How Should I Spend My Money?

I found a few sites that I really like to answer financial questions that I wanted to share with everyone. Cash Commons and Basically Money both allow you to ask and answer any financial question you like, vote for answers you life, and earn points and awards which mean nothing but gives you a better reputation on the site. I’ve asked several questions and answered a few others and I’ve gotten a lot out of the site so far.

The question I’ve been most interested in lately is what to do with the money I’m saving. I’m able to save over 50% of my paycheck, but I’m not entirely sure how to spend that money. I narrowed it down to several choices:

  • Aggressively pay off my student loans, which stand at around $23,000.
  • Invest the money knowing that I can probably beat the low rates of my student loans (~2.8%).
  • Save it in an online savings account earning only 1.40% APY but allows me to have some flexibility later.

I’ve gotten a lot of excellent feedback, some that I agree with and some that I know may be helpful in someways but ultimately don’t feel comfortable with.

Here are a few of the various responses I’ve gotten and afterward I details what I ultimately decide to do.

Dr. Dean: Pay off the student loans aggressively after building up a 6 month emergency fund.

Mighty Bargain Hunter: Pay only the minimums on the student loans and throw the rest of the money into an emergency fund so that I’ll have added flexibility later.

MrChrister: Pay off the bills, invest a little for fun, save up for a big purchase, and enjoy the extra money.

ScottW: Save and travel. Create memories

Thanks for your advice guys, and I’ve taken a combination of your answers and decided to do this:

Save an additional $500 a month and building up a nice savings account. I will be sure to treat myself well and enjoy experiences and create memories rather than buying toys and gadgets I will likely forget about. I am increasing my “fun” budget by $100 a month for this, and I will not hold back if that needs to increase for special occasions. I’ll also be investing $200 a month, and I will save the other $200 in a savings account targeted for student loans (but I’ll take Mighty Bargain Hunter’s advice and retain some flexibility, even if it means losing 1%.)

What do you think, am I being smart or should I be more risky or conservative?

5 Responses to How Should I Spend My Money?

  1. Ken says:

    I would call the student loan company and ask if there are any prepayment penalties. There probably isn’t. Go ahead and mail an extra payment to them each month and write “principle only” at the bottom. This money will directly dropo the principle on the loan, not the interest..which is good. Thanks for asking for advice…a sign of wisdom. I agree with saving for an emergency fund as well.

    • Daniel says:

      Yah, there are no penalties for making extra payments. Once I build up a little more of an emergency fund, I’ll start making larger payments toward the student debt. Until then, I’m bsaically using these resources to fund the emergency fund.

      So my priorities, in order:
      1. Emergency Fund
      2. Student Loans
      3.Investing

  2. Dr Dean says:

    Great discussion, and the important thing is not the minor details of your decision, but the fact that you have thought this through carefully. That you realized there are others out their, who may have wisdom from their own battles, that can help you.

    Congrats!!

    • Daniel says:

      Thanks! I think it’s important to remember that with 6 billion people in the world, there’s bound to be a few people who have gone through whatever you’re going through and you can learn from their experiences.

  3. mbhunter says:

    After I saw your edit over at CashCommons.com I was a little confused, but this post puts it in context.

    A small percentage for a fun budget seems pretty reasonable. I didn’t do a whole lot of traveling when I was younger so doing that now is a fine idea. Travel deals for young adults aren’t bad.

    You’re only young once, and this seems like a very responsible way to go.

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