Have extra $4500 coming in -- where should it go?

[TheKayla]

Hey everyone, a while back I posted in the debt forum about my student loan situation, and now I'm back to see where my money would best go. I do freelance work on the side and usually it's just $500 here or there, around that amount. I usually do with it what I please at the time, sometimes I put it towards a loan, sometimes I put it in savings, sometimes I invest. Either way, I"m not too consistent. So, now that I have a relatively bigger amount coming in at once, I'd like some advice on what I should do with it -- sometimes my money stress controls what I do rather than what the smartest move is!

Student loans: somewhere around 70k between 5-7.5% interest on average

Car loan: $16k @ 2.9%, paying $1050/mo - my biggest goal right now is getting in paid off so I can free up the min. payment of $442/mo.

Cash buffer / e-fund: $200 -- I'm putting at least $500 of this next freelance payment to keep in my accounts for sure because I know this area of my finances is horrid. It's a main goal of mine to begin building this as money comes in. Right now I'm only able to save between $100-200 for this each month tops, with no freelance income included.

Stocks: $500, besides my retirement account, this is really the only asset I have. I consider it partially my e-fund too, although not as liquid.

Where do you think I should put this $4500? Towards my loans or invest? I realize my debt situation is bad and the faster it gets paid down the less interest I'll pay, but of course, my asset situation is not the greatest either.

Any advice?

[TheKayla]

I just got it about a year ago, so it probably hasn't lost too much value. This is another reason I just want to pay it off asap too, because I know the value will go down quicker than my other assets. It's a Prius and I know they can still sell for about 10k at 5+ years old since they have a more specialty market. However, I can't get rid of it regardless, it's just not an option for the city I live in. I just upgraded from a cheap car that was constantly breaking down, so I wanted to go with an investment car that would last me for 10+ years this time, and I intend to keep it as long as possible. Downgrading would just put me back where I started, I'd rather keep this higher quality car and pay if off -- my only regret being that I couldn't/didn't save up for enough of a down payment first. I plan on being in a better financial situation in the future, and never getting a car loan again!

[cypher1]

Are you saying your EF balance is currently 200 or you're depositing 200 each month? Depending on your monthly expenses, I'd probably keep a large chunk of that 4500 in your EF for piece of mind at the moment.

[asdf]

A couple quick questions for you: did this extra $4500 come from your freelance work? If so, does this number account for any taxes that you'd be liable to pay?

[TheKayla]

It does, and that's why I also want to keep some in my checking/e-fund as well. So far this year though I've only made about $8000 total from freelance work, and am claiming 0 for my full-time job. I think it should mostly even out, but I always keep about 10% of it set aside -- like money I don't even have -- for taxes. It used to be 30% when I was freelancing full-time. I've been doing it this way for a few years and I always have some saved tax money left over.

[TheKayla]

Are you saying your EF balance is currently 200 or you're depositing 200 each month? Depending on your monthly expenses, I'd probably keep a large chunk of that 4500 in your EF for piece of mind at the moment.

I had a few unexpected costs lately that dwindled down what I had in my account, (one being some drunk guy hitting my car and having to get it repaired, ugh) it was almost up to a thousand. Plus, I always go through phases of stress where I feel the need to put a large chunk of my e-fund towards one of my debts, and then am stuck with little savings. :/ Working on that for sure. That's why I'm thinking of putting about $500 away in my e-fund as a starting point, I'll still have the stock as well if absolutely needed (possibly buy more stock), and continue trying to add the $100-$200 I have after my additional loan payments to my cash buffer/e-fund. My rent is cheap, only $255 and I spend maybe $100 on food each month, or up to $200 if I'm eating out too much. Other than that, I have my debt payments.

The thing I like about buying stock, while it also has the nice value of inflation, is I don't touch it. I have access to sell it when I'm in dire straights, but it seems to be the only thing that has kept me from getting that money on a whim, even if that whim is a panic attack of me putting a large chunk of cash towards one of my loans.

[bjl584]

I need to ask what the $70K in student loan debt is from. What type of degree did that buy you? Can you find a better job and stop doing freelance work?

Your car payment is crazy for someone that doesn't have a steady income. Sell it if you can.

You have no savings. I'd probably save most of the $4500 until I can figure out something for both your career situation and your car situation.

[TBH]

Brian, she's got a steady job that covers her expenses and minimum debt payments. The freelance income is on the side, and allows her to save and pay down debt faster.

I agree with others that you should keep a big chunk of this money liquid. If you have a tendency to panic and put all your savings toward debt, I'd get help from people on this board to decide on a minimum emergency fund below which you will not go, and stick to that.

Since your expenses seem very low, I'd say you don't need a huge emergency fund.

But really, what would happen if you lost your job or had a major medical emergency or something? You don't want to find yourself defaulting on your loans or adding credit card debt on top of your other worries, and even if you are one of those lucky people who could call on family in an emergency, wouldn't it be nice to know you could weather almost any financial crisis without needing to make that phone call?

Sit down and add up your minimum debt payments and your unavoidable monthly expenses--rent, food, utilities, etc. I'd keep at least 1 month of all those expenses in an Efund and DO NOT TOUCH IT. Then throw everything else at the car loan.

I understand why you like keeping the stock account. I also have to hide money from myself in that way. But really you shouldn't be investing in stocks right now, unless it's in a retirement account. Can you put money in a ROTH, which will also protect it from yourself but where you could use it in a really major emergency? In general I'm not in favor of treating a ROTH as an emergency fund, but since you are having an issue with not being able to bear to leave your savings just sitting there when you have all this debt, then maybe it would be a good move for you.

Also I just want to say you are awesome for having the discipline to use your freelance income to pay down debt. I love that you are thinking about this in terms of HOW should I save this money, HOW should I pay down my debt, and there is no question of spending it on something frivolous. Although I think you could stand to lighten up on yourself just a bit. Maybe take yourself and a friend out for a nice dinner when the check comes in?

Good luck. The way you're going, that car loan is going to be gone before you know it, and then you'll be able to turn your attention to the student loans.

[TheKayla]

I need to ask what the $70K in student loan debt is from. What type of degree did that buy you? Can you find a better job and stop doing freelance work?

Your car payment is crazy for someone that doesn't have a steady income. Sell it if you can.

You have no savings. I'd probably save most of the $4500 until I can figure out something for both your career situation and your car situation.

I'm not a freelancer full time, when I was I was making much more than $8k a year! I do freelance work on the side, I work at an agency with full-time salary as well. I have a computer science degree and work in my field.

I was in school when the costs hiked up as did interest rates -- half my friends who are just a few years older have interest rates and loans half as much for the exact same degree at the same school. Unfortunately I was in my late teens/early 20's and I just kept going to college because 'that's what you're supposed to do', and that's what I wanted to do. I didn't consider taking a break to work and pay for school up front after earning some of the money, although I did work through college and make small payments to my loans while fully supporting my living expenses by myself as well. It's done now though I suppose, and there's no going back.

Although I have a lot of student loan payments, I can pay the minimum on them very easily, they're less than a quarter of my overall income after taxes are taken out, and I usually pay slightly more on them, plan on paying more on them in the future after my focus on my car payment. So no, I do not have a car payment that is on an irregular income at all.

[TheKayla]

Brian, she's got a steady job that covers her expenses and minimum debt payments. The freelance income is on the side, and allows her to save and pay down debt faster.

I agree with others that you should keep a big chunk of this money liquid. If you have a tendency to panic and put all your savings toward debt, I'd get help from people on this board to decide on a minimum emergency fund below which you will not go, and stick to that.

Since your expenses seem very low, I'd say you don't need a huge emergency fund.

But really, what would happen if you lost your job or had a major medical emergency or something? You don't want to find yourself defaulting on your loans or adding credit card debt on top of your other worries, and even if you are one of those lucky people who could call on family in an emergency, wouldn't it be nice to know you could weather almost any financial crisis without needing to make that phone call?

Sit down and add up your minimum debt payments and your unavoidable monthly expenses--rent, food, utilities, etc. I'd keep at least 1 month of all those expenses in an Efund and DO NOT TOUCH IT. Then throw everything else at the car loan.

I understand why you like keeping the stock account. I also have to hide money from myself in that way. But really you shouldn't be investing in stocks right now, unless it's in a retirement account. Can you put money in a ROTH, which will also protect it from yourself but where you could use it in a really major emergency? In general I'm not in favor of treating a ROTH as an emergency fund, but since you are having an issue with not being able to bear to leave your savings just sitting there when you have all this debt, then maybe it would be a good move for you.

Also I just want to say you are awesome for having the discipline to use your freelance income to pay down debt. I love that you are thinking about this in terms of HOW should I save this money, HOW should I pay down my debt, and there is no question of spending it on something frivolous. Although I think you could stand to lighten up on yourself just a bit. Maybe take yourself and a friend out for a nice dinner when the check comes in?

Good luck. The way you're going, that car loan is going to be gone before you know it, and then you'll be able to turn your attention to the student loans.

Thanks for the advice. I think I am going to keep most of it liquid now, and just assume my regular car payments without any of this check going towards that or my other debts right now.

I think I'll buy another $500 in stock so I know I'll have at least a $1000 somewhere where I know I won't touch it for something frivolous -- that just makes me feel more comfortable knowing how my stress-driven head sometimes works so I'll have something if the worst should happen -- but the rest I'll keep very liquid in my savings/checking accounts. I think I'll put about $200 of it in as a travel fund and take a weekend trip somewhere too

[bjl584]

I'm not a freelancer full time, when I was I was making much more than $8k a year! I do freelance work on the side, I work at an agency with full-time salary as well. I have a computer science degree and work in my field.

I was in school when the costs hiked up as did interest rates -- half my friends who are just a few years older have interest rates and loans half as much for the exact same degree at the same school. Unfortunately I was in my late teens/early 20's and I just kept going to college because 'that's what you're supposed to do', and that's what I wanted to do. I didn't consider taking a break to work and pay for school up front after earning some of the money, although I did work through college and make small payments to my loans while fully supporting my living expenses by myself as well. It's done now though I suppose, and there's no going back.

Although I have a lot of student loan payments, I can pay the minimum on them very easily, they're less than a quarter of my overall income after taxes are taken out, and I usually pay slightly more on them, plan on paying more on them in the future after my focus on my car payment. So no, I do not have a car payment that is on an irregular income at all.

OK. That changes some things then. What is your income? Total income, fulltime plus freelance?

Also, what type of car do you own? How much longer do you have to pay? What kind of car is it?

[dojo]

I wouldn't buy stock if I had such huge debt. Put some money on the EF and PAY OFF THE CAR as soon as possible. right now that drags you more than anything else. Then more money in the EF and pay the student loans. If you keep on paying the minimum you'll be paying the loans for the next 20-30 years and it's not a great idea. Put everything you can now to paying your debt and then invest. That's what I'd do anyway

[TheKayla]

I wouldn't buy stock if I had such huge debt. Put some money on the EF and PAY OFF THE CAR as soon as possible. right now that drags you more than anything else. Then more money in the EF and pay the student loans. If you keep on paying the minimum you'll be paying the loans for the next 20-30 years and it's not a great idea. Put everything you can now to paying your debt and then invest. That's what I'd do anyway

That's what I'm saying though is I have stock as an extra emergency fund that I know I won't touch unless that absolute worst should happen. It's more of a brain hack for me and working with my behavior patterns. I definitely don't want to get serious about building my stock portfolio at this time until my debt is paid off, but use it rather as a backup fund. It's also why I'm definitely not budgeting any to go to stocks with my regular paychecks, only when I get a large sum every now and then, I'll put a smaller portion towards my safety-net stock. I'm not buying stock to get rich, but more of a long-term, yet slow building right now, savings. (I'll maybe put in $1000 a year or less on average -- just so I have something).

I understand exactly what you're saying though and I will definitely be putting the vast majority of it into my savings/checking account -- the rest of the $4170 to be exact. Right now I'm paying more than double on my car loan, $1050 each month. It's going down so fast, and it keeps me motivated! I'm also on the 10 year plan with paying the minimum on my student loans, so paying extra should get me out in less than 10 years. I've already paid extra on them in the past, and am below the 10 year mark total for when they'll be paid off. My plan is to be debt free my 30 actually, so 6 years -- I've done the math and it's totally do-able with some hard work and consistency!

[TBH]

What type of car do you own? How much longer do you have to pay? What kind of car is it?

She drives a Prius, new last year. She's been prepaying it, trying to pay it off early.

Are you reading the threads before you post?

[TheKayla]

OK. That changes some things then. What is your income? Total income, fulltime plus freelance?

Also, what type of car do you own? How much longer do you have to pay? What kind of car is it?

I'm still on entry level salary at $40k, and just talked to my boss about my raise from entry level to a standard salary, and he said one should be happening soon (he doesn't have complete control, our parent company does). He's working on making that happen. But yes, $40k right now, and since I work full time now probably only about $10k freelance throughout the year. I'll total around $50k this year, but should be higher this next year for sure.

Keep in mind I also live in a city where cost of living is awesome, hence the lower than nation-wide average for my degree/field. I spend about $500 total, on average, for everything else each month, between food, rent, and misc. items.