YANMFA but.. be my financial advisor
May 12, 2014 7:49 AM   Subscribe

I need help figuring out where to put my money now that I got a raise and finished graduate school. Snowflakes inside.

Due to a confluence of recent events (getting a raise, graduating with my Master's), I'm reassessing my finances. I'm in my late twenties. Here's what I've got:
- $1,500 in emergency funds (about a months' worth of bills) - my job is very stable right now, but of course, anything could happen
- $4,000 in a 403(b) from a previous employer - my employer does not have a 401(k) or match
- $0 credit card debt
- $68,000 in student loan debt between undergrad and grad (six loans total) - all federal loans, highest interest rate is about 8%, in-school deferment will end in August; I'm planning to consolidate these once my deferment ends

Right now, I have about $500-600 a month to contribute to one, some, or all of these things. What is the priority? I've seen mixed messages from financial gurus about contributing to retirement, student loans, or emergency funds. Is this something that a financial advisor could help with, as well?
posted by anonymous to Work & Money (5 answers total) 3 users marked this as a favorite
Bump up the emergency fund to three months of living expenses, or the length of time you'd be willing to look for a new job after losing your old one without making radical lifestyle changes (ie moving back home or moving in with roommates). After that, start putting 10-15% of your take home into a Vanguard retirement account.

Put the rest towards student loans, unless you qualify for Public Service Student Loan Forgiveness.

You probably don't need a financial adviser, because you don't have very much money. Financial gurus disagree on where to put your money because as long as you are saving/paying down debt (same thing, really), you are in good financial shape. The above is what I would do; you should do whatever makes you feel comfortable.
posted by chaiminda at 8:00 AM on May 12, 2014 [1 favorite]

I agree with the above poster that the number one priority is bumping up the emergency fund, I would say to consider saving up enough to cover six months of living expenses.

You should investigate your options regarding retirement savings, whether you want a regular IRA or a Roth IRA. There are pros and cons for both.One of Vanguard's Target Retirement Funds would be a good choice in either case. Once you set up a retirement account, you might consider rolling over your 403(b) from a previous employer to that account.

Personally I would contribute a larger percentage of money towards paying off the student loans than for the retirement account, but that's because I don't like carrying debt. It will also depend on the interest rate - I would try hard to pay off 8% interest rate loan quickly, but might go a bit easier if the interest rate is say, 3%.

(Some time ago I researched fee-only financial advisors and in my geographical area they were requiring prospective clients have a minimum of $100K - $200K in assets.)
posted by needled at 8:20 AM on May 12, 2014 [2 favorites]

Something to note is that you can withdraw your contributions (not the growth, but the original contributions) from a Roth IRA at any time without tax or penalty. So it makes sense to keep your emergency funds in a safe and liquid investment (such as an FDIC insured deposit account or a money market fund) within a Roth IRA. You shelter the growth from taxes, and if you ever come into a windfall, you can shift the Roth investments into something longer-term and get around the annual contribution limits that way.

It's really your choice whether to invest or pay off your loans. The strictly rational thing to do numbers-wise, if cash flow isn't a concern, is typically to invest. Personally, I paid off my student loans. I hated having them and it was such a relief when I'd finally made that last payment.
posted by payoto at 10:35 AM on May 12, 2014 [3 favorites]

I would concentrate on the emergenccy fund and ASAP focus on the loans. That stuff can really hang over your head but I don't think you're contributing enough to this stuff. My undergrad loans (20kish) costs me $200 a month over 10 years. Do you have a longer range repayment plan? 30 years? I don't know, $500 just seems really low if you want to contribute to retirement too, even if your loan payments are low because they are so spread out.
posted by Aranquis at 12:30 PM on May 12, 2014 [1 favorite]

The answer depends a lot on your goals, lifestyle, and psychology. I personally would max out a Roth IRA for the next 2-3 years, which would give you a solid emergency fund, and then throw everything I had at the loans.
posted by metasarah at 7:06 PM on May 12, 2014

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