I (21M) make decent money for my age. What are the best financial moves for my situation?

Question

Like the title says, I'm 21 and I work as Software Engineer. I bring home a little over $3,600 a month(After taxes). My monthly expenses are as follows:

• Rent/Utilities $626
• Phone $100
• Car insurance $90
• Miscellaneous(Spotify, Xbox live, etc..) $60-ish
• Food $150
• Gas $110
• Student Loan payment $350

I have 15,000 in student loans left I have two savings accounts with about $10,000 between them and a Roth Ira with about $3,000.

What are my best moves at this point? I've been seriously considering just paying off my student loan debt all at once asap but I'm not sure. Any advice is appreciated.

Answer 1

$10k with your expenses (1,400) is 7 months... enough savings for a software engineer - because that's a transferable skill.

If your take home pay (after taxes and expenses) is 3,600 and your expenses are $1,400 you have $2,200/month extra.

Give some money to a good cause monthly.

Contribute 15% to your retirement (use a 401k up to the match, the rest on your own).

Put the rest on the student loans until they are satisfied.

After the student loans are gone, max your Roth each year.

Additional savings for any specific big purchase you expect (car / wedding / house / etc.)

"Specific" would not be saving for a wedding because 'I want to get married one day' but you aren't even dating someone right now.

Answer 2

According to the "standard recommendation" on this site, it is best to remove all debt ASAP.

If I didn't miscalculate, you have $2000 left each month. That's quite a lot.

That means that even without touching your savings, your student loan can be paid off in about 7 months.

After that, you will have $2350 per month left, which you can more or less invest safely. Or you increase your emergency fund before or while doing so.

Answer 3

If the student loan interest is below 5% per year you should be contributing the extra money to a retirement account (401k if there's a match (up to the match) and Roth IRA until it's maxed, then 401k for the rest).

At 5% or above I would recommend making additional payments to the student loans even though mathematically it would still be better to invest the money rather than paying down the debt (up to 9% or so) but there's value in not having debt and having lower monthly expenses.

Answer 4

You should knock out debts as soon as possible while keeping a reasonable amount in savings as a just in case. Thats up to you, depending on health history with family and the kinds of activities you enjoy that may risk injury.

First and foremost before any other investments I would recommend 6k a year going into your ROTH IRA.

https://www.wolframalpha.com/input/?i=summation+from+x%3D0+to+x%3D44+of+6000*1.07%5Ex

Just putting 6k a year into your ROTH and saving nothing else would result in 1.7 million at 7% a year, or more conservatively, 958,000 at 5% a year (assuming you invest until 65 years old)

https://www.wolframalpha.com/input/?i=summation+from+x%3D0+to+x%3D44+of+6000*1.05%5Ex

Thats only 500 a month out of your current over 2000 a month surplus in income. The rest is up to you, I would save for a home in 20% cash and 80% stocks beyond what you feel comfortable with as a emergency fund, but thats just me.

NOTE: You could get similar gains from the same market but not in a ROTH IRA, the difference would be the taxes on gains. ROTH IRA is vastly superior in that sense in the long run, and assuming you arent planning on dying anytime soon (in which case why invest anyway) then it is always the way to go at your age.