My ship is coming in, and I am at a loss of what to do with the cargo

[anterastilis]

I've been walking a fine line for years. Although I've never made much money (no more than $20,000), I've kept my credit debt low and made smart decisions about money that have resulted in a great credit score (838, at last check). I've always been a frugal person and punctual about getting bills paid on time.

Well, my ship has come in. I've been promoted at work, and I will be making over twice as much a year than I have been in the past (just under $50,000). After a celebratory spending spree on things like some new work clothes (which I need for the promotion to a management position), an oil change, some new toys for the dog, I sat down to start creating a new budget based on my new salary.

The problem is, I'm not sure how to do it. Do I start saving right off the bat? Should I maintain the same 'standard of living' (like a broke graduate student) while paying off my debts? Should I start investing? I've never invested in anything in my life, I don't know where to start.

Here are my stats right now...

I will be bringing home $3,500 a month.
My current expenses add up to about $1200 a month (rent, insurance, utilities, etc)
I have about $3,000 in consumer debt.
I have about $22,000 in student loans, consolidated and locked into a very nice 2.7% interest rate.
I have $800 in an emergency fund.
I have an old car that I owe no money on, and is currently running well *knock on wood*
I'm 31 years old
I don't have much saved for retirement - maybe $4,000?

My instinct tells me to build up that emergency fund and pay off the consumer debt, but where do I go from there? Any advice?

Thanks!

[Xin Lu]

Wow congratulations on the promotion! I'd say definitely pay off the consumer /credit card debt first. It seems like you can do that in a month. Then you should probably consider contributing to the retirement fund. If you have 401k matching at work then you should definitely get in on that for the free money. I would say to step slowly into investing outside your 401k/retirement and learn about the different types of investments first. The student loan seems like it's at a great rate and you can pay that off eventually without losing much. As to upgrading your lifestyle, I think there is no rush in that either. If you can still be happy living like a broke grad student then there is no shame in that. Good luck!

[Vytautas]

Well you are on your way with building up the EF and paying off the consumer debt. Next I would find out if your employer offers a 401k plan where they match your contributions. Given the yearly deposit limits, it's great to start putting money into there as soon as you can, you can read more about 401k. You might also want to consider having some fun with your money like buying a decent car or maybe upgrading your apartment.

[FitandFrugal]

Congrats! I second Xin Lu's advice to pay off debt, take advantage of employer 401k match if they have it, open Roth IRA, and continue to live like broke student. Aside from clothing, there's no reason to spend on stuff you probably don't need. If you did without before, you can do without it now. A huge mistake people make when getting a salary increase is getting a lifestyle increase. How are they going to get ahead like that?

[ModernTightwad]

The only thing I would add to Xin Lu's comments is start two additional savings account, one to save up for a car (a good used one is just fine) or towards maintenance so you don't have to knock on wood, and a vacation fund. Having been in management it can be quite a stressful change; planning out some small frugal vacations, even if it's just an overnight in a hotel in your city, can help a lot.

[CheapZilla]

Originally Posted by Xin Lu

Wow congratulations on the promotion! I'd say definitely pay off the consumer /credit card debt first. It seems like you can do that in a month. Then you should probably consider contributing to the retirement fund. If you have 401k matching at work then you should definitely get in on that for the free money. I would say to step slowly into investing outside your 401k/retirement and learn about the different types of investments first. The student loan seems like it's at a great rate and you can pay that off eventually without losing much. As to upgrading your lifestyle, I think there is no rush in that either. If you can still be happy living like a broke grad student then there is no shame in that. Good luck!

I agree with Xin Lu. Good advice. And congrats on the promotion.

[trustno1]

Ok, I'm no dummy...what industry allows you to effectively more than double your annual gross income with a single promotion?

Let's see...Maddoff is in prison, the Shri-Lanka hedge-fund inside trading "king" just got busted on Wall Street, becoming a bank "VP" only gets you a different title and new business cards for the same pay scale as a teller...ah, you are a mortgage lender! No, everybody there is a "manager" already...lol.

Ok, I'm going to guess you are in credit collections business, oil/gas industry...the NFL or a drug cartel... hehehe

Back on track now... IMO...

Maintain current standard of living...
Calculate some percentage formula to apply your cash to each of the areas you mentioned, based on the financial "weight" of each...

-Pay off consumer debt "asap", it is costing you the most money.
Keep one charge card...cut up the rest,you are not good at it, lol.

-build your emergency fund to at least an amount of 2-3 months of your new monthly income.

-start a "separate" fund for a future car purchase (key word here is purchase...not "finance" or "lease", lol). Guess at the time of need and deposit savings accordingly.

-maximize the contribution opportunities of your 401K or other company programs offered.

-your "retirement" program is for the most part, you 401K strategies mentioned above at this time. Stick to eliminating current debt for awhile.

-as mentioned the school loan is the best rate you will probably ever see. I did the same, don't "lump sum" pay back in that area, use the money to invest in something that will cover the 2.7% as well as make additional ROI in the process.

-finally, your age should be left alone for now. 31 still sounds great at colleges and bars...Wait until you are at least 40 to start changing your real age...lol

Hey, grad students are supposed to be broke! (or at least "appear" to be to qualify for those loans...hehehe).

Be a good boy and save now, you will have plenty of time later to find a wife and kids that will blow it all for you...lol

[trustno1]

I forgot to mention something my grandfather taught me when I was young(er). He did not give much advice, but when he did, it was something I applied for a lifetime. Here is one of them...

Regardless of the issue or problem you are trying to resolve...try to "keep it simple". Most people overlook this valuable initial strategy and make the process and the solution "too complicated."

For example...If your "ship" came in..."Buy another ship". (it's a concept to remind yourself not to overlook the obvious).

[The Wise Buck]

Mainly I just wanted to say congrats! It's great that you are advancing. More importantly, you are asking the right questions. At 31, you can make some serious progress. Here are a few things I'd do and many already mentioned.

1) Consider Dave Ramsey's Total Money Makeover - this will serve as a blueprint and actually mold successful behaviors that will get you to where you want to go. I started listening to him back in 2001 and continue to practice the basics he teaches.

This will answer the questions of how to get out of debt, emergency fund,etc. but more importantly these behaviors (Spend less, earn more, save) will become part of your everyday life.

2) Keep on top of your career path. It is great that you accomplished what you have however, don't lean back. Get a certification in your field or an equivalent. Ask yourself: what's next and start preparing that path.

3) As much as I believe you should do #1, I think you deserve to upgrade your lifestyle in "some way" I'd stil live well below your means but maybe you can now go out once per week for a great meal? This is something you can immediately eliminate if you had to versus upping your apartment (which is hard to get out of a lease)

Just a few suggestions and good going!

Mike

[The Wise Buck]

"Ok, I'm no dummy...what industry allows you to effectively more than double your annual gross income with a single promotion?

Let's see...Maddoff is in prison, the Shri-Lanka hedge-fund inside trading "king" just got busted on Wall Street, becoming a bank "VP" only gets you a different title and new business cards for the same pay scale as a teller...ah, you are a mortgage lender! No, everybody there is a "manager" already...lol."

you crack me up! thanks