<p>Hello,
I am a 2013 graduate that landed a full time position at a large Fortune 500 company with almost a six figure salary. I have almost $42k in student loan, however I have around $33k (savings) + $8k (sign in bonus) saved up. I am currently financing a car ($18k, 1% APR). Is it wise to go ahead to pay off my student loans after I get my paychecks coming in to help me with food,utlities,etc. or should I just wait a couple of months? I know some people advice 5 months salary as a security savings, but I am not too worried for that at the moment. Also, how much a month should I put away a month for retirement? My company does 5% matching. Should I exceed what my company matches or should I put away the same amount my company matches?</p>
<p>It depends on the interest rate on your student loans. If it is low enough that investing your money doesn’t make sense pay more on your loans. If you are making more on your money saving or investing it don’t pay it off early.</p>
<p>you should put in atleast what your company matches. contribute the max that you can. also, you SHOULD keep atleast 6 months salary in hand as savings. Things may look good for you now but nothing in the corporate world is a sure thing. congrats - you seem like one of the few who has their priorities straight</p>
<p>Whoops forget to mention the interest rate on the loans (thanks iadorking!). The interest i’m getting is around 5%-7%. My savings isn’t getting that much interest (maybe not even 2%?).</p>
<p>Absolutely pay down the student loans ASAP. You don’t want those hanging over your head forever. The rate you are paying is way above any sort of fixed income return these days. Your savings is probably more like .2%, not 2%! </p>
<p>During this period where you are paying down the loans, fund your 401K to the max amount your company matches. That’s a no brainer. It’s a 100% return immediately. </p>
<p>You are off to a good start!</p>
<p>1) Put enough into the 401k to get the company match.
2) Start building up your savings until you have fully 6 months of expenses in your emergency fund.
3) Build up a separate “stuff happens” fund so that if your car suddenly needs new tires or your roomie leaves you and you need to pay the full rent until you find someone else or if your emergency dental work is more expensive than you imagined, you won’t have to tap into that 6th month emergency fund.
4) After all of your other expenses, slap down more than the minimum on the student loans.
5) If you still have spare change left, boost up your 401k and/or open an IRA.
6) And when you do get those loans paid off, whatever amount you were tossing at them each month, put that toward your next big expense - new car? new home? more education? kids education? If you don’t start spending it on your daily life, you won’t ever miss it.</p>
<p>And yes, you do want that 6 months of emergency fund sitting in a nice set of laddered 12 month CDs (one per month) or in a boring money market or high interest savings account. When the next random round of layoffs blows through your company, or your entire industry, you will be glad to have it.</p>
<p>Always have money saved for an emergency before you pay down debt.</p>
<p>•Save up at least 8 months of your monthly expenses as an emergency fund. You should strive to not go below this balance.
•Once you do that, pay down that debt!
•Pay the amount towards your 401K that your company will match.</p>
<p>The amount of emergency fund should be enough to live on at least as long as it would take you to find another job. Then double it (or more, if the type of job you are qualified for can go into very deep industry downturns), because the most likely time to get laid off of a job is during an industry or economic downturn, when finding a job will take longer than it does now.</p>
<p>Note that this will be more than six months’ living expenses for most people.</p>
<p>“Note that this will be more than six months’ living expenses for most people.”</p>
<p>So true. When the layoff hit, we had 6 months’ worth in the “emergency fund”. Thanks to improved income on my part, and Happydad’s unemployment benefit, we should be able to stretch it a bit past 12 months. Fingers crossed here that we won’t have to find out whether it truly will stretch that far.</p>
<p>All good advice here. If you are already making 6 figures you might want to consider contributing to a Roth IRA while (if) you are still eligible. The amount you can contribute phases out once you surpass $127k for a single person. Even a few thousand invested wisely could yield many times that- tax free- 20 or 30 years from now.
[Income</a> Limits Updated for 2013](<a href=“Roth IRA: What It Is and How to Open One”>Roth IRA: What It Is and How to Open One)</p>
<p>1) Put enough towards retirement to receive your company’s match.</p>
<p>2) Pay off your student loans.</p>
<p>3) Save for a 6 month nest egg.</p>
<p>4) Refrain from diving into expensive purchases, such as a nicer appartment or a fancier car.</p>
<p>The student debt is non-dischargeable. Its interest rate is more than any savings return. Putting money into savings rather than paying off the debt guarantees a loss (the difference between the interest rate on the loan and the interest you receive on savings.)</p>
<p>While you are young, and without dependents, do your best to build up savings for the time when you will have larger expenses.</p>
<p>Before you do all this, though, sit down to set up a reasonable budget for expenses. It can be a good idea to engage a reputable financial planner for this step. Don’t forget to include taxes in your calculations. It sounds as if you are not a spendthrift, if you’ve managed to accumulate savings already. For many people, though, it is easier to set up things so that you are not tempted by extra money lying around.</p>
<p>congratulations! You are young and in good position…</p>
<p>Personally, I have a different stance from the other advice above. Most of us are parents who have had a lot of turmoils in their career. Conservatism is the tune of Parents Cafe.</p>
<p>Yes, you need a nested egg just in case of accidents in your career and it happens, and it will. Perhaps 6 months of reserve in your age and in your case is enough. But I am the firm believer of no debts, your student loan yield is lot higher than the investment that you can put your money in. The recent stock market surge is not indicative of the future yield, so do not count on it. 401k contribution is a must(except if the company requires you to invest in their stock! You have heard the ATT stories before right?), other than that, I’d cut all the other amenities and pay down that student loan ASAP so you have no worries when your real demands start come in, kids, wife/husband, older folks, home purchases.</p>
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<p>However, note that paying off most loans reduces cash liquidity, if one wants to have that for emergency fund purposes. The exceptions would be credit lines and credit cards, where paying them off leaves the unused credit line as liquidity. One has to weigh the interest cost versus liquidity when considering whether to pay off a loan early.</p>
<p>After some years of plenty and some years of “how can we afford to eat?”, I know that I have always been happiest when we have zero debt. That influences my advice to you.</p>
<p>1) put in for retirement for the exact amount for the company match.
2) begin paying off your student loans by making double payments every month
3) accelerate your car payment as well (also pay double every month)
4) accumulate savings (personally, I’d put the savings into an indexed stock fund, such as IWM)</p>
<p>If you live on 80% or less of what you make and save the rest, you will end up very well off indeed.</p>
<p>One of the loans I hate the most is a car loan, especially from the car dealers. In most cases, in small print, they loan you the money with an anti accelerated payment schedule called “Rule of 78”.</p>
<p>[Rule</a> of 78s - Wikipedia, the free encyclopedia](<a href=“http://en.wikipedia.org/wiki/Rule_of_78s]Rule”>Rule of 78s - Wikipedia)</p>
<p>In that you will be paying mostly interest in the earlier part of loan and if you accelerate loan payment, you will be killed at the end. I once paid off a car loan one year prior to the end of the term and got back some thing like $50, when I inquire the lender, they pointed out this Rule of 78 payment schedule and left me hanging dry.</p>
<p>^^ So I played the “Rule of 78s” game once with a dealer and got kicked out of the dealership.</p>
<p>I used a bate and switch format in a car purchasing trip. I went into a dealership and first started tell the salesperson that I intended to put down the minimum and finance the rest. He was a happy salesperson, he gave me a very favorable price and many free options. I went along with the deal but at the end, after he wrote up the ticket, I told him I changed my mind and want to pay the car off without financing. I was kicked out of the dealership immediately, he did not even want to talk to me any more.</p>
<p>To grossly exaggerate the Rule of 78s financing, if you borrowed 18K for the car and if you wish to pay off the loan the second day after the loan is made, you may have to pay 19K for it.</p>
<p>First off Congrats on saving so much money at a young age.
If it you were my child I would advise fully funding your 401K in order to get the full company match. The next step would be to start paying down the student loan debt.(in my childrens case I would push this over having 6 to 8 months emergency fund due to the fact that we would at your age provide a landing spot if there was a period of unemployment.) Of course that advise would change as they get older.
I also would not advise my child to get a car loan. I try to avoid debt on items that lose their value. So mortgage debt is fine, car loans something to avoid if they can.
Other no brainer in our world- Do not charge anything on your credit card that you can’t afford to pay off in full each month.
Also just because your making 6 figures you don’t need to spend like you are. This is a great time in your life to accumulate savings as your living expenses don’t have to be high.</p>
<p>Do you have to return the signing bonus if you leave before a certain time? If so, it’s not quite yours yet and you will need to keep it set aside. Anyway, congratulations on your early success.</p>
<p>Similar to others:</p>
<p>1) Start putting 5% into the 401k as soon as possible. Where else will you get an immediate 100% return?
2) Take a look at your highest interest rate debt and pay that down as quickly as comfortable. Leave the 1% car loan until your student loans are gone.
3) Open a separate, remote account to keep your 6 months of living expenses (I use Scottrade). If it is mingled with your day-to-day banking accounts it will be subliminally associated with available cash. Keeping your regular balances below $5,000 or $10,000 will reduce the likelihood of upgrading to the skybox or buying that cool, new Colnago.
4) While you are young and single, resist the urge to accumulate “stuff.” If it can’t fit in your car or be left at the curb when you move, it’s probably too much.</p>
<p>ETA: Life will get a lot more expensive in the future, so save aggresively now.</p>
<p>All of this is really good advice. Thanks! Side note- My parents are pretty supportive and have allowed me to move back home if a circumstance does arrive that prevents me from working (such as a lay off). If I have a lease with an apartment complex, how can I leave the lease without hurting my credit? I figured if I can save the money on the lease and utilities, my 6 month living expense account can be stretched further.</p>
<p>Another question- when everyone talks about “6 months of expenses”, do you mean 6 months of actual salary or 6 months to cover food, utilities, rent, car payment,etc?</p>