Some guidance please...

[recentgrad12]

Hi I'm new to the forum. I recently graduated this spring and I’m looking for some guidance. I am afraid to visit a financial adviser, for fear of the stories I have read on forums like this, that I will be pressured into plans and such that may not benefit me.

I have a gross monthly income of 3,750.

After 401k & taxes I net 2,500 monthly.

This is how I have been allocating my funds…

Company 401k: 562.50
Just found out there is a company match. Basically, 100% of 3% and 50% of another amount. But it doesn’t start until 12 months after I have been employed, I’m at 3.5 months. I assume I would be vested at that time, I don’t have any documents about a vesting period.

Personal Savings ~ My EF: 500
This is just a savings account. Set up a 20% post tax direct deposit.

Roth IRA: 250
At the same bank as my checking and savings. Auto transfer of 10% post tax.

Student Loan: 350
Auto payment of 350. I believe the minimum will be $305. My outstanding balance is about 27,000. The rate is a crappy 6.8%. This is a direct plus loan. I am still in deferment until December but I have been making payments since May.

Auto Loan: 300
13,000 Balance ‘10 cert-pre owned w/warranty ect.. Just purchased last week (that sucked, just about killed me, nothing like my net worth dropping another 13k in 5 seconds). I need a highly reliable car though, as I will be traveling 15k miles/yr plus for the next few years. It’s a 150% mpg increase from what I had. Rate is 2.85%. Minimum is $280. I have an auto payment of 300 set up.

Insurance: is $100.

Remaining funds have been building in my checking account used for other expenses like food and gas and golf. All other expenses go on a credit card set up to auto pay the balance monthly to build a strong credit history.

I really have no idea what I’m doing. I have no housing liability for 2 years. I know I need to be saving. I’m not sure how much and where. A home down payment in 3-5 or more?? years has been a thought as well.

Should I stay with 401k or leave it? Does the pretax interest make it worth it without a company match? I’m lost.

Any direction would be appreciated.
Thanks for your help,

[bjl584]

Your company match does not start for 12 months? I've never heard of that, but I guess it's possible. Vesting is probably over the course of several years.

I'd stick with the 401K and the Roth.

You will need to start saving cash with the rest of your money. Especially if you want to buy a house.

The car was probably a bad move. Plenty of less expensive cars out there that good just as good gas mileage and are just as reliable. But, to late now.

What do you have your money invested in inside your ROTH and 401K?

[recentgrad12]

Outside of Roth and 401k It's in my checking and savings. I'm only 3-4 months into my career. I'm not sure what to do.

[riverwed070707]

How much do you have in savings now?

What you should do is spend a few months tracking your spending. Get a grasp on what you are spending on food/gas/gifts/fun/insurance/etc. Every penny that goes out should be documented. Not everyone chooses to do this forever, but its a good exercise for learning where your money is going especially when you go from having very little income to a decent salary.

Then start to create a spending plan. Account for regular and irreguar expenses, determine your savings goals, and divide the rest for fun spending.

Regarding your current situation, I would probably save 2 months expenses in checking. Once you've reached that point, I'd be inclined to knock out that car -- if you throw $500/mo plus the $300 payment at it monthly, you'll have it paid off relatively quickly and will have some cash flow so you can start saving for other wants like the house. Also, its rare to hear that someone is oversaving, but I you're young enough that I would focus on contributing 10-15% of your gross income to retirement total and diverting the rest of your funds toward other savings/debt payoff.

[humandraydel]

Outside of Roth and 401k It's in my checking and savings. I'm only 3-4 months into my career. I'm not sure what to do.

First of all, congratulations on being proactive about saving and investing at such a young age! Take full advantage of the situation you are in - no housing expenses will allow you to save a LOT of money each month - so do it!

You've got a good mix of retirement and savings right now - keep that. How much do you need to save for a down payment? You need to come up with a detailed budget and figure out how much you can save each month.

If I were you, I would keep the $500 to 401k, keep the $250 to Roth. All other savings, direct towards an emergency fund until you have 3-6 months of expenses (or $5-10k). After that, your options are to either split your savings between a house down payment and student loan payoff, or attack the student loan full force.

[Petunia 100]

Is the Roth IRA at your bank in a load fund, or a savings account? Either way, I recommend you transfer your money out immediately. If it is a load fund, you are losing too much of your money to needless fees. If it is a savings account, it will not even keep pace with inflation and so is not appropriate for long-term money.

You want an appropriate long-term investment with a low cost. The three mutual fund companies you want to look at are Vanguard, Fidelity, and T. Rowe Price. My personal preference is Vanguard.

[recentgrad12]

Thanks for everyone's help. I've got about 6k in savings. My roth is through my CU I dont think the have fees. I don't even know what that money is invested in. There's only about 1300 in there now.

My big questions are around the 401k the auto and the student loan. Im concerned about where I should focus. Forgo 401k and make 800 payments to student loan?. Put saving any more off and contribute 1k monthly to SL? At 6.8% will theoney in my 401k gain better interest than that?

I like the expense tracking idea. I'm tracking every expense for Sept. I have a feeling I won't be stopping at the drive through as often.....Then I can make a real budget.

As for the car cost....I realy wanted something nice looking and reliable because I will often be 300 miles or more from my tools/garage for months at a time....and I have to park next to some of my dream vehicles as well. I wish I would have stayed below 10. That put me in the 06-07 range or a subcompact option free. I'm about 8 hours from home so a cheap fixer or may need fixer was out of the question.

[snafu]

Good on you for seeking information from a non biased forum early on. I suggest that you seek information from HR to understand your options on their 401K. You want to take advantage of any 'free' money from your employer and make good choices for building a long term retirement plan. You need to know where your CU Roth has been invested. Don't fear talking to Certified Financial Planners [ask to see credentials] but don't buy products without checking out recommendations. There are no dumb questions and if you don't understand what is being offered...ask different sources.

I too believe writing down and tracking all spending for several months is very helpful. It's shocking how many small expenditures add up to significant sums. If you post your regular and irregular expenses we can make suggestions you will likely find helpful. Are you living at home or in a shared accommodation? What are you spending on groceries & eating out? Phone? auto operation, maintenance, insurance ? If you felt the need for a better car, do you also feel the need for a better wardrobe? How will you manage expenses for Christmas? Do you expect to take a vacation in the next 12 months?

Saving for long term projects is terrific but 1st, work out how much you will be paying in interest for each year of your car loan and student loan. Eliminating that debt quickly has the secondary benefit of enhancing your FICO score. The higher that score the lower a mortgage rate can be negotiated.

[recentgrad12]

I'll check with my credit union. I think there is a rate of return posted. Almost like a savings account. As for my personal spending habbits I wanted the nicest car I could afford only because I travel and spend 90% of my time at customer locations, and visits. The interior of my previous vehicle was unacceptable for traveling with a customer. I haven't purchased a new article of clothing in at least a year so that's not a concern of mine.

I'll post back with the results from my spending log for next month. I appriciate all the feedback.

[breathemusic]

Don't skip out on 401K contributions just to pay off a car or student loans. Even though the student loan % might be higher than the current returns that you might get, the important thing to remember is that you also get free money from the company match in your 401K (eventually, at least) and more importantly, that a car loan will be paid off in a few years, where as the returns that you earn on your retirement contributions will compound over the rest of your life while you have money in the account. While you're young is the most important time to start contributing since the money stays in the account for so long. It also means that if you're contributing more early on, you'll be less likely to feel the need to struggle and play catch-up later on in life.

If for some reason you do decide to cut back on the 401K contributions, only cut back until the matching starts. Once you get matching, you should contribute at least enough to get the full amount. And keep maxing out that roth IRA.

Any money after that, I'd tackle the car loan first. Even though the interest is higher, I think that cars come with greater risk given how quickly their value can depreciate. Last thing you want is to have to ditch the car for some reason only to find out you're under-water on it.

[riverwed070707]

Don't skip out on 401K contributions just to pay off a car or student loans. Even though the student loan % might be higher than the current returns that you might get, the important thing to remember is that you also get free money from the company match in your 401K (eventually, at least) and more importantly, that a car loan will be paid off in a few years, where as the returns that you earn on your retirement contributions will compound over the rest of your life while you have money in the account. While you're young is the most important time to start contributing since the money stays in the account for so long. It also means that if you're contributing more early on, you'll be less likely to feel the need to struggle and play catch-up later on in life.

If for some reason you do decide to cut back on the 401K contributions, only cut back until the matching starts. Once you get matching, you should contribute at least enough to get the full amount. And keep maxing out that roth IRA.

Any money after that, I'd tackle the car loan first. Even though the interest is higher, I think that cars come with greater risk given how quickly their value can depreciate. Last thing you want is to have to ditch the car for some reason only to find out you're under-water on it.

I don't disagree with this assessment at all; however, the OP is currently contributing nearly 22% of *gross* income to retirement. While that's admirable and a good cause, contributing 10-15% would be more than sufficient and the remaining 7-12% could be better used paying down debt -- especially when the student loans are accruing 7% interest. Its a balance and it doesn't make sense to pay more interest just to accumulate more retirement funds.