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Am I forgetting anything in my self financial assessment?
BlochWave
Registered User regular
Registered User regular
Damn job brainwashing me, I typed this out on a spreadsheet and even formatted it all nice and pretty >_>
Anyways, my present financial strategy is if my checking account gets above 2000 I dump the excess into my savings account, meanwhile I spend pretty much indiscriminately. (I've had a job yielding 5 digits for about a year now)I have about 4500 dollars to my name, 1500 in checking, 3000 in savings, about 1000-1500 of that savings is spoken for(trip to china, mom bought the ticket so I owe her 900, plus a worst case assessment of spending IN China, I'm visiting my sister and we're actually flying within the country blah blah etc.)
So what I'm asking for here is just check to see if I'm grossly missing anything, or making a stupid calculation or assumption, and maybe offer, you know, help and advice. I'm trying to be slightly more organized since I'm getting to that stage where I'll be having to make big purchases like a car(or at least costly repairs on the present junker)and I REALLY wanna get my student loans beat down (roughly 13000)
So let's pretend this is a worst case scenario month for projecting purposes, assuming I eat like ass every day and drive a lot while cranking the AC and running my dryer for fun.
So let's say 8 dollars a day for lunch and dinner each(some days 10, some days 6, ya know)7 days a week, 224 dollars a month each. One tank of gas a week at about 3.8 a gallon, 10 gallon tank, 152 dollars a month. 750 a month for rent(a little less but also a water bill), 100 for electricity, 125 for cable+phone+internet, say 150 for recreation(a movie a week plus a game maybe) 60 dollars a month for groceries(maybe low but I wouldn't be buying lunch and dinners in this scenario)and on top of that I usually throw 200 a month at my student loans.
I make roughly 2800 dollars a month, leaving me with about 800-900 dollars saved a month.
...well damn, am I really doing that well? Would you consider that well? This is also with about 200 a month going into a 401k which I guess is good but who knows if I'll make it to 70. (or 69.5 I think is the official number)I guess that sounds right, I've made a couple of substantial purchases (computer and furniture, I kept myself pretty low on funds while I paid them off very quickly, a keyboard, 360, etc.)plus Christmas presents which I forget how much I splurged(my first Christmas that I COULD splurge)so probably for about 7 months I've been pretty stable, and that seems like the right amount.
So would it be a dangerous thing to say I'm doing pretty decent financially? Would it be unreasonable to expect to be able to pay off my 13k of remaining loans(keeping in mind that number comes with me ALREADY dumping 200 a month in there)in about a year assuming that was my primary destination for my spare money? Well I guess I'd have the potential funds to do that, but I like the idea of keeping a month's salary in my savings account for when crap goes bad, like me getting canned or something
Edit: Before you ask, car's paid for. I do have car insurance, but my mom was paying it while I was in college, and sure enough she hasn't brought that up, sweet mommiekins that she is. I really should take that on obviously, so knock another 150 a month off that final number. That was my pay after tax as well
Anyways, my present financial strategy is if my checking account gets above 2000 I dump the excess into my savings account, meanwhile I spend pretty much indiscriminately. (I've had a job yielding 5 digits for about a year now)I have about 4500 dollars to my name, 1500 in checking, 3000 in savings, about 1000-1500 of that savings is spoken for(trip to china, mom bought the ticket so I owe her 900, plus a worst case assessment of spending IN China, I'm visiting my sister and we're actually flying within the country blah blah etc.)
So what I'm asking for here is just check to see if I'm grossly missing anything, or making a stupid calculation or assumption, and maybe offer, you know, help and advice. I'm trying to be slightly more organized since I'm getting to that stage where I'll be having to make big purchases like a car(or at least costly repairs on the present junker)and I REALLY wanna get my student loans beat down (roughly 13000)
So let's pretend this is a worst case scenario month for projecting purposes, assuming I eat like ass every day and drive a lot while cranking the AC and running my dryer for fun.
So let's say 8 dollars a day for lunch and dinner each(some days 10, some days 6, ya know)7 days a week, 224 dollars a month each. One tank of gas a week at about 3.8 a gallon, 10 gallon tank, 152 dollars a month. 750 a month for rent(a little less but also a water bill), 100 for electricity, 125 for cable+phone+internet, say 150 for recreation(a movie a week plus a game maybe) 60 dollars a month for groceries(maybe low but I wouldn't be buying lunch and dinners in this scenario)and on top of that I usually throw 200 a month at my student loans.
I make roughly 2800 dollars a month, leaving me with about 800-900 dollars saved a month.
...well damn, am I really doing that well? Would you consider that well? This is also with about 200 a month going into a 401k which I guess is good but who knows if I'll make it to 70. (or 69.5 I think is the official number)I guess that sounds right, I've made a couple of substantial purchases (computer and furniture, I kept myself pretty low on funds while I paid them off very quickly, a keyboard, 360, etc.)plus Christmas presents which I forget how much I splurged(my first Christmas that I COULD splurge)so probably for about 7 months I've been pretty stable, and that seems like the right amount.
So would it be a dangerous thing to say I'm doing pretty decent financially? Would it be unreasonable to expect to be able to pay off my 13k of remaining loans(keeping in mind that number comes with me ALREADY dumping 200 a month in there)in about a year assuming that was my primary destination for my spare money? Well I guess I'd have the potential funds to do that, but I like the idea of keeping a month's salary in my savings account for when crap goes bad, like me getting canned or something
Edit: Before you ask, car's paid for. I do have car insurance, but my mom was paying it while I was in college, and sure enough she hasn't brought that up, sweet mommiekins that she is. I really should take that on obviously, so knock another 150 a month off that final number. That was my pay after tax as well
BlochWave on
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What if you lose your job, your car breaks down, and you have a fire in your apartment/house?
http://angus65.com/_files/BudgetAllocation.pdf
Download this/open it and take a looksy. I took a class that focused on this guys methods and while some of it seemed unrealistic at times, the overall message was sound. Just be prepared for anything basically.
Just read the last line of your post. While its good to have some saved, I one to think you need a lot saved in case things go bad. That pdf says your 'emergency fund' should be 3-6 months worth of what your income would be.
Of course this trades off with having a reserve of cash on hand, but a 30-day reserve seems pretty good to me as long as you don't have any dependents. You didn't mention a credit card, which is probably good what with the amount of credit card debt some post-college kids have, but maybe get a card just to hang around and be your extra reserve in case of a cash-flow situation. Buy your gas or something with it and pay it off every month.
And then after you get your loans paid off I'd bump up the 401k contribution substantially.
Yeah, its dirt cheap.
Well, dirt cheap if you want 10k coverage. Like 11$ a month.
I've got renter's insurance already, but I pay that yearly and it's not much.
Just to make sure I understand, did you mean to flip your inequality? IF the interest rate on the loan is more than the saving's account, not unless? Also, I have about 5000 dollars between two cards in unused credit that hangs around for a rainy day, and on the 401 k I mean 200 a bi weekly paycheck, so really 400 a month(and REALLY it's like 320)
It's time to go to bed.
Anyway, yeah, any money you put into the loan at this point is functionally equivalent to saving that amount of money in a higher-interest account.
I mean not really, but in terms of net worth you wanna pay off your debts ASAP
And yes, if you're single, childless, and making 2800/month post-taxes (that's about 45k/yr gross?) you'll probably have a bit extra at the end of each month. That should go into student loans, investments/savings (you'll want a house and a new car someday, plus you need money for emergency stuff like medical bills and repairs), and retirement.
The interest on your loans is tax-deductible, so paying them down quickly at the expense of a 401(k) where, presumably, you get a matching amount from your employer up to a certain amount isn't smart. The first thing you should be doing is maxing out any matching contribution on your 401(k) you get from your employer. So, say your employer does a 50% match of the first 3% of your salary contributed to your 401(k): you want to make that 3% contribution every month, because that's an immediate 50% interest rate.
Then, you want to look at the interest rate on your student loan, compare it to your current tax rate, and your expected future tax rate. So, say you've got a 5% interest rate on your loan, you're currently in the 20% federal bracket, and you're expecting to be in the 30% federal bracket in ten years. You've got a 30-year loan, so yeah, while your current effective interest rate is 4% (because of the 20% you knock off in taxes), you can get a 3.5% interest rate ten years down the line, and anything you invest into a Roth IRA or 401(k) between now and then you're going to be putting into a very aggressive retirement account (I'm assuming you're under 30), meaning it's going to be pulling in 8-9%, on a conservative estimate.
What I'm saying is that unless they're private loans with very high interest rates, you're almost certainly better off making minimum payments on your student loans, and using the money you'd otherwise use for that to invest in your retirement, buying a home, starting a business, etc.
Finally, you want at least three months of living expenses on hand, not 30 days. That's the "worst-case scenario" money. You'd be surprised how easy it is to burn through that.
Also, I would substantially increase your estimate for the cost of gas. You're making an assumption that it holds steady or goes down; I don't think that's a good assumption to be making. When you make financial estimates, you always make them pessimistically, so hopefully you're only pleasantly surprised.
More realistically, I'd estimate $400 for food. This assumes you eat about 3 meals a day, breakfast is cheap, and your meals average out to $5. $5 is more reasonable because if you cook, you can often cook something that ends up being around $3-4.
But if you doubt me, just take your grocery & food bills and keep track. Most people spend much, much more than they realize on feeding themselves, which means it's not very easy to adjust the numbers (gotta eat).
If I'm reading his post correctly the $60 is the cash he spends in addition to going out for lunch and dinner every day, which he figures to be a worst case scenario.
I was confused too at first... it's 8/day for each lunch and dinner in his post. So he estimates 224 for each per month, so 448 total. Not completely accurate because it's based on 28 days instead of 30-31, but not far off. Then add the $60 for groceries as well.
And I'm sure it's obvious, but bringing your own lunch can save quite a bit.
The grocery bill sounds pretty disciplined, I probably blow $60/month on decent beer alone.
Edit: Beated. Didn't read Daenris' post all the way thru.
Right. So he needs to add a lot more for food.
Plus, I've always been skeptical of future financial projections based entirely off of estimates. The best way to see how much money you spend is to track all of your money for a full month, and then use that to project future months. It's far more realistic than "worst case" since usually major expenses are offset by readjusting "normal" spending habits. For instance, if you have to repair your car, you probably don't go out and buy 3 video games the next weekend, so even a "bad" month isn't as bad as it could've been.
More importantly, it reveals surprises and habits. That's better than having a spreadsheet and assuming that everything is OK, only to discover that you actually spent all that "excess" at the end of the month.
Why does he have to add a lot more for food? He's figuring on $448 + $60, so $500/month. Aside from the miscalculation of 28 days instead of 30 or 31, what's wrong with this? As far as I can tell from running his numbers, this (508) is what he's subtracting on a monthly basis.
Unless he's actually doing it right, but is writing it in a stupid way that's confusing me. ;D
Now let's backtrack to the loans and paying talk from Thanatos, since that was like the opposite of my plan. Now I do get a matching amount from my employer, so maxing that out should be the priority?
To make sure I follow all this mad talk, let's say I get matched half(I forget actually, but it's crazy generous I'm told)so if my student loan had the unlikely interest rate of over 50%, then it'd be the intelligent thing to devote my money to paying them off, but as it's more like 6% or whatever, and my 401(k) will grow at a greater rate, by doing the legal necessity for the loan and putting more into the 401(k), my net worth will be growing? Or something?
This leads to the question of Roth IRA vs. 401(k) but I suspect that's been covered on here before. In fact I think I've seen that before fairly recently, and you were a primary responder! I guess I'll go find that.
Man, living's hard
Making sacrifices due to life events? Now you're just talking crazy!
That's what he means, more or less. Basically, beyond the minimum you have to pay for the loans, any excess should go towards retirement via a 401k or Roth since you'll earn more than the interest on the loan. On average, the breakeven point is something like 8-9% like Thanatos said for a typical diversified stock fund.
Thanatos is one of the go-to guys for investment advice on here, yes. The topic has been covered, but you might want to ask here to avoid unnecessary necroposting or whatever. You can have both, the Roth has a max contribution limit per year ($5k this year); I won't say more than that since I only have a Roth IRA and taxable investments and no 401k.
Next you might do Roth ira (I would). Paying into a Roth means you pay your current tax rate, and you can redeem from it tax free. So if you're in a lower tax bracket then u foresee when ur 70, the Roth makes sense. If ur making $Texas now, then you'll have to consider whether or not you'll be in a higher marginal tax rate when you take distributions
https://www.pearbudget.com/spreadsheet
So, assuming you're in a 25% tax bracket, every dollar you pay on interest for your student loan only costs you $0.75. Every dollar you contribute to your 401(k) only costs you $0.75, too, and if it's matched 50% by your employer, that would mean that every $1.50 you contribute to your 401(k) only costs you $0.75, up to that maximum contribution limit. You may want to look into a Roth 401(k), though, because while contributions to a Roth 401(k) are not tax-deductible (unlike a normal 401(k)), the disbursements from a Roth 401(k) are completely non-taxable. If you expect to be making more money after you're retired than you do now, this is a great option to take.
Then, we move on to the Roth IRA, which should be your next saving priority, and almost certainly a higher priority than paying down your student loan. I'm going to assume that you're 25, and I'm going to tell you that granting a fairly conservative 9% interest rate, contributing $1,000 to a Roth IRA now and contributing $1000 to a Roth IRA five years from now makes a difference of $11,000 when you turn 65. If we assume you don't start taking disbursements until you're 70, the difference goes up to $17,000 per $1,000. Which means that if you were to put $5,000 into a Roth IRA this year that you otherwise would have paid down the principle on your loan with, you could conservatively assume that you'd have $85,000 more when you retire at age 70 than you would if you'd paid down your loan.
Speaking of the loan, since the interest is tax-deductible, it gets cheaper to pay down as you make more money. Say right now it's at 6% interest, and you're in the 25% tax bracket; your actual interest rate is 4.75%. Say ten years from now, you're in the 35% tax bracket, same interest rate; your actual interest rate has gone down to 3.9%. Ten years from then, maybe you're in the 40% tax bracket, and it's hit 3.6% interest. This is great debt to have, because you're turning around and investing this debt in your retirement, at a way better return. Low-interest student loan debt is awesome, and not something you should be in a hurry to get rid of.
Most people in their 20s should be prioritizing their finances like so:
1) Maxing out matching contribution limit for 401(k).
2) Paying down credit card debt.
3) 3-6 months living expenses in an easily-accessible savings/money market account (I recommend an ING Orange Savings account). Optionally, saving for a house, condo, or small business.
4) Paying down high-interest/private (non-deductible) student loan debt.
5) Maxing out contribution limit for Roth IRA.
You'll note that the goal of "paying down low-interest student loan debt" isn't even on the list; that's because you shouldn't be paying it down. You should be loving that awesome, great debt that's saving you a bunch of money for retirement.
Yeah, this is pretty good.
4months ago? okay,,,