‘I don’t have any other debt’: I have $40,000 in student loans, but saved $70,000 due to deferred payments. I live in the Bay Area. What should I do with this money?

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Dear Quentin,

I am 35 years old unmarried with $40,000 remaining in federal student loans. In early 2020, I was fortunate enough to land a great new job that has significantly increased my income. It was the middle of the pandemic so my loans were in abeyance, and still are. During this time, I decided not to pay and worked really hard to save money.

I was able to withdraw $70,000 into my personal savings account. Now that the moratorium on interest-free payments is coming to an end, I’m looking forward to hearing from you about the best way forward. I have no other debt and am contributing 15% to my 401(k) between my inputs and the company match. I don’t have a large balance (about $80,000) compared to my current salary.

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,‘At the beginning of 2020, I was very fortunate to have found a wonderful new job which has significantly increased my income.’,

I live in the Bay Area so the idea of ​​buying a home is not on the table right now. Should I be doing something else with this money? Should I invest and try to beat the interest rates on loans? More Retirement Savings? Should I consider the current economic situation and inflation? If yes, what is its effect?

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The plan has always been to pay off the student loans and keep the rest as an emergency fund, but I guess I’m just looking for confirmation that this is the best plan and I’m missing something. I haven’t had the opportunity to save money this way in the past, so now I need to figure out next steps, both with this question and with what to do after paying off the loan.

I don’t come from a financially savvy family, so I’m trying to figure things out, mostly through good-ol’ internet searches.

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student-loan shy

dear shy,

Congratulations on saving $70,000. It’s not easy.

Sometimes, there is no action verb. This may be wise, especially in the coming months. We are still months away from finding out how the Supreme Court will rule on the Biden administration’s plan to cancel student loans. President Biden’s executive order proposes to eliminate federal student-loan debt of up to $10,000 and in some cases up to $20,000.

President Biden says the HEROES Act, a law passed by Congress in 2003, gives the executive branch the power to implement the plan. But Republican opponents disagree. The Supreme Court is now considering these questions. While there are signs that a majority of judges are questioning the fairness of the plan and may strike it down, other experts see an alternative outcome.

In the meantime, consider your interest rate on your federal student loans. With the annual rate of inflation running at 6.4% in January, how does your interest rate compare? Are you paying 3.73%, the federal student loan rate for graduates seeded between the end of July 2021 and June 2022, or 4.99%, or more? Undergraduate students and parents who have taken loans between the end of July 2022 and June 2023 can get loans with interest rates Max 7.54%,

You might want to consider paying off your loan each month, says Annette Nealen, professor and director of the Master of Science and Taxation Program at San Jose State University. Considering that interest rates on federal student loans are currently 0% due to the pandemic payment pause, you can get more bang for your buck. But you don’t want to pay off the entire loan — only to find that the Supreme Court hasn’t blocked Biden’s student-loan forgiveness plan, deeming you eligible.

,‘Sometimes, there is no action verb. This may be wise, especially in the coming months.,

“Check if your employer has an educational assistance program,” says Nalen. If so, your employer can reimburse you for tuition and fees, up to $5,250 tax-free for the employee. What’s more, the expanded definition includes not only tuition and fees, but for any qualified education loan. Payments made are also included. You can read more about that here.

Here are some tips – not to be taken too literally – on how much you should be saving in your 30s. In an ideal world, a 30-year-old should save twice his or her salary, according to a guideline from Fidelity Investments. Many millennials say it’s not possible, given how much people spend on rent and mortgages, student loans and other bills.

When you enter your 40s, most financial institutions recommend you start investing outside of a 401(k) or IRA, try to rein in your expenses as your salary increases, and your income increases. Save 2-3 times of Rs. Again, this may be a high bar given that we are coming out of a four-decade period of high inflation, and home prices have increased over the last three years.

Keep a close eye on the housing market in your area. The housing market is currently in something of a holding pattern, as the 30-year fixed interest rate once again flirts with the 7% mark. People who don’t have the cash to buy a home are obviously reluctant to buy, and people who want to upgrade or downgrade their existing home may not want to lose their low rates.

As Moody’s Analytics housing economist Matthew Walsh said recently: “The US housing market is collapsing under the weight of high mortgage rates and rock-bottom affordability.” Single-family home prices declined 1% in January compared to December 2022, according to data from Moody’s Analytics. But each housing market has its own variables.

Owning your own home may be really out of reach for you at the moment, but I believe it is within reach on your journey if you keep doing what you have been doing: thinking ahead, Continue to save and work hard and plan to improve your salary as you get older. Continue your 401(k) with an employer match. A mutual fund provides access to a wide range of equities.

Keep 6-12 months of savings for an emergency fund, and avoid the kind of risky behavior sometimes advocated on social-media sites like YouTube, TikTok, and Reddit. This recent report The FINRA Foundation, an organization affiliated with the financial-regulatory agency, found an increase in risky investment behavior.

Conclusion: “Young investors are more likely to engage in risky investment behaviors.” Some 36% of investors under 35 trade options — betting on whether a stock will rise or fall — versus 8% of those 55 and older, and 23% of those under 35 reported buying on margin — using a loan from their brokerage house. doing – compared to 3% of those 55 and older.

Instead of investing in an effort to beat the rate on your student loans, invest with a long-term view. This money and the money you earn on that initial investment will continue to work for you for the next three decades. The average federal student loan in the US is about $37,574, so you’re not alone, and you’re roughly in line with the average.

Caution is a virtue. As is the curiosity to know more about investing. And it sounds like you have both.

yoYou You can email The Monetarist with any financial and ethical questions at [email protected], and follow Quentin Fottrell Twitter.

check out moneylender private facebook Group, where we find answers to life’s toughest money issues. Post your questions, tell me what you’d like to know more about, or pay attention to the latest Manist column.

Dhanwadi regrets that it cannot answer questions personally.

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Credit: www.marketwatch.com /

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