Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I'm a 25 year old college grad, having worked for about 3 years since graduation. My current budget situation leaves me between $800 and $2000 ($2000 two months out of the year) per month left over after all my mandatory expenses are paid (rent, auto insurance, cell, etc.). Usually, after all entertainment expenses are accounted for by month's end, I have about $300-$1200 a month left over. I've built up an emergency fund (about $2500 at the moment). I've been paying whatever I have left into my auto loan, which I hope to have paid off by the end of this year. There's about $8000 left on that. OTOH, I have not yet started a 401k, though my company has deposited about $500 of funds into it through a profit sharing program they have.
After I have finished paying off my auto loan, I'd like to focus more on student loans. But I also want to start contributing to a retirement plan. How much of my leftover funds would you dump into a retirement plan given my circumstances?
Thanks!
Last edited by Z3N1TH 0N3; 03-22-2011 at 05:27 PM..
I'm a 25 year old college grad, having worked for about 3 years since graduation. My current budget situation leaves me between $800 and $2000 ($2000 two months out of the year) per month left over after all my mandatory expenses are paid (rent, auto insurance, cell, etc.). Usually, after all entertainment expenses are accounted for by month's end, I have about $300-$1200 a month left over. I've built up an emergency fund (about $2500 at the moment). I've been paying whatever I have left into my auto loan, which I hope to have paid off by the end of this year. There's about $8000 left on that. OTOH, I have not yet started a 401k, though my company has deposited about $500 of funds into it through a profit sharing program they have.
After I have finished paying off my auto loan, I'd like to focus more on student loans. But I also want to start contributing to a retirement plan. How much of my leftover funds would you dump into a retirement plan given my circumstances?
Thanks!
Start putting something into your 401K NOW. Ideally, it would be 10% of your gross income ore more. But if that is too much, start with 5%. After the tax break is factored in, a 5% 401K contribution will be more like 4%.
I'd recommend puttin g the money in a good balanced fund if your 401K offers one. Funds such as the ones below are staples of good 401K plans, but this is by no means an exhaustive list of good funds:
Vanguard Wellington
Dodge & Cox Balanced
Fidelity Balanced
Fidelity Puritan
American Funds Income Fund of America
American Funds American Balanced
Invesco Van Kampen Equity and Income
The main thing is to get started and put something in. Surely, you can afford to put in at least 5%.
Don't let yourself fall into the trap of doing only one thing at a time. You need to build cash savings, pay off student loans, pay off the car loan, and contribute to your retirement ALL AT THE SAME TIME!.
Ideally, once you finish paying down your debts, you can take some (or all) of the money that was going toward the debt payments and put it in your 401K.
Feel free to send me a personal email if you wand advice on how to invest your 401K money. I am a mutual fund junkie.
mysticaltyger's advice sounds very good to me. If I were in your shoes, I would contribute to your 401K up to the company's match (for us it's 6%). You want to get in on that ASAP. With the rest of the money, I'd hit the auto loan hard to get it paid off and pay the minimums on the student loans. Once the loan is done with, I'd hit the student loans hard. What exactly that means I don't know because I'd be putting some percentage toward building up the emergency fund to match 6-12 months living expenses. We put about 3% of our salary toward the emergency fund, which is currently at 4 months living expenses for us (we had some issues a little while back).
Anyway, that's how I would do it, but I'm not claiming it's "the right way".
Mysticaltyger's advice sounds right on track. One concern: you don't have nearly enough in an emergency fund...6 to 8 months salary would be better. But you can build that up gradually...at least you are off to a good start. Many people would love to have $2500 in an emergency fund. You have the advantage of time on your side, at your age you can save for retirement and be in a good position 35 years down the road!
We do get 100% match up to 5% of our income on 401k. I will start doing that ASAP. I really do want to pay off that auto loan fast. Student loans are a priority, but they are at really good terms, so I can afford to put them on hold for now. Thanks all!
- Def start your 401k. 10% if you can manage it. At least get the company match as that's free money
- Build up your emergency fund to 3-6 months of expenses
Start 401k yesterday. Start with 5% and increase 1-2% each year when you get your raise until you work up to 15%.
Also, you don't have a budget if you have $800/mo left but only save $300. Where is the $500 of "entertainment" going each month? That's $6k per year!! Build a 12-month budget that accounts for everything, even the irregular expenses that don't happen every month like Christmas gifts or paying your annual apartment renters insurance or your car inspection fees. Then you will know exactly how much you are on target to save. Transfer that money out of your checking account each month right when you get paid. Don't give yourself a chance to spend it!
In terms of priorities:
1. Fund 401k with 5% of gross pay.
2. Build emergency fund to 6+ months of living expenses.
3. Pay off car loan.
4. Pay off student loans. The only reason you should consider paying these off before car is if your interest rate is higher.
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
