A Ripped Shirt

One of my favorite shirts had a small rip right below the collar. I never owned much clothing and wear scrubs at work so I was forced to go shopping for a shirt. I ended up spending $34.98 at Marshall's for 2 shirts after one hour (I hate shopping and take forever to buy stuff). I went home, looked at my ripped shirt one more time. The rip is small (~1/4 inch) but in the middle in a rather visible area however it was right on the same line as a seam. I went ahead and sewed it up. It looks okay from arm length distance. Now I have 3 shirts ready to use (2 new + 1 repaired). Maybe if I repaired the shirt in the first place I would not have to go shopping for more. But I like the new shirts so I'll keep them both.

6% Savings Account and Banking Information

Currently all my savings is at FNBO Direct earning 6% interest (good until September 28, 2007). I use Schwab for checking/everyday bill pay. Schwab is great because they offer 4% interest, paper checks, and full ATM rebates on any ATM which is much better than the deal my local Chase bank give me. There are no local branches for Schwab so I still use Chase once a month to cash my roommate's paper check which I transfer right away to Schwab electronically.

Federal Income Tax Student Loan Interest Deduction

As a follow up for my last post that shows I should be maxing out my tax deferred retirement right I do have some money left over to pay back a little of the student loan. It turns out you can deduct up to $2500 in student loan interest payments from your taxes if your income is below $65,000. As it happens my income will be below that for the next 3 years so I'll be saving a little bit more on my taxes.

Paying Back Student Loans vs. Saving for Retirement

I have a substantial amount of student loans. $182k of it is fixed 3.5% for life which I am able to defer for 3 years and plan on dragging out the payments as long as possible. Another $56k is variable private loans currently at around 8% which I can defer for 3 years.

Currently my income allows me to either save for retirement via 401(k)/Roth IRA or pay back big chunks of the private 8% student loan. My job is such that my income should rise substantially in 3 years such that at that time I will be able to pay back the private student loan and max out my 401(k)/IRA at the same time. Here's the math:

Tax Savings of Maxing out IRA Right now:

• 3 years x $20,000(401(k)+IRA)) = $60,000 in tax deferred money.
• $60,000 x 30 years @ 5% inflation adjusted return = $259,317
• Tax savings on capital gains tax = ($259,317-$60,000) x 15% capital gains tax rate = $29,897.
  
  

Total Student loan interest for three years if defering:

• $56,000 x 3 years @ 8% interest = $70,543 - $56,000 = $14,543 in interest.

Total Student Loan Interest if paying back $18,000 per year:

• Year 1: $56,000 - $18,000 = $38,000 x 8% interest = $41,040 ($3,040 in interest)
  
• Year 2: $41,040 - $18,000 = $23,040 x 8% interest = $24,883 ($1,843 in interest)
  
• Year 3: $24,883 - $18,000 = $6,883 x 8% interest = $7,433 ($550 in interest)
• Total interest = $3,040 + $1,843 + $7,433 = $5,433

Interest saved on student loans by paying back right now = $14,543 - $5,433 = $9,110

Let's see: $29,897 saved in capital gains tax in 30 years by investing right now vs $9,110 saved in student loans by paying back my loans right now. I will be maxing out my 401(k)/Roth IRA starting right now.

Net Worth Calculation

Assets:
Banks	$46,838
Roth IRA	$5,225
401(k)	$2,240
Debts:
Credit Cards	$49,141
Private Student Loans	$56,748	@8% variarble
Federal Student Laon	$182,393	@3.75% fixed
Net Worth	-$233,979

My credit card debt and banks amounts are pretty high because I'm borrowing money @ 0% from the credits cards using 0% balance transfers to my bank account and earning 6% interest right now using credit card arbitrage method. My loans are obviously very high. Private loans I plan on paying back soon but the federal loans with such a low interest rate (barely above inflation) I will stretch out over 30 years. I'm trying to max out my 401(k) and Roth IRA because I will have a much higher income in a 3 years (to quickly pay back my loans) and I won't be able to put that money in tax free retirement growths. I've done the math and the tax savings from me putting that money away until I retire is more than the interest on the loans for 3 years.

Budget for June

The miscellaneous is negative because the rebates and payments for a laptop I bought for my parents came back in (negative 1200). There is a $107 cable bill that came late. So my actual expenses were 669.74+1200+107= 1976.74 (under budget!) Other income includes payments from my roommate for the rent and bills. Wages are fixed (salary). My food budget is very low because I cook and I eat lunch for free at work. The budget does not include $896 in 401k contribution. The program used is Microsoft Money.

First Post

Following the footsteps of other personal financial blogs. I decided to start this blog to document my financial journey. The purpose is to share my finances and other financial information. My current goal is (like most people) save enough to comfortably retire. My aim is at the latest retire at 59 years old.