Friday, September 7, 2012

When and if I get paid

I blogged about it a while back I think - I'm getting paid a per diem stipend for teaching an extra time each day. While there were issues and we didn't get paid this month, I have been told that we will be backpaid for this, so I should not worry.

My only thought now is what to do with the money? It is several hundred dollars per month that I didn't have before, so what do I do with it?

Option 1
Pay down my student loan. My loan currently hovers at $20,000. I could use that extra money to put close to $1000 toward that every month. The good thing about that is I get up to $2500 tax credit each year for the interest paid toward it, and right now I've only paid about $800 in interest toward it, so I could put more toward that.

Option 2
Put the extra money into my 403B retirement plan. I have a few thousand in this plan and a set amount that goes into it each month. Extra money would be nice...

Option 3
Put it in the stock market - I do pretty well in investing and right now my portfolio has jumped in value $1,000 over the past year. Stock market investments can return up to about 10%.

I talked to my dad and he just says to pay down interest... what to do...


fan of casey said...

Before you start thinking about spending this windfall, you really should have an emergency fund set aside. 6 months of expenses minimum -- once you have that then you can think about either paying off extra for your student loans or investing the money. (Note: this can be used to fund a Roth IRA which you access in case of an emergency).

Your best use of the excess cash will depend on your lost opportunity cost. How much is the interest rate are you paying on your student loans vs. what kind of return you can get on your investment.

If you fund your 403B you cannot get to it unless you pay a penalty plus the related income taxes.

And no buying that new car you have been eyeing.

Aek said...

I'd say option 1. But they're all viable.

Anonymous said...

The comment above is right on, it all depends on your interest rate. If the interest rate is within a few points of expected return on investment then pay the loan off. Why? Because investing returns are not certain, but paying off a 6-8% loan is like earning that amount on an investment. As a long term investor, stock market investing is not certain. Market gains from the correction in 2000 to the decline in 2007 through 2009 was wiped out, so returns for almost a 10 year period are relatively zero. That is why investing is really a life long activity.

If you don't have one start a Roth asap, works really well for young people, we know taxes will rise, so this protects you somewhat. Invest in something that pays a cash distribution or dividend within the Roth, then invest the cash in other assets within the Roth, great strategy because you are limited by law in the amount you can contribute each year to the Roth.

Jason said...

I like the practical idea of putting this extra cash in a separate account for emergencies and shit like that, but hey, as my old granny always used to say, eggs dont bouce, which has nothing to do with money, which just goes to prove my granny knew sweet fuck all about cash, the reason was she always spent it, as soon as she got it she'd spend it. Well you can't take it with you and its more fun spending it than putting it in the bank thats for sure.

Maybe that's why my granny lived to be 102 almost!

Anonymous said...

If you get to a place, where it is more fun to save it than spend it, then you will have won the game.