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Hi all. I'm looking to get my finances into a better place, I have done a lot to get myself out of debt so far but there is a long way to go before I am sitting on a golden throne of beautiful naked women (That's what investing will do, right?) So here is my situation. I'm 24 years old, I am a half-time college student, I work full-time at Microsoft as a contractor, I make more money than I have ever made in my life (22.50/Hour). I have two credit cards, a car loan, and student loans, a savings account, a "conservative" mutual fund from my bank (USAA), and a brokerage account. I'm also about to receive a $4500 tax return Car Loan: 22,825 @ 11% (loving terrible, I know) Capital One Credit Card: Owed $300 out of a $300 limit. USAA Credit Card: Owed $450 out of a $500 limit. Savings Account: $100 My credit score is 525, pretty awful, but its coming up since I just got OUT of over $2000 dollars in collections over the last 3 months. Score Income: 3650/Month (Job + Air National Guard + GI Bill Housing Allowance) Car Payment: $454/Month Car Insurance: 192/Month Cell Phone: $85/Month Rent: $650/Month Savings automatic transfer: $200/month Mutual Fund automatic transfer $150/month Those are all of my static expenses. Rent includes bills/internet/power/etc. I'm looking for advice on how to get: 1) Emergency savings fund 2) Payoff my horrible rate auto-loan 3) Begin investing for retirement 4) Begin investing for short term gains 5) Advice for student loans, I won't have to make payments for another 2+ years. Please let me know if you need anymore information to give me some help, I appreciate any advice anyone can give me. ANGRY_KOREA_MAN fucked around with this message at Feb 8, 2013 around 19:05 |
| # ? Feb 8, 2013 19:02 |
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| # ? May 20, 2013 22:05 |
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What's the principal and interest on the student loans? Take your $4500 tax return and use it to pay off both cards and get your savings account up for an emergency. Fling the rest at the car loan. Make a budget and pay off as much money on the car loan as humanly possible. edit: If you're an actual 1099 contractor, be sure you're saving money towards the inevitable tax bomb you'll be receiving.
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| # ? Feb 8, 2013 19:08 |
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Excuse me, I owe 21,000 in student loans, due 6 months after my graduation date. 9,000 of that is Subsidized student loan @ 0% until graduation (2.5 years away) 12,000 of that is unsubsidized student loan @ 6.8%
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| # ? Feb 8, 2013 19:13 |
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ANGRY_KOREA_MAN posted:Mutual Fund automatic transfer $150/month If this isn't a retirement fund, I'd close it out, stick the money in savings until you have a real emergency fund, and skip non-retirement investing until all your debts are paid off and you have a six-month emergency fund. Pay yourself first, with a guaranteed 11% or 6.8% return by paying off your debt. In addition, you need to figure out a reasonable monthly budget for yourself. First, figure out what's going on with your contractor wages. If you need to pay self-employment tax, budget for that and plan to pay quarterly when it comes due. Then, figure out what you need to live on apart from your fixed expenses. How much is food? How much are books? How much do you need for gas? Categorize and budget for occasional/irregular expenses (like auto registration, tuition, schoolbooks, clothing etc.). Give yourself some money for fun, but fix a number and don't go over it. Once you've paid minimums on everything, take all the leftover that isn't earmarked for something in your budget and put it towards: 1. Savings to $1k 2. Pay off CC completely 3. Savings to $3k 4. 75% to car loan, 25% to Roth IRA (up to $5500/year) Once the car loan is paid off, 5. 50% to student loans, 50% to Roth IRA (up to $5500/year) The $4500 you have from the tax refund will take you through 1 & 2 immediately. Engineer Lenk fucked around with this message at Feb 8, 2013 around 19:46 |
| # ? Feb 8, 2013 19:19 |
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Engineer Lenk posted:If this isn't a retirement fund, I'd close it out, stick the money in savings until you have a real emergency fund, and skip non-retirement investing until all your debts are paid off and you have a six-month emergency fund. Pay yourself first, with a guaranteed 11% or 6.8% return by paying off your debt. I never thought about negative interest as a return when I pay it off, that makes perfect sense, and 11% or 6.8% is a pretty great return. in the last 10 minutes I changed my automatic billpay from 454/month for the car to 800/month. Edit: Here is the link to my budget spreadsheet on Skydrive - http://sdrv.ms/W4ueiW ANGRY_KOREA_MAN fucked around with this message at Feb 8, 2013 around 19:30 |
| # ? Feb 8, 2013 19:27 |
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Well obviously pay off the credit cards first. What caused your terrible credit? With the card utilization lower it should jump in theory.
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| # ? Feb 8, 2013 19:37 |
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Harry posted:Well obviously pay off the credit cards first. What caused your terrible credit? With the card utilization lower it should jump in theory. When I first got out of the military and moved to Seattle I got some payday loans, and also went into collections for quite a bit of money from those payday loans (they are all paid now) and also owed nearly 2,000 dollars to my roommate at the time (Also paid off). Not to mention generally horrible credit card management for the last 3 years.
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| # ? Feb 8, 2013 19:45 |
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Engineer Lenk posted:If this isn't a retirement fund, I'd close it out, stick the money in savings until you have a real emergency fund, and skip non-retirement investing until all your debts are paid off and you have a six-month emergency fund. Pay yourself first, with a guaranteed 11% or 6.8% return by paying off your debt. I'm employed by a contracting company so I have no self-employment tax or anything like that. I'm also on an indefinite contract so my job security is pretty great, I'm pretty good employee so I'm not worried about getting canned anytime soon. The 5 steps you listed seem pretty good to me.
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| # ? Feb 8, 2013 19:53 |
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Lenk's advise is pretty solid. A word about your job security, it's NOT GREAT. Ballmer could get constipated and axe your entire division on a whim. I would pay off both of your credit cards immediately with your tax refund, and put the balance in the bank. Your short term goal should be 2 months of expenses in the bank, with a long term goal of 6 months expenses in the bank. Budget yourself a bit of fun money. You only have a few years of this high paying job/low responsibility phase of your life before you settle down and get saddled with things like kids and a mortgage. You have a long time to save for retirement, not so long to go do crazy poo poo like backpack Cambodia for 2 weeks.
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| # ? Feb 8, 2013 20:01 |
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Honestly I would take the $4500, use it to sell the car and buy a beater. That frees up $500 a month to work with, and removes $22000 from your debt pile. Anything let over id pay the cards off. If you expect to get another $4500 next year in a tax return you need to adjust your withholdings so you are getting another $300-$400 a month on your paychecks. Don Lapre fucked around with this message at Feb 19, 2013 around 22:54 |
| # ? Feb 19, 2013 22:51 |
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Don Lapre posted:Honestly I would take the $4500, use it to sell the car and buy a beater. That frees up $500 a month to work with, and removes $22000 from your debt pile. Totally agreed, even if you take a pretty big hit with depreciation, you're freeing yourself up in a big way. 11% is massive! Your car's value should probably not be any meaningful proportion of your salary, and right now it's like 50%. That's crazy, move down to something you can afford, and you'll be debt free in no time.
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| # ? Feb 20, 2013 01:43 |
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Don Lapre posted:Honestly I would take the $4500, use it to sell the car and buy a beater. That frees up $500 a month to work with, and removes $22000 from your debt pile. More than likely he's more than $4500 underwater on the car so he doesn't have the capital to sell and then find something reasonably reliable. I'd definitely consider this when OP gets closer to a break even point if there are some available there for a car.
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| # ? Feb 20, 2013 14:17 |
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I love my car its my favorite thing  I suppose I could look into doing that but I'm not sure it would save me any money, and with my budget that I've made now it will be paid off within the year.
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| # ? Feb 20, 2013 16:19 |
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ANGRY_KOREA_MAN posted:I love my car its my favorite thing Selling it would save you the value of the car. If its worth $15000 thats $15000 you knocked out of your debt pile. If you can pay off a $22,000 car this year then you could be debt free this year. Sell the car, use the plan to pay off the car to pay off your student loans and credit cards. Then next year instead of paying your debts you can save the money and invest or save up for a nice car.
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| # ? Feb 20, 2013 16:31 |
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Yeah, get rid of the car. You don't necessarily have to get a beater (I love mine) but definitely find something cheaper. edit: Well, paying off the car might not be so bad, especially if you can do it in a year but I wouldn't sell it unless I could get what I owed for it. I decided to pay off my car because I was about to get married and it was a good family car with low mileage. What kind of car is it and where do you see yourself in 5 years? If you're driving around a little sports car and plan to get married in 5 years it may be a good idea to sell it. Honestly, I think you're doing fine, especially for your age. Your student loan debt is pretty low compared to some of the horror numbers I usually see dropped around SA and you already have a decent job. Get your debt paid down, avoid over-spending and you'll be fine. Man, every time I see a thread like this I cross my fingers hoping it's going to be as glorious as a Zaurg thread and then I'm disappointed to see that the OP is somewhat financially competent and isn't that bad off. Orange_Lazarus fucked around with this message at Feb 20, 2013 around 17:14 |
| # ? Feb 20, 2013 17:03 |
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You owe ~half of your annual salary on a car at an 11% interest rate. That is the definition of a financial disaster. There are credit cards out there with better interest rates. Is your car still your favorite thing when you're going to spend $8k over the life of the loan on your car for just interest payments? How long is the term on the loan? 67 months left, right? Do you still want to drive that car in 5 1/2 years? Isn't your GI Bill housing allowance going away in 2 years, and you'll have to start repayment on student loans at the same time? (For that matter, if you had GI bill cover your tuition, what are the loans for and how much are they?) My point is, spending $650/mo on your vehicle is only going to get less and less affordable. It's OK to have luxuries, but you need to be really honest with yourself and realize that if you want this nice car, this will likely be the only luxury you'll have in your life at your income level (see Tuyop's thread). This car could mean no going to bars with friends, no nice tech gear, no exciting vacations**. That is a financial millstone around your neck. You need that car loan out of your life ASAP. Whether that means selling it tomorrow or living like a monk so you can pay it off super soon, you need to do it. 11%  fake edit: I just saw that you're contributing $800 total towards the car now. That's changing your payoff date to November 2015, with $3.6k paid in interest between now and then. That's an improvement, if you can keep it up for 2 1/2 years. **note: Unless you do it the True American Way by saving no money, having zero retirement savings, and going into crippling debt before age 30.
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| # ? Feb 20, 2013 18:08 |
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Keep the car. You're young, making good money and have no family responsibilities other than yourself. If your car makes you happy, keep it. It's not the "BFC SMARTEST FINANCIAL DECISION" but you're fine. Look into refinancing if possible with a local credit union.
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| # ? Feb 20, 2013 18:12 |
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Keeping a car cause you are young is crap. There are plenty of cars out there and you will have plenty of cars in your lifetime. Its just a car, a car with $22,800 owed on it at 11% interest. A car that is keeping you from being debt free this year. You wouldn't tell him to go spend $22,800 in credit cards cause hes young if it makes him feel good.
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| # ? Feb 20, 2013 18:33 |
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ANGRY_KOREA_MAN posted:I love my car its my favorite thing Can you legitimately pay it off in a year? If so, do it! And just revisit the question of selling it at that time. For the privilege of the delay, you'll pay about $1300 in interest between now and then.
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| # ? Feb 20, 2013 18:42 |
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Don Lapre posted:Keeping a car cause you are young is crap. There are plenty of cars out there and you will have plenty of cars in your lifetime. Its just a car, a car with $22,800 owed on it at 11% interest. A car that is keeping you from being debt free this year. I guess it depends on his car's blue book value. If he can sell it without taking a considerable loss he should probably go for it, if he can't refinance it might be a good idea to sell it AND take a somewhat considerable loss. A few questions for the OP: What kind of car is it? Do you see yourself driving it in 5, 10 years? What if you meet that special someone? Will the car meet your needs then?
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| # ? Feb 20, 2013 19:09 |
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The car in question is a 2012 Mitsubishi Lancer (not the evo). Its got 23,000 miles on it. Its in very good condition and is the GT/SE model. I already have the special someone, but we don't live together yet (will be in 6-8 months). I do plan on driving the car until it dies.
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| # ? Feb 20, 2013 20:07 |
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He can easily pay the car off in a year if his expenses are accurate and he dumps his refund into it. Personally, I'd stop contributing to that mutual fund as well.
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| # ? Feb 20, 2013 20:07 |
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Don Lapre posted:Keeping a car cause you are young is crap. There are plenty of cars out there and you will have plenty of cars in your lifetime. Its just a car, a car with $22,800 owed on it at 11% interest. A car that is keeping you from being debt free this year. I disagree. I had my fun car when I was younger and I was glad I did. You guys in BFC think everyone should drive a 1988 Volvo StationWagon and survive on rice and beans. The kid is young and makes decent money, he doesn't need to live like a pauper. He's on track to pay the car off in a year or so. He can drive inexpensive practical vehicles when he gets older and has things like a family and a mortgage and poo poo. Let the kid live. Life is short dude, you can get hit by a bus tomorrow. edit: Scratch that, A non EVO Lancer is a terrible waste of money, sell it and get a real fun car like a G37 coupe or something. If you're going to blow 23K do it on something worth it. skipdogg fucked around with this message at Feb 20, 2013 around 20:12 |
| # ? Feb 20, 2013 20:09 |
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skipdogg posted:I disagree. I had my fun car when I was younger and I was glad I did. You guys in BFC think everyone should drive a 1988 Volvo StationWagon and survive on rice and beans. The kid is young and makes decent money, he doesn't need to live like a pauper. He's on track to pay the car off in a year or so. He can drive inexpensive practical vehicles when he gets older and has things like a family and a mortgage and poo poo. Let the kid live. Life is short dude, you can get hit by a bus tomorrow. Me too. I had a fun 4WD and a couple motorcycles. The difference is, I paid cash for those. Those vehicles didn't commit $32,000 of my earnings over the following 6 years to someone else. It's a bad idea to go into debt to spend your "glory days" in a sports car and live like Uncle Rico later. 
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| # ? Feb 20, 2013 20:19 |
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You can have a fun car without spending $23000. Spending wisely while hes young will allow him to buy what he wants when he is older, with cash.
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| # ? Feb 20, 2013 20:25 |
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Don Lapre posted:You can have a fun car without spending $23000. Spending wisely while hes young will allow him to buy what he wants when he is older, with cash. Agreed. Sell the car, you'll be much happier when you do. I dumped my WRX for a 14 year old Toyota when I went back to school and I'm so glad that I did. You'll be amazed at how fast your bank account grows when you're not spending $410 on a car payment, $180 on insurance, and an addition $40 on gas every month. Paid-off cars and $30/mo insurance is the way to roll. In three years would you rather be: 1) completely debt free and saving a ton of money towards a house/retirement or, 2) a 27 year old with a paid off economy car with $18 grand in debt to pay off? Selling your car basically puts you ahead financially by three years. Imagine how much additional three years of returns on your retirement will amount to in 20 years. Because you have the disposable income, you should begin payment on your student loans now. If anything, at least pay the interest payments on your unsubsidized loans.
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| # ? Feb 25, 2013 08:42 |
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Sell the car, buy a beater, save $1k emergency fund, pay off credit cards, pay off student loans. Don Lapre is right, adjust your withholdings so that you don't get a tax refund. Tax refund=zero interest loan to the government.
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| # ? Feb 25, 2013 09:25 |
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So could someone maybe outline how the car-selling process would work? I've never done that before. Do I just take it to a dealership and tell them my situation and that I need to get into a cheaper car? E: The car is worth 17,000 in excellent condition, its probobly in "Great" condition making it worth about 16,250 or so. I owe 23,000 on it right now. ANGRY_KOREA_MAN fucked around with this message at Feb 26, 2013 around 21:22 |
| # ? Feb 26, 2013 21:00 |
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ANGRY_KOREA_MAN posted:So could someone maybe outline how the car-selling process would work? I've never done that before. Do I just take it to a dealership and tell them my situation and that I need to get into a cheaper car? You can post it up on forums, websites. Get a good assessment of how much it should be. Dealer probably won't give you the money you're looking for.
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| # ? Feb 26, 2013 21:52 |
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ANGRY_KOREA_MAN posted:Do I just take it to a dealership and tell them my situation and that I need to get into a cheaper car? If you do this unprepared you will come out thousands of dollars to the worse. Start with a quote from Carmax, which will be quick and free (and bullshit-free) and will set a lower bound on your selling price. If you then do a private sale you can get, I dunno, 10-20% more? I am not in the "You Must Sell" camp here, assuming you actually pay it off this year. You could net $5-10k to pay off your 7% loans though, at the cost of some hassle and driving an older/cheaper car. Also don't worry too much about your W-4. Much better to get a refund every year and pay down your loving 7% loans with "Woo! Free money!" than freak out about a completely trivial amount of innerst free loan to the gummint. Although if I kept getting $4k refunds I would tweak it some time when I got around to it.
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| # ? Feb 26, 2013 23:09 |
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slap me silly posted:If you do this unprepared you will come out thousands of dollars to the worse. Start with a quote from Carmax, which will be quick and free (and bullshit-free) and will set a lower bound on your selling price. If you then do a private sale you can get, I dunno, 10-20% more? He can pay an extra $300-$400 a month on his 7% loan by adjusting his w4.
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| # ? Feb 27, 2013 03:58 |
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Which will save him $160 versus just dumping his tax refund in there at the end of the year, if he nails it perfectly. I mean, maybe I shouldn't sneeze at it but... there are other factors in play like whether he will maintain the discipline to put the extra money to the loans every month, how he will feel if he goes one exemption too many and has to pay tax in April, etc.
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| # ? Feb 27, 2013 17:11 |
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Assuming he (or someone else) determined they are going to owe in April because they underpaid couldn't they just open a traditional IRA and make the previous year's deposit to lower the tax bill? Of course it would only help someone who would only need <=$5k to avoid the the penalty. I'm not suggesting this to the OP but since it's been brought up I'd like to know. Orange_Lazarus fucked around with this message at Feb 27, 2013 around 17:33 |
| # ? Feb 27, 2013 17:28 |
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It really depends how he got the refund. I'm going to blindly guess it had to do with the Education credit.
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| # ? Feb 27, 2013 17:45 |
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Harry posted:It really depends how he got the refund. I'm going to blindly guess it had to do with the Education credit. Yep. While I was in school, I couldn't adjust my W4s low enough to not get a refund for that very reason.
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| # ? Feb 27, 2013 18:52 |
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Also going against the grain here because I love my car. You make about the same money as I do and I bought a $50k luxury sports sedan. I don't regret the purchase one bit, I wouldn't change it for the world (Ok actually i would have gotten something a bit nicer if anything) but it is the only debt I have. You seem like you should be able to knock out your debts very quick based on your expenses and income. Can you post a full breakdown of how much you spend and what you spend it on in a month? For the record, i put $15K down on the car when i got it, financed for 6 years @ 2.9%, and am on track to pay it off in half the time right now. Your interest rate is far worse then mine, so the sooner you can pay yours off if you keep it the better. And if you really love it I would keep it. I would think you should be able to easily double if not triple your payments towards the car based on what you've posted right now.
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| # ? Feb 27, 2013 19:09 |
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asmallrabbit posted:Also going against the grain here because I love my car. You make about the same money as I do and I bought a $50k luxury sports sedan. I don't regret the purchase one bit, I wouldn't change it for the world (Ok actually i would have gotten something a bit nicer if anything) but it is the only debt I have. Spending more than a years after tax pay on a car is pretty nuts no matter who you are. I love cars too and felt a little stupid buying one that cost about 35% of what I make in a year, I can't imagine going over 100%.
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| # ? Feb 27, 2013 19:31 |
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sanchez posted:Spending more than a years after tax pay on a car is pretty nuts no matter who you are. I love cars too and felt a little stupid buying one that cost about 35% of what I make in a year, I can't imagine going over 100%. Granted I was in a bit of a different situation. No debt, was building my savings at about $1500+ per month and a nice car is one of the things i had been wanting for years. The amount of happiness and enjoyment I have gotten from it was well worth the cost, but I have a total passion for driving. To me the whole point of being financially secure and smart is to be able to get the things that you want, although I am looking forward to being out of debt again so that I can use the extra income per month to build my savings again rather then pay off the car sooner.
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| # ? Feb 27, 2013 20:06 |
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Financial decisions like this are based on individual values as much as risk management. It's similar to a patient making healthcare decisions, like choosing between undergoing an amputation for a cancer in your leg, versus going for chemo/radiotherapy. Your car is an expensive liability. From a pure risk-management, net worth point of view, you would be better off to sell the car and buy a cheaper vehicle to lower your debt. You would likely have a better chance of surviving the disease if you had the amputation, rather than the chemo/radiotherapy. However, your life might not be as enjoyable with a partially amputated leg (or cheaper car) than it otherwise would have been. If you keep the car, you might be fine and eventually pay off the higher payments and costs of the vehicle. Similarly, you might be fine if you have chemo/radiotherapy. However, you might lose your job, or have some other kind of emergency that makes your situation much more dire. It's probably pretty unlikely to happen, but it is a potential risk. The chemo/radiotherapy might fail, and you might have a chance to have a larger, more serious surgery to survive. You might have to sell more than just your car at that point to survive, since you've spent so much more on the vehicle and didn't have savings built up. However, you're aware of the terms and conditions of owing this vehicle. You know how much money you make, and how much money this car is going to take from you in terms of car payments, gas, insurance, etc. For a lot of people, it might be an uncomfortably high amount of money, and they would prefer to spend it on their home, or family, or saving for a rainy day. Doctors can tell you the likelihood of success of the various treatments, or they might not be able to predict the likelihood of dying (the likelihood of losing your job). As the forum financial doctors here, it is our job to help you appreciate the severity of risk, and make sure you understand what the possible outcomes are of your financial situation, and what we think would be the best decision to give you the most financial health. If you come on a forum and talk to similar cancer patients, some will have had the amputation, and some will have had the chemo/radiotherapy. Some of them would swear by one or the other, and some would have horror stories of people who made the other choice and had a bad outcome. Your doctor or your family might disagree with the choices that you make, but ultimately it's your life, and as long as you make an informed decision, you can make the decision that gives you a level of risk that you are personally comfortable with and gives you a quality of life that is most in line with your values.
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| # ? Feb 27, 2013 21:46 |
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| # ? May 20, 2013 22:05 |
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asmallrabbit posted:Also going against the grain here because I love my car. You make about the same money as I do and I bought a $50k luxury sports sedan. I don't regret the purchase one bit, I wouldn't change it for the world (Ok actually i would have gotten something a bit nicer if anything) but it is the only debt I have. There is a link near the top that shows my itemized budget, unless the link is bad now for some reason... *cough* skydrive...
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| # ? Feb 27, 2013 23:24 |
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