AboutGina Boykin Expertise Financial planning, debt management & credit cards, stock investments, mutual funds, bonds, foreign exchange(forex), and saving money tips.
If I don't know something I will do my best to research and give you objective and relevant answers.
Education/Credentials B.S. Degree and 10 years of experience in Accounting and Audit. 10 years experience investing in stocks, mutual funds, bonds, real estate, options, and forex
I am a recent graduate with a Manufacturing Engineering Degree. I have been spending money stupidly through the years and now I am trying to pull myself together. Although I have saved about $3000 in the last few weeks from grad presents or work. I have a pretty good job making about 43k a year plus $1,250 quarterly. However I also have about 50k in debt thanks to college loans (Low Interest). I am planning on living at home with my parents for about a year or so to help paying for these loans. After that I might get my own house, marriage, or even kids who knows. But as for now I have created a excel chart evaluating my financial status.
Looks like:
COST ANALYSIS
INCOME EXPENSES
WEEKLY 815 100 EACH WEEK ON GAS
QUARTERLY 1,250 15 EACH DAY ON FOOD/MISC
500 EACH MONTH ON INSURANCE/COLLEGE LOAN PAYBACK
200 EACH WEEK ON MISC/PLAY
Adjusted b/c of taxes (≈)
weekly 627.55
QUARTERLY 962.5
PROFIT
TOTALS 368.175 WEEKLY
1472.7 MONTHLY
17672.4 YEARLY
Type
Savings Account
Mutual Funds
Indexable Funds
Certificate of Deposits
Other Bonds
Projected Goal % of investment in order
50% in mutual funds
20% of your portfolio in safe investments such as bonds and money market accounts
30% in stocks (this could be in the form of the Index Fund I mentioned earlier if you want something simple and easy)
Anticipated Return Profit %
20% for a stock portfolio
12% for an index mutual fund
5% for a risk free CD's
2% a year for money market account
How am I looking and advice? Is this possible investment strategy appropriate and/or are there others better?
ANSWER: I think you are doing very well. Your excel table did not show up very well, but I think I get the picture. It is saying that you have money leftover, after everything is paid, of $1400 each month? What are you you doing with the "profit"? While you are staying at home, the majority of this money should be used to pay down your student loans. Even though the rate is not very high, it would be a great goal to pay these down as much as you can while you have the extra cash. However, the amount you use toward debt paydown should be whatever is left after you do the following two things - save for moving expenses and build an emergency fund. Both of these items should be kept in a basic savings account, money market account, or certificate of deposit.
Begin to save toward moving out. If you plan to move out in 12 months, for example, then you can go ahead and calculate how much you need to move (first & last month's rent, furniture, utility deposits, etc). Divide this amount by 12 and put aside money toward this goal every month. If it's 2 years, then divide by 24...Remember, each month you stay at home is equates to $1,400 that can go toward your goals, so there's no rush! This will be reduced considerably once you move out. You can also divide by the number of weeks or by quarters.
You should probably wait to purchase a home, even though house prices are dropping and this is tempting. Wait until you have saved up enough for a hefty down payment, as well as a large emergency fund. Living on your own requires a certain discipline with money, which you can gain while you live in an apartment.
Build an emergency fund. Putting aside 3-6 months of your living expenses is a good way to plan ahead for potential setbacks. This is tricky, because you'll need to do this based on your living expenses once you move out, not how much you spend now. You can do a rough estimate, though, based on how much you think your apartment, utilities, and renters insurance will cost. If you continue to budget and track your expenses, you'll be able to quickly see how close you are to the real thing once you move out, and can add to it if needed.
You can calculate how much to put in your emergency fund each month in the same manner as the moving expenses. Get an estimate of what you'll need by the time you move out, and divide this amount by the number of months you have.
Investing is a great long-term goal. However, the items I mentioned above, in my opinion, are priority. Once you have your emergency fund and savings in place for your short-term goals, you can then begin to put all of your "profit" toward finishing the payoff of your student loan, purchasing a home, and toward retirement. Once you meet that special someone, you can work together to create a plan to save for a wedding.
Last note: Make it automatic! Once you have an amount in mind to put in savings, have it automatically transferred from your checking account each week, month, or quarter. You can either set up automatic transfers with your bank, or you can set up your automatic deposit with your employer such that part of the money goes into savings and part goes to your checking. You can do automatic billpay payments to the loan company as well. Making it automatic relieves you from the temptation to stray away from your plan.
---------- FOLLOW-UP ----------
QUESTION: Thank you so very much.
I will open an automatic savings transfer of about 250 a week for an emergency fund & saving to move out.
But as for the rest of it (~~$3,000) should I just throw it all at my college loan or basic savings account, money market account, or certificate of deposit.
I don't know much about money market accounts or CD's which would be a better investment if I'm looking to let it sit for about a year or so?
Again, Thanks so very much.
Answer It would save you money over the long-term to pay down your student loan. Consider that savings/CD/money-market rates are between 2 and 3 1/2 percent and the average student loan rates are closer to 7 percent. This means that any money you put toward your student loan saves you 7 percent, which is much better than 3 percent. In other words, it wouldn't make sense to make 3 percent while you're paying 7 percent to the loan company.
For the savings part of it, a savings or money market account (which is just a savings account with check-writing privileges) would work better for your weekly automatic deposits. You can't add to a CD. You would have to open a new CD each period. The current money-market rates are very close to a 3-month or 6-month CD rate.
In the future, if you have any other short-term goals you are saving for, and you have a lump sum deposit (or even if you're adding funds quarterly) you could definitely try a CD.
The main differences between a money market account ("MMA") or savings account and a CD is this - When you open a CD you enter into a contract for a certain period of time (for example, 6 months). You get a higher interest rate than a savings/MMA in exchange for giving up the use of your money for that entire period. If you try to take your money back before the period is up, you will have to pay a penalty. A savings or MMA has a lower interest rate in exchange for full use of your money at any time.
Check out the best rates at www.bankrate.com and happy saving!
