I am a young (under 30) recent law school grad. I have a mountain of student loans, but zero credit card debt. I currently put 8% of my salary into my 401(k), have a small amount invested in stocks, and put my spare change in to a high-interest savings account while paying the minimums on my student loans. I live in an apartment but I want to save for a house. What, if anything, should I change about the way I%26#039;m currently saving that would speed up the rate at which I can purchase a home? Should I put less into my 401(k) and more into my savings or brokerage accounts? Something else? I need advice. Thanks!
What should my saving priority be at this stage of my life? Much of what you do should be determined by the rate of return that you are receiving on your 401K. If the interest that you are paying on your loans is greater than the interest gained on the 401K then you want to pay off the loan as fast as you can.
You can afford to invest in higher risk investments at this point in your life. Mutual funds have been considered safe in the past. Savings are not savings if you have debt. The goal should always be achieving debt free status.
Maximize smart investments. Avoid debt. Pay off loans. Do not buy expensive luxury items. (depreciation will get you).
Buying a house may save you money in the long run versus renting.
Just my thoughts.
What should my saving priority be at this stage of my life? Just as long as your annual return on your 401k is greater then the interest rate on your student loans you should be fine. If not I would put some more money into paying your student loans.
What should my saving priority be at this stage of my life? At your (and my) age you can afford some risk.
Try something like POWERSHARES QQQ TR 1 (NasdaqGM:QQQQ) or SPDRs, which are index shares.
What percentage you invest is up to you but you can get 3-4 times the returns compared to a high yield savings account. To offset the risk, get some AAA rated government bonds.
Email me if you want.
What should my saving priority be at this stage of my life? I%26#039;m 24 and in the same boat as you. I%26#039;m putting 10% in my 401k. Start as young as you can. Cut out foolish spending and pay off anything that is charging you interest extremely aggressively. Pack away a good down payment for a house and shop around for a good mortgage rate and buy a house in a year or two when the market falls more (which it will). You don%26#039;t want to be buying a house when the markets on the down curve, but rather near the bottom when rates are low and houses are ever lower. You%26#039;re lucky to be able to do this at a young age. To answer your question about the 8% I think thats a fine number. Try and take another 12% off each pay and throw it in your brokerage accounts. 20% savings total (including your 401k) until your 35 is more than fine. When you%26#039;re 35-42 bump it up to 30%. 42-50 bump it to 40%. In your 50%26#039;s the skies the limit, hopefully your house is paid off and you%26#039;re banking most your pay. Retire by 58 and live off interest!
What should my saving priority be at this stage of my life? you asked: What, if anything, should I change about the way I%26#039;m currently saving that would speed up the rate at which I can purchase a home?
You could reduce your retirement savings so that your take home pay increases and thus allowing you to put more money into your savings account.
Have you figured out how much of a down payment would be required? Some loan programs require very little downpayment. I%26#039;m not saying I%26#039;d advise this route, but your question was about buying a house quickly (I%26#039;m sure you have a good reason for wanting to purchase a home quickly).
What should my saving priority be at this stage of my life? Ok as far as your investment strategy goes, i think you are on the right track and the simple fact you are addressing future finance needs is to be commended. However, as a person who has worked for a company that administered 401k benefits, i am going to offer you some valuable advice.
For starters, you want to invest in your 401k in a level which maximizes you company match across the whole year. For example, pre-tax income for 2007 max contribution to 401k is approx 16000. Now suppose your company matches you dollar for dollar up to 4%. And supposed that your current 8% makes you reach the 16000 in 8 months instead of 12, then you are missing out on the remaining 4 months of match. What you want to see is what your companys matching percentage is, calculate the amount you can contribute in order to reach the full 16000 over the entire year and also get the match across the full year. This way you maximize your savings.
Secondly, also pertaining to the 401k account, due to your age, i believe you need to be somewhat aggressive in your saving strategy given you are young still. In a 401k account, you can specify where the moeny you input goes and in that way, at this age you can selected stocks that give back higher returns. Although this carries risk and following the rationale that higher risk equaly higher return or higher loss, at this point in your life, you are better off investing 60-70% of your 401k contributions in stocks ( small cap, international) and the remainder in more stable bond and moeny market funds.
So thats my advice to change your 401k strategy and i beleive that you are taking the right initiatives by thinking about his at this time, however, there is a lot mroe you can acquire through your 401k than even you might know.
As for your student loans, check out a company called graduate leverage. I consolidated my federal loans based on their recommendations and it worked out to a very solid rate of repayment. Unlike several lenders that try to offer you their so called best rate, Graduate leverage compares the rates of the different lenders nad their package adn offers you the recommednation and assistance to process the best paperwork and lowest payment and interest. Given the fact that the difference between choosing a good consolidation package and bad one can result in over $8000 interest difference, it is worth to check out your options. Best part is that if your loans are federal such as stafford and gplus, then your consolidation doesn;t hurt your credit score.
I know this whole excerpt is lengthy but investment strategy is something that takes examples and result based advice to communicate.
What should my saving priority be at this stage of my life? I feel the best way is to diversify, as you are doing, but focus on the current goal or hot sector/industry, but have some amonuts going to all areas. Split your savings something like 33% cash, 33% 401k and 33% house as a basis, and move 10% from each to the hot or focused area. So, for you right now, you should have 53% going towards house savings, with 23 %26amp; 23 to the other two. If you don%26#039;t have a current goal, put more into whatever is hotter at the time, either real estate or stocks. I mostly lean towards Real Estate, because you leverage the banks money. If I put down 50k on a house, and it goes up 50k in 2 years, then I made 50% on my money in a year. That cannot be done with the market. I have 60 real estate (my house and another rental) and 40% in the stock market. My main advice is save way more than you think now, while young, as dollar cost averaging is amazing, once you get some big values it there. I started at 25 and am now 40, and have more than most of my peers, even though overall they have put in more than me. Time is everything!
What should my saving priority be at this stage of my life? You have been responsible with your money... great job! Are you planning to stay at the job you are at for say 3-5 years? If so, I would recommend maxing out your 401K, for two practical reasons. First the money you put in on the front will significantly boost your balance vs money put in later. Secondly, you can borrow against this money that would otherwise be untouchable for your first time home purchase. you can borrow up to 50% of your balance or 50K whichever is greater. So, unless your balance is already over 100K this would be wise! If you plan to jump jobs, then make sure you contribute enough to get 100% of the matching from your 401K plan and put the rest into a solid mutual fund. You should do your own research, but I am including two that are in my oppinion good vehicals (VFINX, VEXMX). This account would be set asside for your home purchase... when you are ready to buy a home, you would cash it out and fund your down payment and closing cost from here. You can expect to have between 8-12% annual returns on these accounts. A general rule of thumb you can follow to determine how much you need to save is to divide the list price of a home by 7, so for example... to purchase a townhome for say 300,000.00 (in Northern Virigina) you should have about 42K saved... that%26#039;s with a reasonable 80/10/10 plan. Everything is fluid and negotiable, so what I have provided you is a good guideline but apply your own twists. You may want to buy with only 5% down, or perhaps negotiate so you don%26#039;t pay closing costs (only the down payment). Reading up on first time home buyer stuff, will pay you dividents in the future. Z-Money%26#039;s 401K tips are wise, you should read her notes also.
A house is great, because once you have one... you can leverage your equity to do even more financially. A lot of new tax-breaks become available to you as a home owner.
Sorry for the long answer...
What should my saving priority be at this stage of my life? It looks like you are do savings correctly. Because you are under 30 you have time on your side. The general rule of thumb is, under 30 save 7 percent of your income for retirement. That number doubles every 10 years you delay. (i.e. 14 percent starting in your 40s, and 28 percent starting in your 50s)
However, you should put the maximum amount that your company will match. If you don%26#039;t, you are throwing away money.
I suspect the interest rates are low you your student loans, but I would suggest paying those off instead of paying the minimum.
One trap most people fall into is spending more as their income rises, resulting in making no headway. Every time you get a raise, put at least 1/2 of that into savings.
It is difficult to save for a house on your own. Typically, the prices are going up faster then you can save for it. If it is possible, see if your parents or other relative can give you some %26quot;gifts%26quot; to start out. The IRS allows each parent to give $12,000 tax free. Doing this in Dec. and Jan. could allow you to accumulate $48,000 in 2 months.
Another way is to get a life partner/spouse, that has your same goals and thrifty habits. Couples usually advance financially faster then singles. However, children can alter plans, and split ups can make you worse off.
I hope that helps.
Good luck.
What should my saving priority be at this stage of my life? Honestly, you should be paying as much as you can on those student loans. It doesn%26#039;t make any sense to be paying 6-7% interest on those, when you have money sitting in the bank earning you 3 percent. I%26#039;m not saying don%26#039;t put a little into savings/401k, but you need to get rid of those loans.
What should my saving priority be at this stage of my life? I understand that you put a little too much in your 401k and Savings account.
Paying your debts first is more important.
2 reasons:
- You don%26#039;t earn enough money with interest
- You don%26#039;t know what future is. You may be a long time without workig (for any reason). I it happens, you%26#039;ll be happy to be debt-free.
Good luck !
What should my saving priority be at this stage of my life? Well if you have a firm job that pays 150 K a year pay off your loans as fast as possible. Its hard having 100K plus hanging over your head. Once you have that paid off you can start saving for a house.
