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I'm a graduate student, entering my third year of a five (six) year, fully fully funded program. Soon, I'll be done paying off my unsubsidized student loans. As I'll be teaching this year, I'll have the potential to open and contribute towards a Roth IRA. I have the following loans, ~$5500 @ 2.09% car loan ~$13000 subsidized student loans (subsidized until 2020) After bills are paid, I expect to have ~$1000 a month to put towards debt repayment/retirement contribution. I'm leaning towards killing the car loan, then going after the remainder of the student loans while I'm not being charged interest. However, 7% return on investments is making me rethink things. In addition, I may teach K–12 if I can't find anything in academia (I probably won't be able to find anything in academia). My budget, in broad strokes, is below, Rent: $350 Car payment: $267 Food: $150 Phone: $25 and I have a $1k emergency fund. Any thoughts? e: budget gnrk fucked around with this message at 17:18 on Aug 3, 2016 |
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Aug 3, 2016 16:52
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| # ? May 3, 2024 11:15 |
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What kind of liquid savings do you have?
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Aug 3, 2016 17:01
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1k for emergencies. Barring getting kicked out of school (which I don't foresee), my paychecks and their amounts are pretty predictable.
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Aug 3, 2016 17:10
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I'd build up your emergency fund a bit more; what's your health insurance deductible? I would max out your Roth before paying down any of those low-interest loans. And I can't believe that those are the only budget items you have, even in broad strokes. Have you been tracking all of your money through Mint or something similar?
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Aug 3, 2016 19:26
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I wouldn't be posting in BTC if I didn't (have a budget)! Yeah, I use Mint and a spreadsheet. My full list is, Phone Bill Rent Utilities Food Gas Insurance Car Payment I rent and share an apartment with others, so shared stuff that would go in a "Home" category ends up being pretty insignificant. Not sure what the health insurance deductible is, around $250, I think? My health insurance gets bumped up while I'm teaching. So after the Roth, the car loan? Or, because the subsidized loans are (slightly) higher (~4%), those?
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Aug 3, 2016 20:07
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Max out Roth and pay car loan year 1 (assuming this is 2017?). If money still coming in 2016 then Max out the Roth. Your tax rate should be like nothing and it's great to get that money in there now. Max out Roth in 2018, 2019, 2020, and put the rest into after tax investments, depending on your risk tolerance. By 2020 you should be able to write a check for the subsidized loans with the after tax account before you pay any interest on them, unless the market tanks, in which case it's not an unreasonable balance and rate that you can't just attack it quickly with your hypothetical higher paying job after graduation. This is just what I would do. If you have minimal risk tolerance then you could hit the subsidized loans instead of an after tax investment account, but definitely Roth and car loan first, that subsidised loan is 0 interest debt right now. Maybe bump the emergency fund to 5K with the first year if you are car dependent (in case it explodes or something)
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Aug 16, 2016 18:33
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| # ? May 3, 2024 11:15 |
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I agree with moana and zonacat that you should contribute the 5,500 annual to your Roth IRA and then invest in separate mutual funds - assuming you're young, stock based funds like index funds are your best bet - Vanguard recommended. However, if you don't foresee any change in your status over the next two years, I would not pay anything over the minimum payment on that car loan and here's why: at ~2% (fixed?) you're really only paying about 1-1.5% after inflation with inflation expected to rise over the next two years (with about 20 months to ago in payment) which may further reduce that effective rate. You're better off long-term investing any would-be payments for the much higher probable return. Since you're not paying the interest on the subsized loan until 2020, you have an effective 0% APR loan. You can think of this as in 2020 you are obligated to take out a loan of $13,000 at 7% APR (fixed I assume). That means that you're really better off planning for that now and paying on it then. Understand that you need to plan to include this in your debt burden figure in 2020. At that time you will probably want to prioritize the payment on that but until then, you're better off investing and earning the interest. Those 4% loans are kind of a judgement call based on what you think you'll earn over their term in the market, if you think the annualized return for the life of htose loans will be >4%, then invest. If not, then pay them down. I prefer not to have unnecessary debt, but if it was me (I have a little more risk tolerance) I would probably continue to pay the minimum and invest. That said, at a minimum if the schedule on those loans take them into an overlap with your subsidized loan I would make some early payments to bring that in line so as not to increase my debt burden in 2020. Boon fucked around with this message at 02:01 on Aug 17, 2016 |
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Aug 16, 2016 19:29
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