PocketCoinage

If you have read my previous post, Life After an Auto Loan, you’ll notice that I was undecided on what I wanted to do after my auto loan was paid off.  Over the past month I made a decision to split it up.  I am allocating 75% of the $400 to my student loans and the remainder to my Roth IRA.

By making this move, my student loans repayment schedule fell to 4 years from their original 10 years!  This is a huge drop in time and interest.  Based on my calculations, I should be keeping about $3,000 in my pocket that would otherwise go to the loan company.  If I allocated 100% to the loan, that would cut the time down to about 3.5 years.

Depending on your income level, you may be able to claim student loan interest paid on your taxes.  Unfortunately for me, I am unable to claim this.  So, for me, it makes no financial sense to carry this “good” debt.  Depending on how you look at things, some say that no debt is “good” debt.

What exactly is “good” debt?  “Good” debt is any debt that’s taken out for the prospect of growth, such as a student or home loan; it may also be tax-deductible.  When you take out a student loan, you are investing in education that will, hopefully, increase the earning potential over your lifetime.

As much as I want to pay down my student loan quickly, I still need to save for retirement.  I currently match my employer’s 403b at 1% and contribute to my Roth IRA.  Before I bought the house, my Roth IRA was maxed out every year at $5,000.  This past year, I only contributed a $1,000 to it – after my tax return!  This year I am trying to set aside for my Roth IRA every month, while still saving a portion from my tax return.  If my calculations are correct, this will place me at roughly $2,000 saved for the 2010 year.

Once you finished with a debt, what did you do with the extra money?

Remember, you can contribute to your Roth IRA for 2009 until April 15th!

I have yet to contribute anything for 2009.  Quite frankly, I’m upset that I did not put anything in at this point.  However, it’s been a big year for me: buying a house and paying off the car.

Over the past 2 years, I have contributed the maximum amount to the Roth IRA.  With the most recent economic crisis, that $10,000 turned into less than $5,000.  Within a few months time, I lost one year’s contribution.  I guess it could have been worse; I could have lost it all.  Since then, I traded in the Global Real Estate for Global Bonds and opened a Roth IRA Savings account with ING Direct.  Probably not the best choice to regain my money back.  The Global Bonds (IGBOX) are only up about 7% compared to 29% with Global Real Estate (IDGTX).

I think the recent events with the market and buying a house made me realize my true risk tolerance.  I do not like losing money – especially when I see what I put in and lost.  For some reason, I feel differently about my 403b.  I think it’s because it’s deducted bi-weekly and I don’t “see it” except on the quarterly statement.  I still have yet to compare all the statements to see what I have really lost.

However, it’s good to have a balance of funds.  I think I will keep my 403b on the aggressive side and make my Roth IRA fixed with savings, CDs, and bonds.  The market took a large hit in the past week and I do not think we are out of the water yet.  Remember, bonds are more attractive when the markets go south and are less attractive when the markets rise.

I should have a plan for my 2009 Roth IRA by the end of the month.