I’m (22F) graduating soon (woot!) and headed into a pretty well-paying job. My partner (25M) is already working. We are comfortable with our current spend per month, and I’ve calculated that with the new job (after health insurance) we’ll have about $6000/mo left over after our usual spend (i.e. avg spending per Mint including bills, food, misc shopping, etc). We’ve been married for 3 years and have spent about 1.5 in our current apartment, so we’re pretty confident spend will stay around the same.
**Info:**
$6k/mo after average expenses (NOT bare-bones, maximally frugal expenses). This assumes both our retirement contributions stay at 0.
$30k sign-on bonus.
Around $62k in debt after my graduation. $24k of this is a car loan at 2.95% interest. The rest is federal student loans at 2.75-4.53% interest, and a modest amount of credit card debt (under $5k).
Total credit limits are around $50k.
Current EFund at $0 (was $10k but freak accident happened).
Husband’s 401k at $2.4k, not contributing currently.
It’s not currently feasible to build an emergency fund, since my student loans fund part of our living expenses (i.e. we spend a tad more than my husband earns).
I start in July.
Husband works from home, so we won’t need a 2nd car unless he gets a new job (which he wouldn’t take unless the raise justified a second car).
Not planning on children for at least 4-5 years, would like to travel.
A nice house in our area runs around $600-750k.
**Plan:**
What I’m considering doing is holding off on all retirement contributions and savings until the end of 2022. With a $6k/mo surplus July-Dec and a $30k sign-on post-tax, we should be able to be debt-free by the end of the year. My logic is that since I have access to $50k in credit and a large cash flow, any emergency could be paid and held on credit for two months maximum. Our health insurance and car insurance deductibles are under $6k combined, and the car is 2021 (it’s a plug-in, so with federal and state rebates we’d have had to get a 2016 for it to be cheaper used) so large maintenence isn’t likely.
I’d pay off the CC debt first, then car to increase cashflow, then tackle the student loans (I may be able to knock most of these out before my first payment is due since I have 6 month grace period post-grad).
After 2022, we could kick retirement contributions for me up to company match (husband has access to a 401k but no match), fill emergency fund (my target is around $30k for 6 months of necessity-only expenses), then start funding either a different high yield savings account if I wanted to burn hard toward a house downpayment, or index funds (or some mix of the two).
The problems I see with this plan are not having an emergency fund for another year, not getting the company match on my 401k for 6 months, and not contributing to my husband’s 401k at all for a few years in favor of house downpayment and index funds due to our age and risk tolerance. Also the general strategy… being debt-free is cool and all but the vast majority of our debt is under 4% interest. Exactly how much more optimal is it to pay this off over a much longer period of time and invest instead?
In my head, the goal is be debt-free by the end of 2022 and hit $100k net worth by the end of 2023 (I get about $50k pre-tax in stocks every year, starting July 2023). But I’m wondering if y’all have a better idea.
Happy New Year and thanks for reading!
There is no scenario in which giving up the 401k match will work out in your favor with your given data.
It is literally free money.
The interest rate on your debt has to be obscenely excessive in order to outweigh this benefit.
You should contribute to your 401k plan to get the employer match. Don’t miss out on that match money!
I think you are sacrificing prime retirement savings ability early in your career to pay off debt for a marginal interest savings. And you’re burning 2-3 years worth of contribution amounts that you’ll never get back.
With the monthly cashflow and then signon bonus or stock – you’re getting something like 90k/yr that you can use to do stuff.
Instead of burning through low interest debt…
– take the 30k signon and fund two backdoor Roth IRAs and pay off the credit card debt
– turn your 401k to whatever percentage gets you to the company match because that is free money
– calculate the difference in monthly cash flow but use the rest of 2022 to build an emergency fund
That has cleared the (most likely) high interest cc debt, built your emergency fund, and allowed you to put 15-20k in to retirement
In 2023, you’re going to have like 90-100k in available money.
– 12k more for Roth IRAs
– top off the e fund if you have to
You’re still going to be left with like 70-80k available. You could both max out 401k and STILL pay off 2/3rds of your left over debt.
If you did that, I’ve got you going in to 2024 with 2 years of maxed IRAs, a maxed emergency fund, 25k in remaining debt, and most likely 50k+ in your 401ks.
In 2024, you clear the remaining debt and start using 30-40k/yr for a house down payment. A few years of that and you’re still buying a house when your husband is 30 or early 30s at worst and right around the time you’re looking for a kid.
As others have stated you really should contribute to the 401k assuming you get a match from the employer. That is free money. Also, compounding interest is often considered the 8th wonder of the world. Foregoing contributing to a 401k at these younger years costs you much much more over the long run than you have any idea. We are talking about potentially $50k + in lost opportunity cost of retirement savings over your lifetime for every year you delay.
Suggested order:
1. 401k contributions up to point of match
2. Build 6 month emergency fund (do not rely on credit cards – that is how you got debt in the first place)
3. $5k credit card debt
4. Car loan
5. Roth IRA (after point of 401k match)
6. Student loans
7. Downpayment for house
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