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Our Story: Both my wife and I are 27 years old and have gone through financial hell and back. Now we are on track to financial freedom, however we are not financial advisors or professionals, just everyday people. Share our journey from a negative networth and email us if you have questions or comments! :)



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Tuesday, December 27, 2005

Timing Dilemma

I need to write this out only because I have a timing problem that I'm dealing with. Here is the situation: 1. I have a $75,000 loan that needs to be paid within 5 years, which is more than conservative. 2. I need to finish college which will be a year and a half to two of those 5 years. Then I will be at my dream job doing what I always wanted to be doing in the first place. 3. We need to concieve a child in the 5 year time frame and time it, so that I will be able to watch the child at home during my college days. That way both myself and my spouse will have time to interact with our child. 4. I need to save enough money in my emergency fund to cover expenses while living off one salary, one set of benefits for our family for 1-2 years. 5. Because my existing student loans will be deferred whilst in college, I dont have to worry about paying back the expense right now. However, I do need to know if I should be accumulating more student loans to pay back later or to save enough and risk our emergency fund on ~$12,000 tuition at the university? This would equal with my current loan of ~$5,500 to $17,000... plus my spouses existing student loan of $16,000 which will bring it to $33,000. 6. We need to purchase a new home in 5-7 years because our family will be growing. Our current home equity is at $50,000 but I wouldn't doubt that it would sell higher. 7. We need to fix up the house that we are currently in. We have updated the kitchen and are currently working on a budget to fix our fence and add new insulation to the attic. 8. My job is currently very unstable and I wish not to participate in it forever. My youth is slipping away at 25 and I need to get on my track to enjoy my working days. After that, I will be content to work for approximately 25-30 years depending on savings ect. 9. Savings, 401k and Roth IRAs will have to still have contributions b/c I cant neglect this but with a one person salary it may be difficult. Im thinking while going to full time school and watching our newborn, that i will have time to have a small part time job??? 10. My time frame is 5 years, 6 years Max. What to do? :/

3 Comments:

Blogger Amdollar said...

A fellow blogger's insight:

Aelstro said...
I couldn't find a place to post a comment on his blog, but here is the advice I would give.

1. Student loan debt is cheap debt. Rates when I graduated were around 3% and if you make payments (kwikpay) on time you can drop off another 1% or so. That means that a 7 year loan of 70,000 would only increase by $1,400 by the time you payed it off. It's hard to beat that

2. He'll need the $12,000 for a downpayment, or for medical deductibles or to live off of if the job doesn't come throuhg immediately. Spending reserves is a bad idea

3. The housing market is now a higher percentage of GDP than the Tech sector was when its bubble burst (http://www.businessweek.com/the_thread/economicsunbound/archives/2005/12/bigger_than_the.html?campaign_id=rss_blog_economicsunbound)
So I'm pretty sure that houses will be as cheap or cheaper in 5 years when the growing family is an actual concern.

Student loans also build up credit (if payed promptly) faster than credit cards so if you have student debt and pay it regularly it will help you get the house in the long run.

Go with the loans, worry about the house when you need it, and NEVER use up your life savings

11:36 AM

5:45 PM  
Blogger Kelly said...

I agree with the last comment about student loan debt -- if you are going to have debt, it is good debt to have. Much better than higher interest credit cards or even home equity loans. My student loans are locked at 3.5% and I can take up to 20 years to pay them off. With stock market investments and CDs, you can easily make more than that 3.5% interest you are paying off. Plus, as you said, the loans will be deferred while you are in school so you don't have to worry about them until you are working at your (hopefully lucrative) dream job.

Regarding your 40l(k), it is good that you understand that you have to save something. Even if you can only put in $500 or $1000 a year for the next few years, you are only 25. That means that those few thousand dollars will be compounded for 30 years before retirement. That can be pretty powerful.

I hope this helps! Good luck! Keep us posted!

10:43 AM  
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10:06 PM  

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