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How to be financially savvy?

dukebound85

dukebound85

macrumors Core
Original poster
Jul 17, 2005
19,218
4,342
5045 feet above sea level
One thing I wish colleges and even high schools taught was the basics of money management, home loans, investing, etc. These are all important in the real world.

I am in the position of not having much knowledge on these topics and want to change that. I have been reading accounting, real estate and other various books over the last few months to become more aware of the dealings in that particular field. However, I can't help but say it is still intimidating.

I do have a question though. I have some significant savings, relative to me at least, from my past jobs just sitting in a checking account and low yield savings. The majority of which I can continue to save until I start grad school at which point, I will be back on salary. To those more experienced, what is the best way to save these funds?

Would you recommend banks like ING? or would you lean towards CD's and money market? Or should I focus on paying off my school loans first and foremost? Or should I skip CD's,etc and contribute to a Roth IRA? I do not know what the best option should be and figure alot of you have been in this position in the past and have learned from it.

For what it's worth, I have no debts besides my school loans (about 14k remaining) and have no balances on my CC's and own my vehicles outright.

Thanks for any suggestions:)
 
1st very basic calculation: can you earn a better rate of interest from savings/investments than you pay on your loans?
 
robbieduncan said:
1st very basic calculation: can you earn a better rate of interest from savings/investments than you pay on your loans?
Click to expand...

Right now, no

My school loans have interest rates of 2.4-6.8% depending on the loan
My savings (of which the minority are in as the rest are in no interest checking) have a rate of 0.3% currently
 
With interest rates pathetically low, even higher-yield savings accounts with banks like ING aren't as attractive as they were a few years ago. Money market accounts are better, but they tend to require higher minimum balances.

dukebound85 said:
My school loans have interest rates of 2.4-6.8% depending on the loan
My savings (of which the minority are in as the rest are in no interest checking) have a rate of 0.3% currently
Click to expand...

Depending on how you want to pay down your loans (which, imo, you should do as fast as you can obviously), the least you can do is leave everything in a savings account until you need to make a payment, then transfer the necessary funds to a checking account. Time to get rid of a debit card if you're using it- credit cards are much more convenient for that kind of billing "workflow."
 
Unless you'd prefer to have a good amount of liquid income right now, I'd pay off your loans with some of your savings.
 
It sounds like you would be better paying off your loans. It might be possible to beat those rates, especially the lower bounds, but to get near the middle, let alone the top, you'd need to accept significant amounts of risk and non-guaranteed returns.
 
Well I would make sure you have at least 6 months of cost of living save up and that should be put into a money market account at you bank. Reason for this is that is you emergency money that you need to always have access to with in 24 hours and be able to pull funds out of with out punishment.

After that then you can start playing a little with the rest

As for hs and college I do not think investment class would be worth much to the students but class that would require them how to manage there cash flow would be very helpful with real thinks like rent power and bills. I know to many people who leave college with no understanding of a monthly budget. I was lucky and my parents help me out in learning that in college. They gave me a monthly allowance and what I did with that was under my control but I had to pay rent, bills and buy food with it. It was a great way to control ones budget because if you do get screw the parents are there to bail you out from the lesson.
 
I have always heard that school loans should not be rushed to pay off due to their relatively low interest rate in comparison to other loans in a sense. But I see your point in that if I can not exceed my loan rates with a savings plan, I should tackle that first

However, at what point do you value available funds vs paying off loans?
 
dukebound85 said:
I have always heard that school loans should not be rushed to pay off due to their relatively low interest rate in comparison to other loans in a sense.
Click to expand...

The only reasons you shouldn't pay off a loan is if you (1) you can make more off of that money in another instrument (e.g., bonds, stocks, etc.) or (2) there's a tax benefit from not paying off the loan (e.g., mortgages in the USA).
 
So is this a smart move in the near future (next couple years)?

1) Pay off my loan
2) Savings possibilities

Unless I find savings options that yield higher rates than what I am paying for loans?
 
dukebound85 said:
I have always heard that school loans should not be rushed to pay off due to their relatively low interest rate in comparison to other loans in a sense.........
Click to expand...

in your case you don't have other loans, so that advice wouldn't apply to you


dukebound85 said:
....However, at what point do you value available funds vs paying off loans?
Click to expand...

you need to have "emergency" money set aside first but after you have that, pay off the loans
 
dukebound85 said:
However, at what point do you value available funds vs paying off loans?
Click to expand...

That's a tough question, and there's no one right answer. Think about this - if you lose your income source, how bad a shape will you be in? If you have parents nearby and could easily just move in with them, maybe you wouldn't need much liquidity in savings. The usual rule of thumb is have six months, but you need to take a look at your situation, play all the what-if's, and come up with something that makes you comfortable.

Since you're still young and single, you generally have more flexibility if things go to hell. I'd be tempted to go less conservative on the savings, and focus on getting out of debt.
 
Cave Man said:
The only reasons you shouldn't pay off a loan is if you (1) you can make more off of that money in another instrument (e.g., bonds, stocks, etc.) or (2) there's a tax benefit from not paying off the loan (e.g., mortgages in the USA).
Click to expand...

Also with school loans, there is a chance to defer the loan during grad school.

And all things being equal, having cash in the bank during grad school makes people sleep better, even if there are loans.

And since the current loan balance is less than most people's car note, and the cars are paid off ... do something else with the money and let the loan stay.

Though there is that catch-22, since you cannot write off school loans ... finding a way to convert them quick is a good idea.
 
Sun Baked said:
Though there is that catch-22, since you cannot write off school loans ... finding a way to convert them quick is a good idea.
Click to expand...

As in, you can't get rid of the loan in bankruptcy? Because there is a student loan interest deduction for tax purposes.

I would make sure I have about 6 months worth of living expenses in the bank, then I would go ahead and tackle the loans. I'm not one for holding excess loans just because you can pull an extra 1%-2% interest above the interest rate you're paying on the loans. The calculation to do this often seems to ignore the fact that you could lose your job or income, be injured, etc; there is extra risk to investing the money versus paying of the loans, for me, 1%-2% extra interest isn't usually greater than that risk. More than a few people lost their homes during the recent downturn because they invested excess capital instead of paying off their house when they could have; the pursuit of a few extra percent didn't help them much.
 
I just wanted to say that this thread has been helpful to me as well.

I graduated last year, started working and saving, currently have my money sitting in a high-interest savings account (currently 4.5% per annum), and am trying to figure out what to do with the money I save. Of course, dukebound's situation is different since he borrowed money from the bank, while I borrowed around $25,000 from my own parents (which I'll be more keen in paying back than a bank!!!), but this thread has given me a bit to think about with regards to how much risk is worth not being as liquid. Thanks. :)
 
Check out a guy named Dave Ramsey. He's a financial advisor who's written some books, has a website, and tours the country speaking. He's not a get rich quick guy, but teaches hard work, smart spending, avoiding debt, saving, and generally living on less than you make.
 
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