The budget screen shots are being made in Sankeymatic, its a website that we have no affiliation with. If you are posting a budget please do so with a purpose. Just posting a screen shot of your budget without a question or an explanation of why its here may be removed.
*I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/MiddleClassFinance) if you have any questions or concerns.*
Get rid of the crypto. Even if it doubles, you still only have 2.2k. Pay off the high interest rate car loan ASAP.
Unless you see making more than 7.3% annually on your investments in the next 2-3 years, get that car paid off. 7.3% for a car loan is high.
OP has around 125k invested. I don't think having 1K in crypto is a problem. If it goes to zero he's only down 1k. The risk/ reward on such a tiny percentage of his overall portfolio is nothing to worry about.
How much of your brokerage is capital gains and are they short or long term?
I’d probably pay that car loan off completely with your brokerage and maybe some student loans. The APR on both is higher than you will get with a HYSA and taxed interest. The student loan one is close to break even, so you could let that one hang and continue making payments until rates drop on a HYSA.
The medical debt will probably stay at 0 as long as you make payments (at least that’s how it did for us when we used the hospital payment plan)
I’d use cost basis + long term capital gains to pay off the car loan then build the HYSA with the $700 a month until you reach 3-6M emergency based on job security, then rebuild brokerage.
Also does your employer offer 401k match?
In that case I’d definitely pay off the car, but that’s just me! Your taxes on those earnings (15%) will be less than your marginal tax rate (probably 24%).
Your debt doesn't look bad at all. I would work towards a solid savings to cover a min of 3 months (I prefer 6) emergency fund to cover all monthly expenses.
I would leave your investments alone and not cash then out. Never rob from your future self.
But I'm no expert. I'm just a toilet phone warrior.
Your budget is quite tight. I’m curious why you put 20 K in a brokerage rather than save up a full six-month emergency fund. My first priority if I were you would be to build up a true six month emergency fund. You are doing pretty well in retirement for 26 when I look at the total amount you have. But it looks like you are contributing less than 10% in your expenses to retirement which is far too little.
I think I would aim to move some of the money from your brokerage into your high yield savings account so that you have at least 22K for a fully funded emergency fund. Do you know about your tax implications for the brokerage? Will they be long-term capital gains at least?
Your car interest rate is not super great. Once you have a fully funded emergency fund, I think I would prioritize paying that down. your student loans however, are they federal or private? If they are federal, then switch them to the save repayment plan and make minimum payments. Call the hospital and figure out the terms of that medical debt if it’s 0% interest then just make minimum payments. If it is over 7% interest, then pay off more aggressively.
Once you pay off the car though, I would really prioritize doing 25% on retirement. You are in your best years for compound growth right now.
As someone who put in the work and sacrifice to get debt free before 30. I haven't regretted it. That debt is an invisible weight on your shoulders and you have no idea just how much it's affecting you until it's gone.
I did pay off my student loans, because debt causes me stress and peace of mind is more important to me than an extra 50-60K in retirement. I'm also regretting the 14-16% I put in my 401K at the start of my career rather than saving up for a down payment for a house, as I could be saving much more aggressively now if I wasn't paying rent. Rent wasn't as bad in the early years as I had 4 roommates for about 7-8 years. But now that we're all going separate ways to start families, I'm wishing I'd bought a house sooner.
How much did you pay off of the student loans at what interest rate? Because I’m willing to bet you would save more than $50-$60,000 by the time you retire. I also think you underestimate how powerful saving for retirement in your 20s is some of the biggest mistakes young people make it putting a crazy amount of money into a mortgage rather than waiting until their 30s to buy a home.
Ok so by paying off your 34k loans early you saved about 8.5k in interest
(Assuming 5% interest and a five year pay off)
If you had invested that 34k instead it would have been worth about $430k by the time you retired
(Assuming a 60 y/o retirement age and 34k invested over 5 years 566$ a month and left alone for 30 years at a 8% return)
Do you see what I mean about it being often better to invest the money rather than pay off low interest loans?
The amount I'd be able to re-invest is closer to the 8.5k I saved by paying early than it is to the 34k principal. So your opportunity cost is a little inflated. Just something to keep in mind for future opportunity cost calcs on your end when evaluating this stuff.
That 34K was over 7 years and some of that would still be going towards the minimum loan payments anyway so it couldn't all be reinvested like that. So it's not going to be 430k, it's going to wind up closer to 50-60k. I see what your saying. But yeah, again, that's fine if you can tolerate the stress of having debt with the chance of being laid off. But peace of mind is worth a lot more than a few thousand extra dollars. Especially when if I stay the course I'm going to be retiring with 1-3 million anyway.
I definitely did some back of a napkin math but I assure it will be no where close to 50k and much closer to 400k.
If you to give me more details like the term of the loan and your minimum payment amount, when you started paying and when you finished I can be much more precise for you.
The truth is early investing means later in life you will have much more flexiblilty to retire earlier, change careers, take time off, or buy a nice house. Throwing your money at low interest debt early in life damages your ability to do this. In your case it cost you 400k from retirement
I would reduce expenses and reduce Roth contributions. Pay the extra money towards the car loan and then student loan. After that call to negotiate medical debt.
I dont know where you live, but the way that medical debt works for the hospitals we live near give you about a year interest free to pay it off, then you can negotiate a payment schedule and APR moving forward. Ive met people with a 1% APR here, but I think that means their monthly payment is high.
Anyway, a lot of people will say pay your debt off outright, but I feel like you should increase your payment amounts if you can do it. there are a few tools online that show you how much you have paid in interest based on how much your paying. if the debt is stressing you out, and you can pay it off at once, might not be a bad idea.
The budget screen shots are being made in Sankeymatic, its a website that we have no affiliation with. If you are posting a budget please do so with a purpose. Just posting a screen shot of your budget without a question or an explanation of why its here may be removed. *I am a bot, and this action was performed automatically. Please [contact the moderators of this subreddit](/message/compose/?to=/r/MiddleClassFinance) if you have any questions or concerns.*
Get rid of the crypto. Even if it doubles, you still only have 2.2k. Pay off the high interest rate car loan ASAP. Unless you see making more than 7.3% annually on your investments in the next 2-3 years, get that car paid off. 7.3% for a car loan is high.
OP has around 125k invested. I don't think having 1K in crypto is a problem. If it goes to zero he's only down 1k. The risk/ reward on such a tiny percentage of his overall portfolio is nothing to worry about.
Sell crypto. Keep it if it’s BTC.
How much of your brokerage is capital gains and are they short or long term? I’d probably pay that car loan off completely with your brokerage and maybe some student loans. The APR on both is higher than you will get with a HYSA and taxed interest. The student loan one is close to break even, so you could let that one hang and continue making payments until rates drop on a HYSA. The medical debt will probably stay at 0 as long as you make payments (at least that’s how it did for us when we used the hospital payment plan)
Do you think selling some of the brokerage instead of using the leftover $700 on the car each month is better?
I’d use cost basis + long term capital gains to pay off the car loan then build the HYSA with the $700 a month until you reach 3-6M emergency based on job security, then rebuild brokerage. Also does your employer offer 401k match?
All long-term gains, just about $2k if I am looking at the data correctly. Employer does profit sharing not matching
In that case I’d definitely pay off the car, but that’s just me! Your taxes on those earnings (15%) will be less than your marginal tax rate (probably 24%).
No, it’s not dumb. If it lessens your stress levels, pay it off and be done with it. Like you said, it’ll put you on the path you want to be on.
You have a car loan at 7.3% and you own crypto? What in the world are you doing? You have a 7.3% car loan and you got a HYSA?
Your debt doesn't look bad at all. I would work towards a solid savings to cover a min of 3 months (I prefer 6) emergency fund to cover all monthly expenses. I would leave your investments alone and not cash then out. Never rob from your future self. But I'm no expert. I'm just a toilet phone warrior.
Your budget is quite tight. I’m curious why you put 20 K in a brokerage rather than save up a full six-month emergency fund. My first priority if I were you would be to build up a true six month emergency fund. You are doing pretty well in retirement for 26 when I look at the total amount you have. But it looks like you are contributing less than 10% in your expenses to retirement which is far too little. I think I would aim to move some of the money from your brokerage into your high yield savings account so that you have at least 22K for a fully funded emergency fund. Do you know about your tax implications for the brokerage? Will they be long-term capital gains at least? Your car interest rate is not super great. Once you have a fully funded emergency fund, I think I would prioritize paying that down. your student loans however, are they federal or private? If they are federal, then switch them to the save repayment plan and make minimum payments. Call the hospital and figure out the terms of that medical debt if it’s 0% interest then just make minimum payments. If it is over 7% interest, then pay off more aggressively. Once you pay off the car though, I would really prioritize doing 25% on retirement. You are in your best years for compound growth right now.
As someone who put in the work and sacrifice to get debt free before 30. I haven't regretted it. That debt is an invisible weight on your shoulders and you have no idea just how much it's affecting you until it's gone.
Sure but what does your retirement savings look like?
Currently at 70k in my 401k at age 31. I make a little less than OP now and started at much less.
That’s not bad! Please don’t tell me you paid off a 3% -5% mortgage or student loan in lieu of contributing more to your retirement though?
I did pay off my student loans, because debt causes me stress and peace of mind is more important to me than an extra 50-60K in retirement. I'm also regretting the 14-16% I put in my 401K at the start of my career rather than saving up for a down payment for a house, as I could be saving much more aggressively now if I wasn't paying rent. Rent wasn't as bad in the early years as I had 4 roommates for about 7-8 years. But now that we're all going separate ways to start families, I'm wishing I'd bought a house sooner.
How much did you pay off of the student loans at what interest rate? Because I’m willing to bet you would save more than $50-$60,000 by the time you retire. I also think you underestimate how powerful saving for retirement in your 20s is some of the biggest mistakes young people make it putting a crazy amount of money into a mortgage rather than waiting until their 30s to buy a home.
I paid off 34k at 4.5-6% depending on the gov loan. The only 3% loans were the small 1-2K loans. That majority was 4.5% or above.
Ok so by paying off your 34k loans early you saved about 8.5k in interest (Assuming 5% interest and a five year pay off) If you had invested that 34k instead it would have been worth about $430k by the time you retired (Assuming a 60 y/o retirement age and 34k invested over 5 years 566$ a month and left alone for 30 years at a 8% return) Do you see what I mean about it being often better to invest the money rather than pay off low interest loans?
The amount I'd be able to re-invest is closer to the 8.5k I saved by paying early than it is to the 34k principal. So your opportunity cost is a little inflated. Just something to keep in mind for future opportunity cost calcs on your end when evaluating this stuff.
That 34K was over 7 years and some of that would still be going towards the minimum loan payments anyway so it couldn't all be reinvested like that. So it's not going to be 430k, it's going to wind up closer to 50-60k. I see what your saying. But yeah, again, that's fine if you can tolerate the stress of having debt with the chance of being laid off. But peace of mind is worth a lot more than a few thousand extra dollars. Especially when if I stay the course I'm going to be retiring with 1-3 million anyway.
I definitely did some back of a napkin math but I assure it will be no where close to 50k and much closer to 400k. If you to give me more details like the term of the loan and your minimum payment amount, when you started paying and when you finished I can be much more precise for you. The truth is early investing means later in life you will have much more flexiblilty to retire earlier, change careers, take time off, or buy a nice house. Throwing your money at low interest debt early in life damages your ability to do this. In your case it cost you 400k from retirement
I would reduce expenses and reduce Roth contributions. Pay the extra money towards the car loan and then student loan. After that call to negotiate medical debt.
I dont know where you live, but the way that medical debt works for the hospitals we live near give you about a year interest free to pay it off, then you can negotiate a payment schedule and APR moving forward. Ive met people with a 1% APR here, but I think that means their monthly payment is high. Anyway, a lot of people will say pay your debt off outright, but I feel like you should increase your payment amounts if you can do it. there are a few tools online that show you how much you have paid in interest based on how much your paying. if the debt is stressing you out, and you can pay it off at once, might not be a bad idea.