Am I in good or bad financial condition? (pay, taxes, rate)

[nep321]

This is something I have occasionally wondered about. Since talking about personal finances with other people is generally considered to be awkward, I figure I'd might as well ask for the opinion of Internet people! The question is simple. Am I in good or bad financial condition? Here are the facts of my financial position as of now:

• Age: 26
• Sex: Male
• Household: Single
• Net worth = $46,000; that is $56,000 in assets and $10,000 in debt
• Debt-Asset ratio = 0.2
• Paid off my new car purchased in 2008; hence no car payment
• One student loan of $10,000 (rate = 5.5%, term = 17 yrs left)
• $19,000 of cash in the bank
• 14% of my gross income is saved in a money market account each month, and accumulates
• Annual gross earnings = $67,000
• $12,000 in common stock investments
• Value of car = $14,000
• $11,000 in 401K retirement account
• 13.5% of my income will be contributed to my 401K (8% of that is from my paycheck; the other 5.5% is employer sponsored); up until today, it was 8.5% all along. Once this takes effect, 11% of my gross income will be saved, down from 14%.
• $50,000 of life insurance coverage, provided by employer for free
• Basic health and dental insurance coverage ($439 pre-tax cost combined per year)
• Long-term disability coverage of 50%
• I am renting an apartment for $1,165/mo and do not own any property

So, how would you say my financial standing is? I was never sure. I mean, it seems good that I have very low debt compared to a lot of people on here. But on the bad side, I don't own any real property and have been renting my whole life (hint: living in CT is expensive!). So what's your opinion on my financial condition? Good or bad?

Thanks!

[IDASpaceman]

Keep on that student loan...keep up on the savings...and in the next three-five years, consider purchasing a home.

Good job.

[dazzleman]

Originally Posted by nep321

This is something I have occasionally wondered about. Since talking about personal finances with other people is generally considered to be awkward, I figure I'd might as well ask for the opinion of Internet people! The question is simple. Am I in good or bad financial condition? Here are the facts of my financial position as of now:

• Age: 26
• Sex: Male
• Household: Single
• Net worth = $46,000; that is $56,000 in assets and $10,000 in debt
• Debt-Asset ratio = 0.2
• Paid off my new car purchased in 2008; hence no car payment
• One student loan of $10,000 (rate = 5.5%, term = 17 yrs left)
• $19,000 of cash in the bank
• 14% of my gross income is saved in a money market account each month, and accumulates
• Annual gross earnings = $67,000
• $12,000 in common stock investments
• Value of car = $14,000
• $11,000 in 401K retirement account
• 13.5% of my income will be contributed to my 401K (8% of that is from my paycheck; the other 5.5% is employer sponsored); up until today, it was 8.5% all along.
• $50,000 of life insurance coverage, provided by employer for free
• Basic health and dental insurance coverage ($439 pre-tax cost combined per year)
• Long-term disability coverage of 50%
• I am renting an apartment for $1,165/mo and do not own any property

So, how would you say my financial standing is? I was never sure. I mean, it seems good that I have very low debt compared to a lot of people on here. But on the bad side, I don't own any real property and have been renting my whole life (hint: living in CT is expensive!). So what's your opinion on my financial condition? Good or bad?

Thanks!

I think you have a very good start. At your age, it's really more about the future than it is about your present condition.

I wouldn't worry about not owning property. If you continue to save, that will come in time. Don't rush it.

You might want to think about accelerating the student loan repayment, since the interest rate is pretty high for today's environment, and your balance is pretty low. You can surely get it paid off a lot sooner than 17 years from now.

At this point, I would probably only put enough into retirement accounts to get your full company matching. At your age, you have many more immediate needs, so I would recommend building assets outside of retirement accounts.

Ideally, you should get yourself up to about 9 months worth of expenses in your savings account, to have as an emergency fund. You should also look at supplemental disability coverage, since 50% is pretty light.

But overall, as a 26-year-old, I think you should be pleased that you're in better financial shape than many people who are quite a bit older than you.

[Hemlock140]

I'd pay off the student loan with cash in the bank, that's costing you 5.5%
and is not likely tax deductible with your income. You'd be far better off
purchasing a home while the market is bad, at a low price, and deducting the
mortgage interest and property taxes while the IRS still allows it.

Otherwise I'd say you are doing fine.

[nep321]

Originally Posted by dazzleman

I think you have a very good start. At your age, it's really more about the future than it is about your present condition.

I wouldn't worry about not owning property. If you continue to save, that will come in time. Don't rush it.

You might want to think about accelerating the student loan repayment, since the interest rate is pretty high for today's environment, and your balance is pretty low. You can surely get it paid off a lot sooner than 17 years from now.

At this point, I would probably only put enough into retirement accounts to get your full company matching. At your age, you have many more immediate needs, so I would recommend building assets outside of retirement accounts.

Ideally, you should get yourself up to about 9 months worth of expenses in your savings account, to have as an emergency fund. You should also look at supplemental disability coverage, since 50% is pretty light.

But overall, as a 26-year-old, I think you should be pleased that you're in better financial shape than many people who are quite a bit older than you.

Yeah I'm not too worried about being a renter for now. I don't want to rush home ownership. As for the student loan, I am considering paying it off next month, when I have a little more cash in the bank. I like to keep at least $10,000 in there as an emergency fund.

As for my 401K, I feel that the value is not as high as it could be. 2 out of 5 years in my career, I contributed absolutely nothing. I'm trying to give it a solid foundation now, by increasing my out-of-pocket contributions to 8%, because I can easily afford the increase with no problem. My theory is to build a solid foundation now, so that the money has many decades to grow over time, and then contribute less as I get older. Is this strategy backwards or wise?

To me, an emergency fund of $10,000 is enough, because I would be able to collect unemployment anyway, if I was laid off. The disability coverage is free and provided by the employer, so I don't care much about it.

[MrRational]

Originally Posted by bisjoe

I'd pay off the student loan with cash in the bank, that's costing you 5.5% and is not likely tax deductible with your income.

agreed.

Strongly agreed actually.
The only excuse to have debt is if it is earning you money and the income from that is paying the debt service.

You'd be far better off purchasing a home while the market is bad, at a low price, and deducting the mortgage interest and property taxes while the IRS still allows it.

agreed.
This is more subjective regarding your intention or expectation to remain in that City for the next ten or more years. But if your work and family ties there are strong... buy a property. Take in a housemate (or two) and use THEIR cash to pay the difference which you get to deduct.

Otherwise I'd say you are doing fine.

agreed.
Watch out for girls who don't save like you do.

[bradykp]

yeah, i think you're doing quite ok. i would lessen 401k contributions and direct some to a ROTH before you hit an income level that no longer qualifies. i would also get rid of the student loan at that interest rate. you probably get to write off some interest, but it's tiny, no reason to pay that rate with the cash cushion you have currently.

sure, it'd be nice to own property, but you're 26...who knows where you'll be working 3-4 years from now? will you always be in this area?

[nep321]

Originally Posted by bradykp

yeah, i think you're doing quite ok. i would lessen 401k contributions and direct some to a ROTH before you hit an income level that no longer qualifies. i would also get rid of the student loan at that interest rate. you probably get to write off some interest, but it's tiny, no reason to pay that rate with the cash cushion you have currently.

sure, it'd be nice to own property, but you're 26...who knows where you'll be working 3-4 years from now? will you always be in this area?

I don't know, but one thing is for certain: I don't like my current job.

[jackmccullough]

Originally Posted by nep321

I don't know, but one thing is for certain: I don't like my current job.

You can be flexible, but you're very smart to stay in your current job, even one you don't like, until you have a better one.

[Themanwithnoname]

Not great, MUCH better than most.

As O thers have said, you are paying 5.5% to keep the cash in your bank!

Pay yourself the payments and make 5.5%.

I'd then rebuild to do the job change you want.