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August 22, 2013


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I think you're doing a pretty good job. Saving on the rent is key, and you're going to really appreciate that extra $500.

If I was you, I'd kill off that student loan. You will feel AMAZING and if you put all $500 to it, you can pay it off in less than a year. I think your emergency fund is pretty good, as long as you feel your job is stable.

You also say you have "investments" at $5,000. Is that an IRA? If you don't have one, I would recommend one before you start contributing more to your 401k, unless your 401k has kickass options (in my experience they usually don't).

You are doing well. I would follow the Dave Ramsey plan and focus as much as you can on paying off the debt. After that, add $8000 to your emergency account so that you have 6+ months of expenses to fall back on for emergencies. You should be able to get both of these down within a year given your rent savings. After that, just max out what you put into retirement and you will be in extremely good shape and can then focus longer term savings on a future home.

Looks solid, cutting rent will be a great bonus, but getting a roommate will bring some problems.

Aspirin budget will take a hit.

Agree with others, throw all the roommate money all at that student loan. Will be gone before you know it, and such a relief. Then roommate money and student loan money can go toward emergency fund. Finally you can really hit retirement hard.

You're thriftiness is paying off!

Thank you for the comments! I am very torn about where to allocate the extra funds. I know at 30 I should probably have 5x what I have saved for retirement... but mentally it's difficult to put more towards retirement when it's so far off in the distance. Same with the student loan. Interest is 4.5%. It would be smart to pay it off, but it also means less in liquid accounts NOW. And I'm not sure how long I'll be able to last with the roommate. Maybe a year, so a temporary $6000 influx.

All that I've read points to eliminating the debt and beefing up retirement. It is just hard to pull the trigger since the benefits are a little intangible. More in cash or a brokerage account would make me feel richer, even though I don't have a real goal for that money.

Anyway, this is the first time I've ever had "extra" money. Trying not to mess it up! Thanks all.


For better or for worse, here is a bit of tough love.

You say you save $800/ month to save (approx. $9600/year)-- but you only show a total of $10K (one (1) years savings) in your investment and emergency accounts? So was last year was the first year you ever saved anything- ?

Something is off. Lets look at the big picture shall we?

The good news is that you do not have credit card or other serious debt and-- if you truly can save $800/mo--- there is time to turn this all around.

Watch this-

1. If you save $800/mo faithfully for the next 60 months you will have accumulated $48K more principal. If you add that to your $5000 investment account and get a measly 5% return-- you will have an investment account worth:
$ 62,000 in five (5) years.

2. If you truly save the $800 PLUS the $500 you get from bringing in a roommate- saving $1300/month-- you will have an extra $78K saved in 5 years. If you add THAT to your existing $5k and get a 5% return each year-- your total savings will be almost $100K five years from today.

You say its too intangible to look that far out into your future? Maybe 5 years is an eternity? Ok-- lets look out only one (1) year at a time. Maybe that will motivate you.

Follow my advice (save the full $1300 every month) and your investment brokerage account will look like this:

8/2014: $21,630
8/2015: $39,091
8/2016: $57,426
8/2017: $76,677
8/2018: $ 96,891

Are you feeling it yet?

A year or two into this plan and your student loan debt is a minor nuisance. You pay it off if you feel like it--if not, you don't.

Saving and investing is POWERFUL! It gives you options.... it allows you to live the life you want to live. All this and I have not even asked you to lower your expenses as you say you live today.

Five years out and you are looking pretty sweet on the financial front. What happens 10 years out?

8/2023: $214.00.00 !!!!
( this without ever increasing the $1300/month savings amount... and still assuming only a 5% return)

Believe me--- the 5 years will pass quickly whether you take advantage of them or not. 5 years from today-- will you have $5000 in your investment account or will you have $96, 891?

Your call.

Sounds like for a 29 year old you are in good financial shape!
I would say having a room-mate even for a few months would save you a lot of money that you can invest in savings bonds or blue chip stocks.
Also, if I were you, I would not move in with boyfriend who has such a huge debt. You might end up paying rent and other bills for him.
New York City sounds like a fun place to start your career (I am a big city girl myself), but if you want to have a family and a house and a dog one day, you might want to move somewhere else in a few years, less expensive and more family friendly.

JNEW, you simply CANNOT assume a consistent rate of return over such a short period of time, especially when the rate you choose is clearly one that can't be gotten through savings accounts. Start saving for retirement in 2006 at the height of the market, watch your accounts plummet nearly 50% over the course of the next year and a half. Sure, they may eventually recover, but that money won't be there if you need to get your hands on it short-term. Which is not an argument against saving for retirement, but it is an argument against unrealistic understanding of how that works and what it will yield over the course of the investment.

VA: Given the rate on your loan and the relative impact of the loan payment on your lifestyle (doesn't look severe), unless you are anticipating a loss of income in the near term (e.g., pregnancy) I would focus, first, on increasing your emergency fund to three months of expenses, and, after that, put the money towards retirement. If it helps your morale, increase the SL payment a modest amount, like an extra $50/mo. Just don't expect the results JNEW has described above--over the short term, your returns WILL fluctuate, sometimes extremely.

VA--don't beat yourself up about not getting it together in your early 20's--29 is not an awful age to start. I agree with previous commenters that you should read Dave Ramsey's Total Money Makeover and kill the debt before focusing on investments, whether they're retirement or something else. What exactly is your "investments" category? Is it an IRA? Mutual Funds? Also, I live in NYC with my husband and son, and you are totally rocking it in terms of low expenses! Well done! If you can resist lifestyle creep and maximize that NYC salary, you can leverage your entire situation if/when you move, even if it's into semi-retirement much later on. My family will be renting for however long we stay in the city, but our plan is to be able to (at minimum, depending on how many years away we are) buy a modest house with 20% and a 15 year fixed mortgage or (at maximum, in time for an early semi-retirement) buy outright with cash. The biggest variable is whether we'll have a 2nd child and if we can make it work with 2 kids in our affordable 900 sq. ft. junior four.


If it was me, I would be be totally focused on getting rid of the debt. However, I can understand you concerns. As you stated, the upside from the roommate may only be a year. That savings alone will pay off the student debt, so perhaps you allocate the rent savings towards the debt and use your other monthly surplus for building up your emergency savings. In one year, you will have no debt and a fully funded emergency account and then you can direct all efforts on long term savings. You will then be ahead of many of your peers who are still battling huge debts.


You certainly have the right to your own opinion--- but I respectfully disagree.

VA already has an emergency fund, a very small amount of low rate student debt, has her fixed expenses covered, and wants to know what to do with her EXTRA money to help her get ahead in life.

Shooting for 5% on average over a 5-10 year period is not shooting for the stars. I am not suggesting day trading or taking options out on pork belly futures for goodness sake.

And your example that basically 'all" investments lost 50% during the 2008 volatility is plain wrong -- and misleading.

@VA: I hate to suggest actual funds here in the comments section --but I will make an exception. Check out Vanguard Wellesley (vwelx).

This is a conservative balanced fund that invest 40% in stocks and 60% in bonds. It has a 5 star Morningstar rating. It has an expense ratio of 0.25%. It also has made me a small fortune over the last 20 years.

Since 1993 ( over the last 20 years)-- it has lost money ONLY 3 times as follows:

1993- (0.87)
1994- (0.35)
2008- (9.84)

Note that in 2008 it DID NOT lose 50% like in Sarah's broad example. And that in 1993 and 1994 the loss was LESS than 1%.

If you started investing in 2006 ( the timeframe Sarah uses to cite huge potential losses) your returns would have been as follows:

2012- 10.06
2011- 9.63
2010- 10.65
2009- 16.02
2008- (9.84)
2007- 5.61
2006- 11.28

If you had invested your money in this fund starting in 2006 (at the height of the "bubble") and stayed invested during the 2008 volatility-- you would have made MORE money than the 5% goal I suggested. A lot more money.

Are you going to be "scared" away because I cannot guaranty that the fund will always go up? Are you comfortable with 3 down years in a 20 year period?

I repeat my mantra--- In 5 years will you have $5000 in your account or will you have $200K+ ????

Your call.

The investments category is a brokerage account. I have not even had this account for a year. I've had a very good return, but I would like to come up with a longer term strategy for investments. The timing was great when I first purchased the stocks, and I'm not sure where to go from here.

The other thing about NYC is that taxes are very high here. City, state, and federal income tax. With the retirement accounts I can reduce my tax burden in the short term. I assume that retirement account withdrawals after 60 are subject to the taxes of the state in which you live at that time (and not just federal)?

I don't plan to live in NYC in old age -- paying for a home outright in cash for retirement sounds like a good idea to me, Ali!

I am hoping to keep up this budget for at least the next year where there is seemingly nothing to keep me from saving. Last year I had to deal with some very expensive dental work. WEDDINGS were also a huge expense for me in the last two years. I know unplanned expenses such as these will come up again eventually, but for now the outlook is rosy. I want to make sure to seize this savings opportunity since it may not ever come along again, especially if I ever have children!

Actually-- I apologize, the $200K+ figure is over 10 years ( not 5 years) as detailed in my 1st post above. But as stated before-- $96K over 5 years at 5% is a real possibility.

@VA, I believe you're quoting fidelity's retirement planning, but you're off on how far along you should be, putting unnecessary pressure on yourself.

It's not 1x salary @30, it's 1x salary @35. You have plenty of time to make that up if you're using that as a guide.

Well, JNEW, I never argue with someone who thinks that historical returns guarantee future performance, or doesn't understand that returns measured over a certain period of time don't mean a linear growth to that return. Your own data shows how volatile returns can be, year to year--from up more than 16% to down almost 10%.

But in case you didn't notice, we actually recommend a similar strategy. I just didn't feed her candy-coated dreams of what the results would be in any given year. It's important for people to understand what their cash flow will be from year to year, not just what they'll have at retirement. (Also, if she is investing in tax-deferred retirement vehicles, she can't usually just pull out money to pay off her loans without paying significant penalties.)

Sarah, please play nice. The point of the blog is to help each other out, not pick personal fights. Of course you're technically correct about the market fluctuations, but JNEW is just illustrating a powerful concept using conservative numbers. I personally don't see anything wrong about illustrating the power of investment using a 5% growth rate. For someone young living in New York City, where lifestyle (or just living expenses) can eat up as much money as you can throw at it, it may be a good reminder.

Correction. The ticker for Vanguard Wellesley Income is VWINX, not VWELX. The VWELX ticker is for Vanguard Wellington, which is also a good fund, but more aggressive (65% stock/35% bond). I think both funds are great...and neither one lost anywhere near 50% in the 2008-09 stock market crash. I think Wellesley Income only lost around 10% in 2008.

@ SteveD-- thank you.

This is all supposed to be helpful to VA. I am sure that was Sarah's goal too. Oftentimes it is healthy to hear different opinions.


Thanks for the summation. I agree this is all about helping out VA. I am sure that is Sarah's goal as well.

Oftentimes, hearing a few different approaches can be enlightening.

@ Mysticaltyger: You are right! Thanks for the correction and clarification. I agree too-- both great funds.

I am going to recommend a different approach here for VA. That $1300 dollar surplus be divided in half for 6 months, half to pay down the debt and the other half to be invested in investments/Emergencey funds. When you reach debt freedom and 1 year of saved living expenses, then you can put the entire $800 - $1300 depending on living situations in the future, into taxable and tax deferred investments.

Think about moving out of the city -- look at cheaper parts of Brooklyn, Queens. That way you won't have to have a roomie or if you do it might be cheaper, also everything else is cheaper too like groceries (a little anyway).

Also, I didn't start saving until after 29, so you are ahead of the game in my opinion!


Here's what I would do -- and am doing:

1. Pay off the student loan. It's impossible to discharge in bankruptcy. The lenders know this. They have all the leverage. (I'm an attorney with significant student loans.) And not all the loan companies are ethical/honest (that's an understatement). I constantly have to stay on mine and remind *them* of the terms of my loan (such as rate drops). If you ever get into default, they get much nastier. This is my #1 priority, and should be yours as well. It's your largest risk by far. All kinds of fun things can happen while you have this. (E.g., a loan company debited an extra year's payments from a friend's bank account by mistake, and later returned them, but only after costing her $1,000 in bank fees which they won't reimburse--she'd have to sue (and may not win).) Being in debt, especially student debt, is a risk.

Also, if it's a variable-rate loan (which, at 4%, it may be), you're carrying more risk than the rate represents.

2. Six-month (or more!) emergency fund. You already have enough to cover a couple of months. (I tabbed your expenses, and it's roughly 2,220/mo.: you'll still need insurance and subway even if unemployed.) If I were you, I'd split my extra money between the emergency fund and student loans, perhaps with more emphasis on student loans. I'm nervous with anything less than 3 mos.' expenses in the bank, and with the economy/market the way it is (especially for people our age!), six months is a must.

3. Retirement savings. Without a sufficient emergency fund and student loans repaid, your retirement is constantly at risk: you don't want to have to draw down your 401(k) at a penalty if you're unemployed, or to avoid default (and crazy fees) on a student loan. After you pay the debt and get a nice cushion, you can sink everything into retirement without having lost anything--and while guaranteeing that you won't have to pay that 4% to anyone or worry about being a slave to a student loan bank. (Another fun fact about student loans: they're constantly resold to different owners and servicers, so you never know who'll end up owning your debt.)

That's my 2 cents. For what it's worth, I'm doing the same as you, and in almost the same position: I'm 29, have significant student loans (40k, down from over 150k a few years ago, though) and very little retirement savings. Right now, I'm building my emergency fund and also paying off loans, but I'm putting most of my money into the emergency fund. (I know my job situation is a little tenuous, for reasons that have nothing to do with me, thus the emphasis on the emergency fund now.)

Have you considered/can you get an HSA? That's another $3.2k per year you can put in a tax-advantaged account. It'll be useful if you ever have kids (expensive!): you can pay for birth-related expenses. And if you never use it, it doubles as a retirement account: you can make withdrawals after a certain age even for non-medical/retirement. I max mine out every year. But not every employer has them. (Which is another reason to get it now if you can.) Unless you have health issues, you're at a prime age to get one.

Best of luck to you! Don't worry: we'll do fine for retirement; it only seems like we started late because so many people here (and wealthy folks) got an earlier start, but you're so far ahead of most people it's hard to believe, and it'll likely improve as the years go on.

Thank you, CD.

It will feel very good to be debt-free one day. I agree with most of the comments that it may be worth it to get rid of it and never look back.

However as I said my current boyfriend has a large amount of student loans. At what point do you start talking about money with a boyfriend? In many ways it's his student debt that's keeping the relationship from moving ahead. He thinks it's irresponsible to start a family etc with that amount of debt. I'd have to agree... but we can't wait forever. He is barely able to keep up with interest. It would be great if we had a plan on how to get through it together, but it is also terrifying.


It might be too personal, but here goes: do you want a long term future with your boyfriend? If that is where you see yourself heading, I'd definitely have some serious discussions about money and how you are going to tackle those loans. I don't think anyone should be confrontational, but your financial future is serious business, so the two of you should be honest with each other.

I wouldn't plan a marriage - much less a family - without a financial plan in place.

Notice I said a plan, not that you had to pay off the loans before you proceed with your future. It's not a time for despair, but a time for planning!

If you're serious about this relationship I would start planning a payoff on those loans tomorrow. It's the long weekend, maybe you can set aside some time to talk.

I suggest talking about money as soon as you think you'd like to have kids with your significant other. You're 29, so kids aren't that far off for you.

You'll want more in savings. $5K doesn't go very far for very long. I'd suggest you allocate $400/mo to savings and $100/mo to your student loan so you get two psychological wins. You will have doubled your savings account in a year and also knocked 20% off the balance of your student loan.

The other reason? Moving from zero to a non-zero number is very hard. Moving from one non-zero number to a larger number (aka, saving more / paying more on the loan) is less difficult so you'll build two habits at once.

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