I am looking for some advice on income allocation, specifically in the context of becoming financially independence. The following describes my situation:
Net income = $6,000/month.
Debt liability = $2,000/month (arising from $190,000 (@ 8% APR) in student loans)
Expenses = $700/month
Assets = $4,000 (Savings Account)
Thus, I have about $3,300/month to either pay down debt or invest. I am 25 and have only recently (3 months ago) become gainfully employed after graduating law school in 2009. I am currently living with my parents ($500/month rent), and intend to continue living with them until I make some headway on my loans.
Up until now, my entire paycheck (minus expenses) has been used to reduce debt. However, my ultimate goal is to become financially independent. Accordingly, I have considered opening an IRA, e.g. VFINX. I cannot participate in my employer’s 401k program until October (i.e. 6 month from start date), but intend to contribute the maximum ($15,500). My employer’s contribution is discretionary at the end of the year, but has historically been between 50-50% match. I have also considered purchasing some ETFs with after tax dollars.
Finally, a fair amount of my compensation comes (or should come) in the form of quarterly bonuses. The bonus structure is based on net billable hours, and therefore is largely dependent on efficiency. Furthermore, clients aren’t billed immediately and payment can lag 3-4 months behind the rendering of services. Assuming 70% efficiency, I anticipate my after tax bonus will be in the neighborhood of $10,000/quarter. I have been advised not to expect my first bonus until December, due to the aforementioned lag.
Any advice would be very much appreciated.
Net income = $6,000/month.
Debt liability = $2,000/month (arising from $190,000 (@ 8% APR) in student loans)
Expenses = $700/month
Assets = $4,000 (Savings Account)
Thus, I have about $3,300/month to either pay down debt or invest. I am 25 and have only recently (3 months ago) become gainfully employed after graduating law school in 2009. I am currently living with my parents ($500/month rent), and intend to continue living with them until I make some headway on my loans.
Up until now, my entire paycheck (minus expenses) has been used to reduce debt. However, my ultimate goal is to become financially independent. Accordingly, I have considered opening an IRA, e.g. VFINX. I cannot participate in my employer’s 401k program until October (i.e. 6 month from start date), but intend to contribute the maximum ($15,500). My employer’s contribution is discretionary at the end of the year, but has historically been between 50-50% match. I have also considered purchasing some ETFs with after tax dollars.
Finally, a fair amount of my compensation comes (or should come) in the form of quarterly bonuses. The bonus structure is based on net billable hours, and therefore is largely dependent on efficiency. Furthermore, clients aren’t billed immediately and payment can lag 3-4 months behind the rendering of services. Assuming 70% efficiency, I anticipate my after tax bonus will be in the neighborhood of $10,000/quarter. I have been advised not to expect my first bonus until December, due to the aforementioned lag.
Any advice would be very much appreciated.