-24-2010, 02:50 PM

My recommendation (coming from a similar situation) is to set a time goal to purchase a house/apartment. Do you want one in 1 year, 2 years, 3 years? Next check out realtor.com and browse the listings. Find a few reasonable listings and figure out how much you would need for a down payment (20% of cost). Use the extra money in your MMA to start saving. Finally, calculate how much you need to set aside every month. Here's a calculator

Next pay the minimum on your student loans.

After that, every single penny should be sent into that beautiful 401(k) you have. Think about it this way, if you every lose that match (or max it out), you can then pay down your student loans. For now though, you are earning 100% on your investment.

**NYBuilder** · 08-24-2010, 05:19 PM

All, thanks for the feedback.

snshijuptr -- While I'd love to have enough for a home in the next few years, living in NYC makes that idea exorbitantly expensive. At the current, I'd prioritize the 401k because of the match, and then the student loan repayment. I do have a token value moved from checking to savings each week, but if I prioritized the home over the 401k and loan, that would be a much higher amount.

jpg7n16 & jIM_Ohio --

While getting rid of the student loan debt is a tantalizing idea, I tend to agree that the 100% match on the 401k is too good to pass up.

My mindset has been to maximize my contributions there, which I had been doing for over two years. In recent months, I reduced that weekly contribution just a bit to give me some extra cushion to cover my credit card bills and other expenses (though not reducing it so significantly -- only about $50-$75 per week).

My thinking now is to keep my just-over minimum payment on the student loan (I'm paying about $7/week over the minimum -- I miscalculated this a couple of years back, and even after catching the error, I decided to keep the "dumb" error and slightly pre-pay the loan).

I'll probably increase my 401k contribution slightly over the next few weeks and months, just to see how far I can bring it without impacting my week-to-week and month-to-month balances. Ideally, I strike a balance where my take-home pay is sufficient to pay my bills, rent, and weekly transfer to savings, and my 401k contribution is maximized to the best of my ability. As I mentioned earlier, totally maxing out the 401k earlier this year didn't leave me with enough for these expenses, but maybe that balance point is higher than where I'm at now.

Thanks again for the input. If anything else comes to mind that may be good to consider, I'm certainly willing to hear it out!

**jIM_Ohio** · 08-24-2010, 06:01 PM

Originally posted by NYBuilder View Post

All, thanks for the feedback.

snshijuptr -- While I'd love to have enough for a home in the next few years, living in NYC makes that idea exorbitantly expensive. At the current, I'd prioritize the 401k because of the match, and then the student loan repayment. I do have a token value moved from checking to savings each week, but if I prioritized the home over the 401k and loan, that would be a much higher amount.

jpg7n16 & jIM_Ohio --

While getting rid of the student loan debt is a tantalizing idea, I tend to agree that the 100% match on the 401k is too good to pass up.

My mindset has been to maximize my contributions there, which I had been doing for over two years. In recent months, I reduced that weekly contribution just a bit to give me some extra cushion to cover my credit card bills and other expenses (though not reducing it so significantly -- only about $50-$75 per week).

My thinking now is to keep my just-over minimum payment on the student loan (I'm paying about $7/week over the minimum -- I miscalculated this a couple of years back, and even after catching the error, I decided to keep the "dumb" error and slightly pre-pay the loan).

I'll probably increase my 401k contribution slightly over the next few weeks and months, just to see how far I can bring it without impacting my week-to-week and month-to-month balances. Ideally, I strike a balance where my take-home pay is sufficient to pay my bills, rent, and weekly transfer to savings, and my 401k contribution is maximized to the best of my ability. As I mentioned earlier, totally maxing out the 401k earlier this year didn't leave me with enough for these expenses, but maybe that balance point is higher than where I'm at now.

Thanks again for the input. If anything else comes to mind that may be good to consider, I'm certainly willing to hear it out!

What you are doing will work, my comments were more along lines of if you wanted to accomplish one goal "faster" or "sooner" than another, you can use the 401k match to your advantage.

If you are comfortable with a probable 8 more years of student loan payments (sounds like you have been paying 2 years on them, and most have a 10 year repayment period) then what you are doing works. If you want to get them paid off sooner, consider other ideas.

With such a generous match, you could also contemplate early retirement or early financial independence depending on how you see your next 20 years playing out.

**wincrasher** · 08-24-2010, 06:18 PM

Wow, you are a good saver. Keep it up. But pay attention to what your 401k is being invested in - it would be a shame to have big losses when you have such a sweet deal.

Everyone is so shocked that he gets such a good match. I remember a time when that was the norm! Just like fully paid family health insurance coverage.

Companies today would rather build their cash hordes invested in T-Bills earning 1% than hire any new people or pay decent benefits. Sign of the times I guess.

**Personal Finace Fleur** · 08-25-2010, 07:01 PM

you are already ina decent track now, no need to do some adjustments.

Am I on right track?