Howdy, I am Mick, 23, from Oregon

[greenplasticme]

First of all, I would like to say thanks for taking the time to look at this thread. I am a newbie to this site (found it late last night) and I have enjoyed reading all of the posts about early retirement.

So, yes, my name is Nick and I am both new to the workforce and to the idea of early retirement. I received a B.S. in Marketing in 2009, and found a job in Oregon as a Web Developer, where I've been working for the past 4 months.

I am kind of ashamed as I do not have an emergency fund at all or a retirement fund. I am also about 54k in student loan debt (I'll explain in depth below), which is driving me crazy.

The company I work for offers a 401k, but no matching. They pretty much gave us a list of MF's and told us to select which ones we wanted to invest a % of our income.

I bike to work everyday, but I own a reliable car that was given to me by my parents, and they still pay the insurance (thanks mom and dad).

Alright on to the good stuff:

So what I'll do is list out my income, expenses and debts and allow ya'll to kind of 'guide' me on a few options and questions that I have.

So here we go:

INCOME (green is good):
$3k/month or $36k/year.
My gross salary is at $50k, but Oregon has no sales tax, and therefore I am taxed more for income

EXPENSES (red bad, boooo):
Currently, I am paying way too much for rent, but I was in a pinch and need a place until I had time to look (I was living in a shady motel). Ideally I will be paying max $350 come January 1st for rent.

Rent: $761
Utilities: $24
Cellphone (iPhone): $88
Internet: $35
Food: $150
Gas: $50
Credit Card: $15 minimum


TOTAL: $1123/month

I also have a credit card. I have rung up a total of $1500 ($2500 limit) with 0% interest until February.

STUDENT LOANS:

I will list cost per month and then give you my overall total per SL.

Loan 1: $66
Loan 2: $49
Loan 3: $208
Loan 4: $160

TOTAL: $483/month

OVERALL:
Loan 1: $2,500 @ 10.4%
Loan 2: $6,000 @ 6.25%
Loan 3: $24,000 @ 3.9%
Loan 4: $22,000 @ 6.13%

TOTAL: $54.5k

------------------------------------------

Alright, so if you are still with me; I thank you.

QUESTIONS:
1) So, roughly $1,600 goes to Expenses/Bills, and the rest $1,400 can go towards either investing or paying back my SL early. My plan is to start paying back the higher interest rate SL's first, so Loan 1, and then move down the list until they are all gone . I am wondering if this is a good idea?

2) Being that my employer does not match and I am pretty much on my own for retirement, I am thinking (after reading around this forum) that I will start a Roth IRA? Any suggestions?

3) I really want to start an emergency fund too, but I am having a hard time budgeting how much I should save vs. paying loans back early. Any suggestions?



That should do it for now. I really appreciate your time and input!

THANKS!!!

[Birdie Num Nums]

Welcome to the site, Mick. I got a post-graduate degree, and spent my first few years out of school repaying student loans and payments on a used car. I did not finally become debt-free and begin to accumulate an emergency fund until I was about 27-years-old--some 28 years ago. Yet, over those 28 years I managed to become FIRE by 55 (this year). My starting salary way back when was $15K/year, and I did not hit $100K until a little over a year ago. So, I'd say it's very do-able, and you need not be ashamed or too concerned that at age 23 you have no emergency fund or retirement plan---yet. Time is on your side. You'll learn, as I did, the magic of compound interest/dividends and of "staying the course."

[Htown Harry]

Birdie's right on the big picture.

While you are still starting out, concentrate your effort on keeping score, not necessarily exactly where your stand. Examples: developing good budgeting habits, using Quicken (or some other tool) to track expenses and setting 1, 2 and 5 year goals. If you are increasing your net worth at least a little bit every year, developing your human capital through work and self-study AND enjoying life as a single 23-year-old, life is good.

Quote:

Originally Posted by greenplasticme ...Credit Card: $15 minimum ...I also have a credit card. I have rung up a total of $1500 ($2500 limit) with 0% interest until February. QUESTIONS: 1) So, roughly $1,600 goes to Expenses/Bills, and the rest $1,400 can go towards either investing or paying back my SL early. My plan is to start paying back the higher interest rate SL's first, so Loan 1, and then move down the list until they are all gone . I am wondering if this is a good idea?

The credit card situation is a red flag. It appears you've been lured by one of the credit cards companies' favorite tricks - teaser rates. Also, take a look at the terms and conditions - some of the worst offenders will calculate the interest as accruing from the time of purchase, not from the time the 0% runs out.

Assuming the CC rate will be 15% or more, paying off the cc debt before your January statement date should come ahead of starting to pay off the student loans. Why January? Because you shouldn't trust the CC company to honor the deal if your payoff comes in close to the deadline - every bit of the fine print is in their favor, I promise.

Once that is out of the way, I would look at a small emergency fund as a priority. You can make up your mind on how big, but it should be enough to cover your rent and mandatory expenses if you lose your job and don't find another for while.

After that, yes, reducing the highest interest rate debt first is the way to go.

[samclem]

I second everything Harry said about the credit card. Make paying it off early a priority (early enough to verify online that they got the payment before the "great deal" expires) .

While it doesn't make sense from a hard-numbers perspective, the next thing I'd work on is building an emergency/float fund. If you can feel comfortable crawling hat-in-hand asking Mom and Dad for help if you get into a real bind, then maybe this cushion doesn't need to be giant. Still, having $1000 available will let you manage you money better--(e.g. help you avoid carrying a month-to-month balance on the CC if the car needs fixing, etc).

The 10.4% student loan should be next. The obvious move would be to pay it off entirely before starting the Roth IRA. But, maybe not so fast . . . Each year you can only contribute $5K to a Roth. So, over a working lifetime the contribution opportunities are limited. If you miss the window for a particular year, you can't make it up later. This never-to-be-taxed ROTH bucket of funds might prove to be very valuable in later years as you move into higher tax brackets (and as tax rates overall climb--probably). So, though you'd be money ahead right now to pay off the high interest student loan rather than starting a ROTH, it's possible that you might, in 40 year's time, have been better off to quickly get that same money into a Roth for 2010, then pay off 10% student loan early in 2011 and maxing out the Roth for 12011 as well.

I would pay off the 6%+ student loans at an accelerated pace, but wouldn't pay any extra against them until my Roth had been funded for the year. If inflation takes off, I'd recommend scaling way back on the payments--to the bare minimum (after all, if inflation exceeds the rate of the loan you are in clover). I wouldn't recommend paying anything but the minimum on that 3.9% loan--let it run the full term. Historically, US equities have produced considerably higher returns than this, so it's a better use of your money to invest it and pay off the loan as slowly as possible.

I'd recommend Vanguard for your Roth IRA (and any other MF investments). Fidelity is also a good company, but stick with their low expense-ratio funds. I'd suggest you look at the appropriate Target Date fund for your situation (maybe 2045?) as the first place for your Roth IRA money. Until you've got a more complex situation, a firm idea of your desired asset allocation, and enough $$ to meet the minimums for additional mutual funds, this provides a very good (and inexpensive) one-stop solution. In fact, if you never changed your investments and just kept everything in that target fund until retirement, your investment performance would likely be better than the vast majority of active investors.

Other recommendations:
-- Try to maintain your LBYM lifestyle.
-- Put your investments on autopilot. Payroll deduction or electronic transfer from your checking account. Gte used to living without the money, and increase your automatic deductions when you get raises
-- Read up on investing. The FAQs here are great. I'm a fan of William Bernstein's books.
Welcome to the board!

[GregLee]

My wife and I have had considerable credit card debt at times, on a bunch of different cards. We kept getting these teaser offers and shifting debt to the latest new card with the best teaser. Seemed like a good deal, to me.

[greenplasticme]

Birdie - Thanks for the welcome! And Congrats on becoming FIRE'd!!! I hope to be debt free by 27, or so that is my goal! Thanks for the encouragement!

Htown - Thanks! I joined MINT in August to help with budgeting, and although it has been a big help, I have yet to utilize it to it's full potential. I plan on paying off the credit card by December, while still paying my 10% loan down and saving some, if any, money away for net worth. Any ideas on Roth IRA? Thanks for the advice!

samclem - Yes, an emergency is fund is in order, as well as paying off CC soon! The Roth IRA for 2010, I am guess that expires Dec. 31st ish? I doubt I would have the full amount (5k) to fund a Roth this year, but I was looking at a Vanguard FLEX, which has a minimum of 1k investment (something I could do, maybe even more). Then for 2011, set up a Target account for 2045, etc. You've been a great help and I appreciate your time!

GregLee - Yeah, I actually had a very high balance on another card, paid that off and closed the account (something I shouldn't have done may have hurt my credit ?) So I sort of panicked and opened up this current CC to build up my credit again. I have never been late on a payment either. Thanks for the reply though.

[samclem]

Quote:

Originally Posted by greenplasticme The Roth IRA for 2010, I am guess that expires Dec. 31st ish? I doubt I would have the full amount (5k) to fund a Roth this year, but I was looking at a Vanguard FLEX, which has a minimum of 1k investment (something I could do, maybe even more).

You've got until your tax filing deadline (April 15, 2011) to make your Roth IRA contribution for 2010. So, you've got a little extra time. Based on your budget (and the possible moving expenses, holiday gifts, maybe some entertainment expenses, etc, etc) you probably couldn't afford the entire $5K max for your Roth IRA, but it seems possible that you could maybe accumulate $3000 by then, which just happens to be the minimum investment for Vanguard's Target Retirement Funds. That'll give you something to shoot for.

Best of luck. Getting started om this goal while you are very young is smart.

[Brat]

Welcome Mick, great to see you starting to plan your financial future. If you have watched us for any length of time you have discovered the many wise contributors.

There are a couple Ducks who paddle around here, and maybe a Beaver or two, so you are in good (or not so good) company.

Oh, congratulations in finding a job!! The competition is fierce here.

[Coach]

greenplasticme, welcome to the forum! You are off to a great start. Your expenses are modest and your lifestyle restrained.

I'd suggest heading to the library and looking over some personal finance books. It's a subject you can read about slowly over months and add to your financial knowledge.

There's a radio talk show host named Dave Ramsey who talks about personal finance. The first three steps he would give you would be 1) build a $1000 emergency fund, 2) pay off your debts, and 3) start saving for retirement. You'll find him easily enough on the Internet and might want to read more. He is not universally loved, but I think he makes sense.

When you start saving for retirement, consider a traditional IRA or your employer's 401K (depending on the investment choices) , even if unmatched. This is contrary to what you will usually hear, but you are in a budget situation where you will be able to contribute more to a traditional retirement account because of the tax break you'll get.

Having said that, I'd also suggest that your keep your emergency fund in a Roth IRA, invested in a money market account. You can pull your contributions out, if necessary, and later on, when you've saved enough for an emergency fund outside the Roth, you can re-invest the Roth more aggressively.

You're going to do great!

Cloach

[ronocnikral]

first off welcome. it's nice to see some of my peers. especially those who commute by bicycle!

Quote:

Originally Posted by samclem I would pay off the 6%+ student loans at an accelerated pace, but wouldn't pay any extra against them until my Roth had been funded for the year. If inflation takes off, I'd recommend scaling way back on the payments--to the bare minimum (after all, if inflation exceeds the rate of the loan you are in clover). I wouldn't recommend paying anything but the minimum on that 3.9% loan--let it run the full term. Historically, US equities have produced considerably higher returns than this, so it's a better use of your money to invest it and pay off the loan as slowly as possible.

i agreed with everything samclem said, but i think this should have an [*] put next to it. while it is financially the correct thing to do, there is also some value to laying down each night knowing you owe no one. it's a choice, and i chose to pay down my almost $22k in SL @ ~2% when my savings had 5% APY. I enjoy knowing my loans are paid off and well behind me. just another thought to consider.

Quote:

Originally Posted by Coach There's a radio talk show host named Dave Ramsey who talks about personal finance. The first three steps he would give you would be 1) build a $1000 emergency fund, 2) pay off your debts, and 3) start saving for retirement. You'll find him easily enough on the Internet and might want to read more. He is not universally loved, but I think he makes sense.

i was going to suggest ramsey's "baby steps" as well. I download his podcast from itunes daily (free) and enjoy listening, even though I have no debt outside of my mortgage.

[explanade]

The $88 iPhone bill seems to be bit of a luxury.

See if you can get a AT&T Premier discount (20%) through workplace. They offer group discounts to large employers. Maybe they also offer it large groups like those who'd be eligible for a credit union too?

[ronocnikral]

Quote:

Originally Posted by explanade The $88 iPhone bill seems to be bit of a luxury. See if you can get a AT&T Premier discount (20%) through workplace. They offer group discounts to large employers. Maybe they also offer it large groups like those who'd be eligible for a credit union too?

sometimes iphones and discounts don't always work the way one would hope. at minimum, you should get the discount on your voice plan.

when i was single, i loved my iphone. now that i am married, i have a go (pay-as-you-go) phone.

[greenplasticme]

samclem - Thanks for your insight. I've recently paid down my CC to a $300 balance. I am working on saving for an emergency fund/Vanguard Roth IRA, so 'if' I haven't run into an emergency by April I will roll whatever I have saved up into a Vanguard Target Fund 2045 I 'should' be receiving a bonus, so this could be a big help.

Brat - Thanks for the welcome! I really LOVE living in Oregon! Such a beautiful state! I am a Green Bay Packer fan by heart, but the Ducks games are very fun to watch!

Coach - Thanks for the welcome and I have been looking into the library of books to check-out. And I'll be taking your advice in setting aside an emergency fund/IRA fund. I'll save an emergency fund up until I do my taxes. Then once I realized I do not have any immediate emergencies deposit that 'emergency fund' into a Vanguard TF 2045; however I hope to be in a position in which I can have over 5k in emergency fund and then the rest will be used for the new emergency fund for the following year.
Thanks!

ronocnikral - Thanks for the welcome! Yes, I agree. There is a lot of value in knowing that you have no debt! Congrats on having No Debt besides your mortgage!

I've also looked into reducing my voice plan. I have it at 450 w/rollover (which is the lowest cost voice plan). Then I have 1500 texts at $15/month, and then the unlimited data plan for $40/month. I've thought about getting limited data plans, but I do use the data alot.

explanade - It definitely is a luxury, but I am having a hard time quitting the addiction. I know I could do off with a no-contract flip phone w/texts for $40 a month, but I do a lot of thrift shopping, often buying collectibles/gadgets and reselling on eBay/Craiglist. So I used my iPhone to look up prices and conduct research before making a purchase.

My old credit union offered sprint discounts of 10%, but I have been unable to find one for AT & T