25 year old...what to do next?

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Topic Author
Workaholic
Posts: 53
Joined: Thu Jul 18, 2013 6:55 am

25 year old...what to do next?

Post by Workaholic » Fri Mar 11, 2016 4:50 pm

I've posted a few times before, here's my current situation:

Emergency funds:
About three months of expenses in checking account.
Debt: $14,000 on 2014 Ford Fusion at 0% interest
Tax Filing Status: Single
Tax Rate: 25% Federal, 9% State
State of Residence: Iowa
Age: 25

Current portfolio is as follows:

ROTH IRA:
$25K split between Vanguard US Total Market and VG Small Cap Index
NY Life 401k: $48K split between 50% Vanguard S&P 500 and 25% Vanguard Small/ 25% Vanguard Mid Cap Index Funds
Vanguard brokerage account: $36K split between US Total Market, Healthcare Index, Total International Index, and Small and Mid Cap Value Index.

Also own a few 1 oz bars/coins of gold and silver in home safe. Probably $3K total market value.
Tangible assets that can be easily sold include a Harley-Davidson Street Glide valued at $8K and a Rolex Submariner market valued at $6K. Both are owned outright.

Current salary is in the $80k range and I fully max out my retirement accounts. My ROTH IRA has been fully funded for both 2015 and 2016 and my 401K will be maxed out by the end of the year.

My dilemma is what to do with excess income which is about $2000/ month here are my options:

1) Throw is toward the car loan and get it paid off by September/October.

2) Invest it in my taxable investment account, I currently have $3K in my VG Total International Index and would like to add $7k to get the lower cost Admiral Shares.

3) My checking account will pay 3.25% interest up to $25K. I currently have $4K in my checking and could just keep adding money to it and get a guaranteed 3.25% return up to the $25k limit (anything above that amount gets .30% interest).

4) A combination of these three? I'd like to be completely debt-free but realize financially it may make more sense to add that money to my checking to get the guaranteed return. Or maybe add more to my Vanguard to get potentially larger returns?

Opinions? Thank you in advance!

nycguy83
Posts: 35
Joined: Fri Jan 31, 2014 7:51 am

Re: 25 year old...what to do next?

Post by nycguy83 » Fri Mar 11, 2016 5:30 pm

I would recommend putting $25k in the checking account first. That's the best guaranteed rate of return with the least amount of risk that you are going to find.

I would also say put yourself in a position to start paying off your car loan. How long do you have the 0% interest rate for? You aren't doing yourself any favors if you are paying 4% on a car loan and collecting 3.25% on the checking account.

After you get to the $25k in the checking, I'd look to invest in your brokerage account. BTW - I know you are 25, but do you not hold any bonds? Also - what's with the Vanguard Healthcare tilt? I am obviously a little more conservative than you (33)

When your zero interest rate expires, I would pay off the car in full.

Topic Author
Workaholic
Posts: 53
Joined: Thu Jul 18, 2013 6:55 am

Re: 25 year old...what to do next?

Post by Workaholic » Fri Mar 11, 2016 5:39 pm

I have 0% interest for the rate of the loan (pay off date Dec 2018 on payment schedule).

I don't currently hold bonds, I see no point at my current age. Maybe in 25/30 years when I retire I'll balance into bonds, but during my income-earning years I'd rather invest in the market to reap the benefits of compounding.

The healthcare fund was something I purchased when I first started investing about 5 years ago for no other reason than it had a proven performance record and I was using past performance as an indicator of future returns (my mistake). However that "mistake" ended up netting me $2500 in gains which I'm not going to complain about. So I don't add any more to the Healthcare fund, but I don't want to pay taxes on my gains.

malabargold
Posts: 582
Joined: Fri Aug 08, 2014 8:16 am

Re: 25 year old...what to do next?

Post by malabargold » Fri Mar 11, 2016 5:46 pm

No need to pay off a 0% loan unless your job
is not secure

HSA?

Put half in taxable brokerage and half in the interest-bearing
Checking to flesh out cash on hand for life, or for buying dips

inbox788
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Re: 25 year old...what to do next?

Post by inbox788 » Fri Mar 11, 2016 9:26 pm

Workaholic wrote:Debt: $14,000 on 2014 Ford Fusion at 0% interest
1) Throw is toward the car loan and get it paid off by September/October.
Why? It's free, so put the funds in a secure place and arbitrage the interest.
2) Invest it in my taxable investment account, I currently have $3K in my VG Total International Index and would like to add $7k to get the lower cost Admiral Shares.
Investing in International Index is risky, so you could lose money. The difference in fees is .19 vs .12, so .07% * 10k = $7 savings a year.
3) My checking account will pay 3.25% interest up to $25K. I currently have $4K in my checking and could just keep adding money to it and get a guaranteed 3.25% return up to the $25k limit (anything above that amount gets .30% interest).
This! 3.25% * 10k = $325!

You may make out better investing in International Index if it goes up, but there is some chance it could underperform 3.25% guaranteed return, and you could lose money.

Topic Author
Workaholic
Posts: 53
Joined: Thu Jul 18, 2013 6:55 am

Re: 25 year old...what to do next?

Post by Workaholic » Sat Mar 12, 2016 3:45 pm

My aim was to be debt free by early next year, but it makes sense to save in my checking account to get a guaranteed return. I'd like to build that account up to around $20,000 to collect the interest and maybe pay off the loan once the balance hits a negligible amount of $5K or $6K.

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Toons
Posts: 13410
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Location: Hills of Tennessee

Re: 25 year old...what to do next?

Post by Toons » Sat Mar 12, 2016 3:51 pm

1) Throw is toward the car loan and get it paid off by September/October.




:thumbsup
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

joebh
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Re: 25 year old...what to do next?

Post by joebh » Sat Mar 12, 2016 3:56 pm

Workaholic wrote:1) Throw is toward the car loan and get it paid off by September/October.
IMHO, it makes no financial sense to pay off a 0% loan early.
3) My checking account will pay 3.25% interest up to $25K. I currently have $4K in my checking and could just keep adding money to it and get a guaranteed 3.25% return up to the $25k limit (anything above that amount gets .30% interest).
To me, this is a total no-brainer. Make sure your checking account never dips below $25k as long as this deal holds.
I'd like to be completely debt-free but realize financially
Other than your 0% car loan, what debt do you have? If you continue to make your car payments, you'll pay no interest, and once it's paid off, you'll be debt-free, right? You can start putting money aside for your next car, since you may not be able to get another 0% loan.

Depending on your work situation, and your profession, you may wish to add to your emergency funds. In some contexts, in some professions, in some locales, 3 months isn't enough.
Last edited by joebh on Sat Mar 12, 2016 4:00 pm, edited 1 time in total.

RoC
Posts: 151
Joined: Fri Jul 03, 2015 9:30 am

Re: 25 year old...what to do next?

Post by RoC » Sat Mar 12, 2016 3:56 pm

Workaholic wrote:My aim was to be debt free by early next year, but it makes sense to save in my checking account to get a guaranteed return. I'd like to build that account up to around $20,000 to collect the interest and maybe pay off the loan once the balance hits a negligible amount of $5K or $6K.
I would rather have that extra $5k-$6k sitting in an account getting a guaranteed 3.25%, than to pay off a 0% interest loan early. But as mentioned above, this is contingent on job security. If there was any doubt in my mind about job security, then I'd rather be debt free so it's one less thing I have to worry about.

However someone else might value being debt free above all else, and might prefer to pay it off in full regardless of how secure their job is. So it's something you can decide for yourself. Because it's a 0% interest loan, as long as your job is secure you're not making a mistake either way.

Topic Author
Workaholic
Posts: 53
Joined: Thu Jul 18, 2013 6:55 am

Re: 25 year old...what to do next?

Post by Workaholic » Sat Mar 12, 2016 4:11 pm

Job security isn't a concern but in 2-3 years I may take a pay cut to do something I love versus doing something just for the money. By that time, I'd be debt-free, have $25K in my checking account, and a fair amount in my taxable/ROTH accounts. Nothing is set in stone right now but just keeping an eye toward the future. I

I'll likely try to get my checking account balance to at least match my loan amount so if anything does happen, I don't need to worry about missing a payment.

There are a few things I'd like to buy, but trying to hold off any large purchases this year and focus on saving. At some point I'm planning on trading my 2000 Harley Davidson for something 10+ years newer. The difference between my bike and eventually a newer (preowned) HD would be in the neighborhood of $6000-$7000.

I plan on keeping my Fusion for 10 years/100,000 miles or so (possibly longer if not major issues present themselves). I'd love to have a Corvette Stingray but putting that on the back burner until I have all of my financial goals met and can buy one for mid $30k range.

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powermega
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Location: Colorado

Re: 25 year old...what to do next?

Post by powermega » Sat Mar 12, 2016 7:27 pm

Don't pay off the loan early. That checking account is the best I've ever heard about. That should be at 25k as much as possible. Remainder into taxable investing. Overall you're doing very well. Much better than I was at your age! :beer
Even a stopped clock is right twice a day.

neuro84
Posts: 66
Joined: Thu Jul 24, 2014 11:25 am

Re: 25 year old...what to do next?

Post by neuro84 » Sun Mar 13, 2016 12:15 am

Where do you bank, to have access to that 3.25% checking account? That's a pretty sweet deal. Way better than my online savings account at 1%.

AirTimeMD
Posts: 124
Joined: Mon Mar 23, 2015 9:55 pm

Re: 25 year old...what to do next?

Post by AirTimeMD » Sun Mar 13, 2016 1:04 am

I'd love to know more about the checking account also OP.

JHU Alumni
Posts: 22
Joined: Sat Jul 18, 2015 11:22 am

Re: 25 year old...what to do next?

Post by JHU Alumni » Sun Mar 13, 2016 1:41 am

neuro84 wrote:Where do you bank, to have access to that 3.25% checking account? That's a pretty sweet deal. Way better than my online savings account at 1%.
Probably here:

https://www.northwesternbankonline.com/ ... s-checking

Topic Author
Workaholic
Posts: 53
Joined: Thu Jul 18, 2013 6:55 am

Re: 25 year old...what to do next?

Post by Workaholic » Sun Mar 13, 2016 6:23 am

I PM'd those inquiring about the bank information.

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