First time investor. Need some advice on a financial plan.

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gofarhaveacigar
Posts: 24
Joined: Sun Dec 26, 2010 5:20 pm

First time investor. Need some advice on a financial plan.

Post by gofarhaveacigar » Sun Dec 26, 2010 5:33 pm

I came across this forum doing some research on personal finance and investing. Was hoping to get sme insight in what kind of investing plan I should be following.

Some background information:

23 yrs old
Federal government employee
Salary: 65k/yr, but with overtime, closer to 75k

Current assets:
15k in liquid checking/savings account earning ~1% apy
8.5k in thrift savings plan invested in 2040 retirement date fund (currently maxing out 5% employer matching)

Current debts:
10k auto loan at 2.99%
20k student loans at 5.5% fixed
40k parent student loan at 5% that I help out with by giving them 250/mo

My 15k is enough for more than 6 months of emergency savings, so I was planning on putting 5k into a Roth IRA before I file taxes as my 2010 contribution. Any excess of my monthly spending I will be putting into my Roth IRA as a 2011 contribution. Anything in excessof that will go towards my student loans.


Is there any advice tha would be helpful in getting my personal finances figured out?

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sometimesinvestor
Posts: 1207
Joined: Wed May 13, 2009 6:54 am

Post by sometimesinvestor » Sun Dec 26, 2010 10:40 pm

I think you are doing very well and that your plan is a good one.
My approach would be slightly more optimistic regarding the possibility of an emergency.
If you [b]feel confident about your job security[/b](and its not completely clear you should in a world where federal budget cuts may occur) and you [b]have health insurance [/b]I would decide that a true very major emergency is not so likely and would decide to take into account that in this climate a SAFE 5.5% is hard to beat and therefore use $5K from your emergency fund towards the student loan. I would then put money into the Roth and if you have money remaining reimburse your emergency fund. [/b]

supersharpie
Posts: 652
Joined: Wed Dec 22, 2010 1:28 pm

Post by supersharpie » Sun Dec 26, 2010 11:26 pm

sometimesinvestor wrote:I think you are doing very well and that your plan is a good one.
My approach would be slightly more optimistic regarding the possibility of an emergency.
If you feel confident about your job security(and its not completely clear you should in a world where federal budget cuts may occur) and you have health insurance I would decide that a true very major emergency is not so likely and would decide to take into account that in this climate a SAFE 5.5% is hard to beat and therefore use $5K from your emergency fund towards the student loan. I would then put money into the Roth and if you have money remaining reimburse your emergency fund. [/b]
As a fellow federal employee I think the likelihood of layoffs is very slim. If anything they will reduce the workforce through attrition. I believe tha the primary thing that OP and myself need to worry about is the duration of the salary freeze (presently scheduled to last two years) and the potential under a new administration for pay reductions, something federal employees have not been subject to in the past.

Laura
Posts: 7973
Joined: Mon Feb 19, 2007 7:40 pm

Moving forward

Post by Laura » Mon Dec 27, 2010 8:18 am

gofarhaveacigar,

Welcome to the forum. You are off to a great start for someone so young. You have done a great job of building up both retirement assets and emergency funds.

There is no "one way forward". You have loans at 5.5% and 5%. These are costly and it will be impossible to find a low risk, guaranteed rate to beat these figures. Paying them off as quickly as possible is a good plan.

I would suggest taking $5k and opening your roth immediately at Vanguard. Put the money in a Vanguard Target Retirement fund (similar to TSP LifeCycle funds). Then, set up your roth to contribute out of each paycheck automatically during 2011.

Then, rebuild your emergency fund. Even federal employees with stability need an emergency fund. Not all emergencies involve being laid off or losing your job. You could have an accident that destroys your vehicle, a fire in your home that means you need to buy all new cloths, or something else. Cash will help keep you out of debt.

Once you have that emergency fund back up again then take all extra money and apply it to the loan as rapidly as possible. You want to take care of both student loans as quickly as possible. In fact, if your parents don't need the extra $250 per month you might be able to defer that temporarily and direct all of your money to the high interest loan. Once that is gone pay your parents back more rapidly. If they do need that money each month then keep paying them back. Family peace is worth more than .5% interest.

There are never enough dollars to cover all savings and investing goals so you just need to prioritize this in a way that works for you. With the roth, once the 2010 contribution window closes there is no way to get that back. So, taking the $5k now and investing it works well. You don't need to wait until April 2011. Do it immediately then set up your roth to have money taken after each paycheck automatically. I think there are 26 pay periods each year so dividing 5000 by 26 means a payment of $192.31 out of each pay check. Automate the transfer of funds and you are done.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.

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