Where should I go from here?

**disneysteve** · 03-24-2012, 08:37 AM

Welcome to the site and congrats. You are doing a great job so far. You are living well below your means with an almost $900/month surplus (38% of your income!). You have a 6-month emergency fund. You are contributing to your employer's retirement plan. And you are thinking about your future. I'd say all of that puts you ahead of 90% of the population.

Where do you go from here? You'll probably get some varying answers to the question but here are some thoughts.

It sounds like you are considering opening a Roth only to later pull out the money to buy a house. Forget that idea. Make retirement accounts strictly for retirement and nothing else. If you want to save for a house, open a high yield savings account with Ally or ING or Discover and park the money there.

Your ulitmate goal should be to contribute 15% of your gross income to retirement through a combination of the 403b and your Roth, but 15% may or may not be feasible right at this moment. Paying down your debt and saving for a home need to be taken care of, too.

Is there any employer match on the 403b? There often isn't for schools and non-profits. If there is a match, defintiely take advantage of it. If not, I'd think about stopping those contributions and doing the Roth instead.

You've already got your emergency fund so I'd start the house fund with part of your surplus.

With an $875/month surplus, you can easily split that up to cover a few things: debt repayment, house savings and additional retirement savings.

**jpg7n16** · 03-24-2012, 09:28 AM

Originally posted by TaylorPaulSmith View Post

I'm already thinking about buying a home, but am worried about it bogging me down, both geographically and financially.

Okay, then why are you thinking about buying a home?

Let me know what you all think. And like I said I am new to the game so I am open to all advise and/or suggested reading.

Step 1: Decide what you're saving for/towards
Step 2: Figure out the best way to get there
Step 3: Monitor and adjust the plan as needed

You are asking us to tell you "What the best way to get there?" but you haven't told us where "there" is.

So what are your goals for your savings? What are you saving towards?

If you're looking for advice on which goal to prioritize, I agree with DS - saving for retirement should be your priority, and he's given great advice to that end. You can borrow for a house, you can't borrow for retirement.

My current thinking is that each month I should throw everything above my 9k emergency fund, about $800/month, at the student loans to get them paid down. Once I've knocked them out, I could open a Roth and do the same each month, at this point it would be around $1100/month, until I am at $10k, the max I could pull at for a first time home purchase. At that point I'd reevaluate and decide how close I am to being ready to buy a home.

When you look at what you've written, there are 3 different goals in play here, with 3 different answers on how to proceed.

Goal 1) Pay off debt. -- simple. Pay off your SL debts.
Goal 2) Save for retirement. -- not as simple. It's better to use your $800/month and start funding a Roth, rather than paying off 5% deductible loans. Also should consider using a portion of the EF to fund Roth for 2011, as you only have until April 17th to do so. You can build back up the EF, but you can never go back and fund for 2011 after April 17th.
Goal 3) Save for a home. -- Here it depends on your timeframe. Anywhere 0-10 years before buying, I'd likely pay off the SL debt and start saving up for a downpayment. Longer than that, I might start investing for the home, before paying off the loans.

Or like DS said, you can have some combination of these goals.

**BudgetSurgeon** · 03-24-2012, 09:40 AM

Originally posted by TaylorPaulSmith View Post

Hi everyone,

I graduated with my bachelors last spring and have been in my current (and first) job now for about 8 months. I'm at a point where I have saved enough money where I feel like I should be putting more thought into it than just letting sit in a bank. This is really the first time I have been proactive about my personal finance so I am open to any and all advice. Below are some details.

Monthly income = $2300

Bills -
Rent+Utils = $625
Loans = $350
Food = $300
Misc = $150
Total = $1425

9k in savings for emergency
1.5k in a TIAA CREF (I work for an education non-profit: I believe this is a 403b, but I need to read up more)
3 Student Loans - Total of 31k at around 5% each

About me:
I'm trying to keep expenses at a minimum while still allowing myself to have fun. I own a scooter and ride it year round. My only phone is provided by my employer. I'm already thinking about buying a home, but am worried about it bogging me down, both geographically and financially.

My current thinking is that each month I should throw everything above my 9k emergency fund, about $800/month, at the student loans to get them paid down. Once I've knocked them out, I could open a Roth and do the same each month, at this point it would be around $1100/month, until I am at $10k, the max I could pull at for a first time home purchase. At that point I'd reevaluate and decide how close I am to being ready to buy a home.

Let me know what you all think. And like I said I am new to the game so I am open to all advise and/or suggested reading.

Taylor, congrats on being proactive with your financial outlook. Many your age neglect to think in those terms, and just wind up spending more than they take in. Here are a couple of things I will suggest from my vantage point:

1) First and foremost, ALWAYS aim to reduce your monthly budget by 10% (or more) in a given
year. This is a great way to increase disposable and investment income, without having to
seek that raise. For example, trim that $300 food bill down to $270/month. That extra
$30 per month ($360/year) can be achieved by eating breakfast at home, bringing lunch to
work, eating out less often, eliminating the purchase of those $5 lattes, using food
coupons at the supermarket for items that you already buy, etc. Let budgeting become a
regular part of your make-up, and you will find that this can indirectly become a source
for more disposable income. Repeat for every part of your budget;

2) If your Education non-profit has an investment option that allows for company matching, go
for it, and go for the maximum amount you can put into it. Additionally, the tax benefits
associated with it, are well worth the price of admission;

3) Pay off that debt, and don't incur any more debt, until these Student loans are paid off.
You extra savings per month and my option # 1 above should be sources for accomplishing
this. Aim to become debt free as soon as possible. Establish a goal (time frame) for
paying this debt off. As an aside, NEVER EVER run up any form of Credit Card debt. Use
CC's as short-term 30-day purchasing vehicles only, with entire balance paid off when bill
is due. Don't think about buying a house, until your debt is cleared, especially if you
are not married to your current locale;

4) Have fun - yes, but never equate having fun with spending money. There are plenty of FREE
things you can do to have fun, even at your age! Too many people equate having fun with
spending exorbitant amounts of money. Break yourself from that sort of mentality;

Congrats on taking a mature and pro-active approach to your finances at an early age. You will certainly benefit from this in the long run.

**disneysteve** · 03-24-2012, 09:49 AM

Originally posted by jpg7n16 View Post

Also should consider using a portion of the EF to fund Roth for 2011, as you only have until April 17th to do so. You can build back up the EF, but you can never go back and fund for 2011 after April 17th.

This is a great point not to be overlooked. You still have time to do your 2011 Roth. Don't miss that chance.

**snafu** · 03-24-2012, 10:41 PM

TPS, good on you for being aware of finances and having savings since a recent survey revealed a huge percentage of respondents couldn't come up with $ 1,000. in an emergency.

My .02 cents...I'm presuming your career will take many turns over 35 yrs. via positions that haven't yet been created. 1st sums put in your retirement programs in the early years are most important as they benefit from the wonders of compounding over the l-o-n-g term. Your age allows you to ride-out the vagaries of equities. I suggest you look at a low cost {MER} Index Fund like Vanguard using their automatic plan for DCA {Dollar Cost Averaging}.

It's in your interest to run the figures for various scenarios. If you accelerate SL payments, how much interest will you save? Can you re-designate any tax saving that result from SL interest back to principal?

You can have it all by designating a percentage of your savings plus any cost avoidance's [sums not spent, sale price differentials, coupon rebates, change jar, sack lunch vs restaurant, etc] to your 'housing fund.' Having a plan means you can buy when you've determined your ideal location which could be in another state. In the majority of housing markets, price and interest rates are expected to remain flat until all tranches have reached the marketplace.

As an educator, you might be interested in looking at Kiplinger's or Money magazines on-line which offer a lot of good, up-to-date information in a quick read format.

Where should I go from here?