What to do with my money? Pay dept or invest? 25/male

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Bluesteel80
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What to do with my money? Pay dept or invest? 25/male

Post by Bluesteel80 » Mon Jun 18, 2012 11:34 am

Hey guys,

I'm a 25year old male. I currently live at home and I own a car that's paid off (only worth about 4k now my only asset). I make about 70k a year in Canada.

Basically what my question is should I invest now try and make some money doing so. (I'm really interested in investing. I made money on the stock market 3-4 years ago just a couple grand but stopped. I also did play money with forex but way too volatile for me)

I'm about 13-15 grand in dept from credit cards and student loan.
I'm looking to possibly move out in the next 5 years and buy my own place. I use to rent and just moved back home recently this year as I was getting more in dept and was wasting money paying rent.

Should I continue to just pay off my dept or use my funds to invest and make some more money for a downpayment on a house or?
13-15k in dept. Interest rate on cc's and student loan is fairly low.
I have about 5k free cash in my bank account. Other asset is a 4grand car
I can save about 1k monthly very comfortably. While still paying off dept (around $700 has been going to my credit cards and student loan per month)
I also have over 12k already saved through my employers Pension not counting my cpp Canadian Pension Plan (I've been with the same employer since 18. I work for the government employer doubles the pension when retiring. This will continue to grow on its own its the maximum contribution they do by default)

What would you recommend I do with my free cash flow currently and going forward? Should I look at investing and making it grow or just use everything to pay off all my debit first

Let me know if you need anymore info

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FelixTheCat
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Re: What to do with my money? Pay dept or invest? 25/male

Post by FelixTheCat » Mon Jun 18, 2012 1:51 pm

I would

1. Max out your retirement contributions. The earlier you save the better you'll be off when you retire.
2. Pay off credit cards. Debt is a financial and emotional killer.
3. Establish a one year emergency fund. Protect yourself because life happens.

Then start saving for house and/or investments.
Felix is a wonderful, wonderful cat.

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rdmayo21
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Re: What to do with my money? Pay dept or invest? 25/male

Post by rdmayo21 » Mon Jun 18, 2012 3:12 pm

Can you be more specific about the student loan and cc rates than just saying "fairly low"?

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Watty
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Re: What to do with my money? Pay dept or invest? 25/male

Post by Watty » Mon Jun 18, 2012 3:48 pm

Let me know if you need anymore info............I make about 70k a year in Canada............I can save about 1k monthly very comfortably. While still paying off dept (around $700 has been going to my credit cards and student loan per month)
.....

The thing that jumps out at me is that your $70K income comes out to about $5,800 a month, without paying rent you only mentioned about $700 a month that you are paying towards your debt each month but you didn't seem to have a lot of other expenses.

I would assume that you have some taxes and other payroll deductions but what is your monthly take home pay but where is the other money going?

From what you have said you should be easily be able to pay off the debt in a few months. Unless there is something else going on I would plan on having it all paid off by the end of the year, along with some more savings.
Last edited by Watty on Mon Jun 18, 2012 4:29 pm, edited 1 time in total.

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Toons
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Re: What to do with my money? Pay dept or invest? 25/male

Post by Toons » Mon Jun 18, 2012 3:53 pm

"I'm about 13-15 grand in dept from credit cards and student loan."

Easy decision for me remove the "ball and the chain",,Pay off debt :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

Jim88
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Re: What to do with my money? Pay dept or invest? 25/male

Post by Jim88 » Mon Jun 18, 2012 5:19 pm

Echoing what the other posters have said - I'd certainly pay off the debt as aggressively as possible. You won't regret paying off the debt. Depending on the time horizon you are comfortable with, you might also look into making some contributions to retirement as well during this time.

Bluesteel80
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Re: What to do with my money? Pay dept or invest? 25/male

Post by Bluesteel80 » Mon Jun 18, 2012 5:57 pm

My take home after taxes is around $1700 biweekly

The general response seems to pay off the debt as soon as possible which I think is about the best approach

The loans are at 6% and the credit card is at 9.7%
I actually just checked its at around $15230

I was just curious to see since my interest wasn't too too low to play the stock market a bit. I follow the stock market quite a bit and made money in the past so its temping to make a couple hundred off my free cash flow on a few stocks.

I agree though that I should probably pay this debt off before anything

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interplanetjanet
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Re: What to do with my money? Pay dept or invest? 25/male

Post by interplanetjanet » Mon Jun 18, 2012 6:18 pm

Bluesteel80 wrote:My take home after taxes is around $1700 biweekly

The general response seems to pay off the debt as soon as possible which I think is about the best approach

The loans are at 6% and the credit card is at 9.7%
I actually just checked its at around $15230

I was just curious to see since my interest wasn't too too low to play the stock market a bit. I follow the stock market quite a bit and made money in the past so its temping to make a couple hundred off my free cash flow on a few stocks.

I agree though that I should probably pay this debt off before anything
The thing you have to look at is that paying down the debt gives you an effective risk free return. Nowhere, right now, can you get anything near risk free at those kinds of rates. Definitely pay them off!

Edit: ok, ok, there are some nearly risk free things (like some ESPP programs or 401k matching in the USA) that can give a return greater than that - but they tend to be limited. Not sure what is available in Canada that would be comparable. Pay the debt and don't look back.

-janet

af895
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Re: What to do with my money? Pay dept or invest? 25/male

Post by af895 » Mon Jun 18, 2012 8:15 pm

Hey Bluesteel80. (Zoolander fan?)

My advice is as follows:
  • make sacrifices now so that you can reap huge rewards later
  • CASHFLOW: cut your expenses (limit consumer spending/dining out - think "one night out a month, no ordering food in"...buy an $8 frozen pizza instead of spending $28 going out or better still: make one from scratch for $2)
  • Making $70k/year, you should NOT feel strained - this strikes me as a big red flag.
  • pay off the debt ASAP - it's a constant drain as long as you maintain it - compound interest is not your friend
  • put away a quarter of your take-home pay now and you'll be far better off than someone putting away half of it in their 30's - compound interest is your friend in this case
  • stick with the govt if you can - the pension is excellent, however...
  • don't count on the government pension to fund your retirement, in case you decide to leave later or we have another round of cuts; save and invest wisely as if you're self-funding your retirement
  • Don't count on CPP and OAS - though they may still be around when you (and I) retire, they may not. If they are, they max out around a combined $18,000/year in today's dollars. (indexed to CPI)
  • Houses are way overvalued in Canada right now. Renting is cheaper. Wait until our housing bubble bursts to even think about buying.
Do that and you may find, by age 45 or 50, that you can plan for an early retirement.

EDIT - The choice between investment accounts (TFSA or RRSP) should be based on a comparison of your marginal tax rate at contribution and withdrawal. See this article for details: http://worthwhile.typepad.com/worthwhil ... tfsas.html

The government pension reduces your RRSP contribution room so you'll have some research to do to figure out what you've got left. (TFSA=Roth IRA but more flexible, RRSP=401k but self-managed & more flexible)
Last edited by af895 on Thu Jun 21, 2012 3:04 pm, edited 1 time in total.

twinsdad
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Re: What to do with my money? Pay dept or invest? 25/male

Post by twinsdad » Tue Jun 19, 2012 12:24 am

You are 25. Be flexible and don't shut yourself in a box like I see many people do. Decide what you can comfortably allocate every month after your expenses, retirement funding, and emergency fund. This is now your monthly investment and/or debt repayment pot. If the Euro goes bust the the bottom drops out of the stock market, don't waste money paying off those low interest credit cards, buy stock silly! If the Dow is 14,000 you know it will drop or not not stay there long, pay those credit cards off so that when it does drop, you have more money to invest. The extremes are easy if you are disciplined not to just follow the herd mentality. What is tough is what to do in between the extremes. I will typically "rebalance" my debt repayment and investment montly allocation between my diversified asset allocation stock/bond portfolio and debt repayment depending on what the market is doing and which way I think the market is going. This is the awful thing we call trying to time the market but if you are wrong it is cushioned by the fact that you either paid down more debt, or saved more money in your investment portfolio. If I am not sure what the market is doing I will usually go 50% debt 50% investments. Some months I've just sat on cash in my ING Direct checking account getting only .9% but having the opportunity to watch the market and catch a drop, or wait until the market made it clearer what to do. Basically you don't have to just pick one or the other. Nice problem for me is now that my debt and mortgage is zero I no longer have this monthly decision, everything goes to investment savings. Kind of dollar cost averaging, but I stil sit in cash when the market I feel is too high. Hope this helps you.

Johm221122
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Re: What to do with my money? Pay dept or invest? 25/male

Post by Johm221122 » Tue Jun 19, 2012 12:53 am

I would,if I was you,write a budget down on paper and an investment plan on paper.Spend money on what you enjoy but make sure you are not wasting money
Good luck
John

The Wizard
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Re: What to do with my money? Pay dept or invest? 25/male

Post by The Wizard » Tue Jun 19, 2012 5:28 am

The word is "debt", not "dept".

If your interest rates were 4% or less, then split your funds 50/50 between paying down debt and investing.
To the extent the interest rate you're paying is over 4%, focus increasingly on paying off those debts.
It's NEVER a good idea to carry credit card debt; pay those charges off each month in full...
Attempted new signature...

wholeinone04
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Re: What to do with my money? Pay dept or invest? 25/male

Post by wholeinone04 » Wed Jun 20, 2012 6:42 pm

I'll echo what others have said, but come on dude! If you are pulling in 3400/mo after tax and living at home you should be able to save at least $2,500 a month!

You live at home! Pay that debt off ASAP, it's a guaranteed return and then invest in some low cost index funds. Don't ever mention the word forex or think that the $2-3,000 you made a few years ago was skill. That was luck..

Naikansha
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Re: What to do with my money? Pay dept or invest? 25/male

Post by Naikansha » Thu Jun 21, 2012 1:11 am

I think it is so important to pay off credit card debt as soon as possible because of the outrageous interest rates you are paying and also as a way of developing new habits regarding your financial practices. With some diligence, you might be able to get out of the habit of using your credit cards to make purchases (I realize sometimes you just have to use them but not all the time). While I am fortunate to be able to pay off my cc debt each month, I realize how much more I spend because I can use the card (e.g., to make expensive purchases of overseas goods or ebay luxuries). I am trying this month to not use the card at all and to only use my bank debit card for gas, groceries and other necessities. I'll see how much of a difference this makes in July's bill over my June bill which shocked me into doing this.

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