Financial Planners: What shoudl I do with $500.00 extra cash per month?

Question

Financial Planners: I have the following...

28 years old.
Car note: 13,000 @ 6.15%
Student Loans 33,000@ 3.5%
Mortgage 87,000 @ 5.25%
10,000 in 401K at Money Market Interest Rate
No savings account.

I have about $500.00 per month unacounted for (even after my monthly allowance for discretionary spending and monthly allotments for emergency car or home repairs). What would you advise me to do, pay towards one of the above mentioned debts or start a savings account? Which one and why. Thanks.

Answer 1

I believe that you need to pack that savings account. That is not extra cash! It's self-preservation. You need to put that $500 a month into your savings until you have saved enough to have one years worth of expenses covered, in case of unpredictable disaster. This is a very basic element of financial stability.

After that, pay off your car note, which has the highest interest rate. Student loans have the lowest interest rate, so keep paying on that over time -it's great for your credit rating. Next, every year be sure to put as much as is allowed into your 401K.

With your financial security in mind, pay ahead on the principal of your mortgage, if allowed. That makes a big impact on how much you owe on it, and how quickly you can pay it off. What I have said so far is straight from the lips of Suze Orman. You can find her on line at: http://www.suzeorman.com

The next thing I'm going to tell you is strictly from watching my mom's mistakes.One of the most important things you can do for your retirement -which may seem like a long way off, but it isn't, I assure you- is to PAY OFF YOUR MORTGAGE in full.When you retire, you are likely to have only half of what your current income is, as a monthly check. Sure, some people win the lottery, make amazing amounts of money annually, or marry a very rich, and generous, person. Not most of us.

You are at a place in your life where you can make good choices, even great choices that will last your entire life. When you have built a solid foundation, you can live in your dream home.

Answer 2

first of all max out the 401K, put as much in as you can, it is free money. if you really want to get some debt down, look at a used car and get rid of that 13K for a car. getting rid of that bill will free up even more. be smart though, a good used car could be great. a word on student loans. That is the one bill you must pay on time. that can hurt your credit more than ever. paying just one extra payment on your mortgage a year can reduce your loan by 12 years, you don't have to do that al at once but an extra 100 a month goes aq long way. if you do not have any savings than you should immediattely build that up. ideally 6 months of expenses. Put that account in an online account, they pay the best rates and if it is in a seperate account you are less likely to touch it. Plus the online accounts pay about 10x what a local bank does with no minimums. paypal does, ing, do the research.

next you need to maximize your money. get a credit card like the one at penfed.org (just an example) it pays 1.25% on all purchases and 5% on all gas buys. they give you a credit each month at the end of your statement. Now take that creditted money and put it in your savings account, you just made money without spending less. always pay it off in full

then start to hammer that student loan. once that gone, take the money you were spending on that and look at investments, some bond funds pay good rates and do the research and get into stocks, if you want to be safe, look at the ones paying high dividends and ALWAYS reinvest those dividends so they grow. I wish you luck and email me if you have more secifics, I think you are doing well and sticking with a plan can really set you up

Answer 3

You could send it to me...LOL Just kidding.

Seriously, I would contact a financial planner and have them review your portfolio to advise you accordingly.

If you don't wish to go the route of a planner...I would place an extra $100 towards all 3 debt accounts noted, $100 towards your 401K and begin to place $100 each month into a savings account. By going this route...you're paying down your debt faster, investing in your retirement and also saving for a rainy day or some sort of future expense that may not be clear to you right now.

Hope the above helps. Good luck and kudos to you for being on the ball and you're not even 30 yet!

Answer 4

You should have SOMETHING in savings. I usually recommend 6 months of expenses for a one income household and 3 months for a 2 income household. Since you have debt though and apparently are not contributing to your 401(k), I'd build 2 months of expenses (unless you work in an industry with a very unstable job), then contribute to your 401(k) to the match (if no match then put 5% in). Then put whatever is left over on your car note. Your student loan and mortgage are so low, I would be in no hurry to pay that off. Also, don't put your 401(k) money in a money market. You'll never retire.

Answer 5

For 3 to 6 months I would put that money into an online savings account(you really aren't losing that much against a 6.15% car loan). After you have at least a couple months of expenses in your account, you should split your extra money between the savings and additional payments on your car.

Due to the low rates and assuming you itemize, I would be inclined to pay your student loans and mortgage according to your payment schedule.

Answer 6

WOW!!!! Did you ever think before you took those debts...
Or are you just impatient to live the American dream...
Ohh well... Here's the thing...
First thing you need to do is to get out of those debt by simply using half of that 500bucks per month to pay it off...
I know it will take years to pay off those right??
Now, Second thing to do, invest the other half in learning investments or business that you like and start saving for that investment or business... You should open an investment savings account or, for added learning, invest some little cash in the stock market especially in the NASDAQ...(Note: this needs a little learning and it will be exciting once it goes full circle)
Then, third thing to do, stop thinking that it is hard cause if you think that it is or it is too risky, then i cannot help you with... If you know the game Monopoly, that is where all Real Estate tycoon became rich and if you ask them how, they will only say "It's easy!!"
Now, that attitude is a must if you want to be rich...
BEING RICH IS NOT ROCKET SCIENCE AS WELL AS CLEARING OFF YOUR DEBT...
You don't need any specialized education in a University to be rich or a Professional job... You just need to make an optimistic attitude and be willing to learn what the rich do...

Now, your question above, start paying off that debts and open an INVESTMENT SAVINGS ACCOUNT and learn to invest....

Hope to I helped yah...

NOTE:
Read RICH DAD POOR DAD by Robert Kiyosaki..

Answer 7

build a comprehensive financial plan before you decide.

imho, it should run until you're age 100 (at least).

***
fyi ... my rule of thumb about paying off debt is to look for investments that likely will earn [after losses] double the interest cost of the debt -- if I can't find any, I pay off the debt.


GL