College grad, financial savings newbie

[atmosupreme]

Hey guys, I've been lurking for a couple of months now but I couldn't help but seek a little advice on how to approach my financial situation seeing how helpful everyone is here.

Quick summary: recently entered the "real world" workforce, have quite a bit of CC debt (spread across 4 credit cards), 0 in student loans, looking to purchase a "new" (used) car fairly soon -- right now I don't have a "usable" car.

Here are some stats:
- ~$3000/month take home pay (current job security is pretty good, my industry also affords me good overall job security)
- ~$2800 in my checkings account (woohoo first paycheck + been selling unnecessary possessions off)
- ~$10,000 in stock from a previous employer (AAPL)
- plan contribute to my 401k (company does not match) but waiting until I pay off my CC debt
- plan to look at other ways to lower my pre-tax salary (e.g. contribute to roth ira, or hopefully other recommendations) also after I pay off my CC debt

Estimated monthly expenditures:
-$400 rent
-$220 commuting via public transporation
-$400 food (rough estimate)
-$100 cell phone (pay for some of my family members as well)
-$400 miscellaneous (rough estimate)

Now the "roadblock" that I am trying to overcome before I really start planning financially for my future.

~ rough total of $9200 in credit card debt across 4 cards (I almost exclusively used my CC and never use cash so it's generally going to grow, I'm not a crazy spender, this debt was accrued due to unemployment)
-$3400 at 9.99%
-$3400 at 13.24%
-$1200 at 19.24%
-$1200 at 19.99%

I've made significant payments on the 2 high interest rate cards for obvious reasons but I don't know if I made the wrong move by completely focusing on them as opposed to also making 10% payments on the 2 lower interest cards.

Now I'm seeking advice on how to approach taking my current assets and bringing my current debt to $0 -> I plan to pay off my CC debt every month after clearing this out. I am also looking to purchase a new to me used car within the next few months probably within the $10-15k price range.

Now, here are my specific questions:
-Should I sell off my stock and pay off my debt and use the money towards 1. a car 2. other investing/contributions? I should have sold it off when it was higher but I was greedy, i ended up selling a few shares at $550 to pay part of my debt when I was at a dead standstill with no income. Right now I'm thinking I should dump it because realistically I don't think I should gamble AAPL to grow, more than likely it'll drop (I have 0 stock trading knowledge) --- one thing stopping me from selling it off is I don't know how it will affect me when filing for taxes???
-Would it be feasible for me to finance a used car? I know some would strongly advise to save and pay the car cash, but I am in immediate need of a car (not dire, but it is a HUGE burden for me not to have one right now)
-What are some quick tips and things to look at to start contributing to my retirement plan?
---Part 2 to this question is, should I contribute to my non-matched 401k NOW or pay off my debt? (relieving myself of the interest charges seems to be a good idea)


Thanks in advance guys, I can't wait to start gaining more knowledge!

[Wino]

Some observations:

You have only an "approxibudget." You think that's what you spend. You need to track your spending against your budget for at least three or four months before you know if your guesses are correct.

You shouldn't invest for anything until you pay off your debt. Right now, you're paying about 15% per annum for your debt. No low-risk investment will reasonably return that amount over time.

You want a car. It would be a convenience. I suggest you set aside $2000, and buy a beater. If it makes it 2 years, you're way ahead of the game. If it makes it longer, you're golden.

I would suggest you sell the stock to catch up on your debt, but remember you'll have taxes on the stock sale, so you need to set aside money for that. Depending on how you got the stock, the sale income might be treated as regular income rather than capital gains. The amount you pay in taxes will depend on the way you were awarded the stock as well as your current income in the year you cash it in.

You should not worry about investing in anything until you pay off your credit card debt. Once you pay off your debt, then Vanguard or Fidelity index funds are usually a good bet. Start investigating different investment funds now, and ask questions. Once you understand the risks and other information on the investments, make up your own mind. If you don't understand 100% what you're doing, don't do it.

[atmosupreme]

Some observations:

You have only an "approxibudget." You think that's what you spend. You need to track your spending against your budget for at least three or four months before you know if your guesses are correct.

You shouldn't invest for anything until you pay off your debt. Right now, you're paying about 15% per annum for your debt. No low-risk investment will reasonably return that amount over time.

You want a car. It would be a convenience. I suggest you set aside $2000, and buy a beater. If it makes it 2 years, you're way ahead of the game. If it makes it longer, you're golden.

I would suggest you sell the stock to catch up on your debt, but remember you'll have taxes on the stock sale, so you need to set aside money for that. Depending on how you got the stock, the sale income might be treated as regular income rather than capital gains. The amount you pay in taxes will depend on the way you were awarded the stock as well as your current income in the year you cash it in.

You should not worry about investing in anything until you pay off your credit card debt. Once you pay off your debt, then Vanguard or Fidelity index funds are usually a good bet. Start investigating different investment funds now, and ask questions. Once you understand the risks and other information on the investments, make up your own mind. If you don't understand 100% what you're doing, don't do it.

I agree, I really need to get a solid grasp on my spending habits and create a solid budget instead of guesstimating. I also agree that I should get rid of my debt before investing or starting to contribute to my 401k, so it's good to get that affirmation.

I acquired the shares of stock through an ESPP so I'm not sure of how I will be taxed on selling the stock.

[Wino]

I acquired the shares of stock through an ESPP so I'm not sure of how I will be taxed on selling the stock.

You'll be taxed on the gains at capital gains rates. If it cost you $8000 for the purchase and you sell at $10000, you'll pay capital gains on $2000 (the difference). Had the stock been awarded as options as part of your income, then you'd pay for the purchase increase differential as income. See Zuckerberg as an example. He bought like 60 million Facebook shares with his options at like 6 cents per share. He'll have about $5 billion of that as income, so his capital gains taxes are in the neighborhood of $1 billion.

As an aside, I wouldn't mind living in that neighborhood, myself.

[BMEPhDinCO]

First, good job getting a steady paycheck!

Second, I agree with others - figure out your budget exactly, until you are out of debt, you need to track it very closely.

Third, here's the breakdown:

Here are some stats:
$3000/month take home pay (This is good!)

Estimated monthly expenditures:
$1520 (This is really good, 50% of your income... I would, however, lower the groceries and figure out the exact expenses (ie, utilities, rental insurance, etc)

Savings:
$2,800 (Great! This is almost two months of expenses, but honestly, you only need 1 month right now, with your debt - so keep $1,500 and pay off the 19.99% CC immediately)

Debt:
$9,200 (You know this is NOT great, further, I worry when you say you keep spending on the cards - if you are doing this and then paying them off, then only use the card you just paid off above, leave the rest alone, don't add more to the tab)

-$3400 at 9.99% (Pay this off with $950 from the fourth, plus your fifth and sixth checks)
-$3400 at 13.24% (Pay this off with your second, third, and $500 from the fourth)
-$1200 at 19.24% (Pay this off with your next paycheck)
-$1200 at 19.99% (Pay this off now, see above)

Any remaining money above the amounts for CC (ie, I was estimating $1,450 each month in extra funds) should go into an EMERGENCY FUND - not your checking account, leave that alone with 1 month (not including debt payments, since you will be debt free soon), instead make a new account...this will eventually be split up into "auto", "technical", "home", etc...but for now, one fund is fine.

This plan means that your 7th paycheck will come to you with no debt needs - sock it into your EF ($1,000) plus a RothIRA (after tax, won't help your bill) or IRA (before tax, but honestly, Roth is probably better in your current situation, taxes aren't going to get lower). Once you have $5,000 in that account (ie, another 5 months), you can focus on the car - get a beater for a few thousand, then build up the car account. Within 2 years, you should be able to get a decent car, have savings in the bank, and have no debt.