Is a financial adviser needed if you feel overwhelmed about money?

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Question: I am a 26-year-old pharmacist earning approximately $100,000 a year — take home pay is about $5600 a month — living in St. Louis. I contribute 4% to my employer 401l(k), which is the maximum match. I currently have about $25,000 in my savings account for emergency funds. My rent is $850/month that I split with my girlfriend, and I do not have a car payment or credit card debt. But I graduated with $148,000 in total student loans with an average interest rate of about 5-6% (though still in the interest-free period). I have been paying $4,000 per month since graduating to get the total down to $113,000 currently. I want to start saving for a down payment on a house, so I have recently decreased my student loan payment down to $2,000/month and have been putting $1,000/month in a taxable investment account and $500/month into a Roth IRA since mid March 2022. But with the recent troubles of the stock market, I have already lost some money. 

I feel like the economy is declining and the housing market is in trouble, so I’m wondering if I’m doing things right? Should I keep renting instead of worrying about saving for a home at this point and just keep putting $4,000 month in loans until they’re gone? Most of my friends and family say I’m “rich” because I make six figures, but I do not feel that way given all the debt and no money saved for a home.  (Looking to hire a financial adviser? You can use this tool to get matched with an adviser who might meet your needs.)

Answer: It sounds like you’re feeling stressed about money and questioning your decisions, so we asked financial advisers and money pros what you’re doing right and what you might want to change. And then we dive into whether it’s a good idea for you to consider a financial adviser to help you out.

First things first though: The reason things might feel tight is because you’re a strong saver, and for that, you deserve to be commended. However, it is important to prioritize, particularly around your personal goals. 

“I would base your savings rate towards a home, and how much you can temporarily divert from the student loan debt towards a home, on how much you think the home will cost,” says Joe Favorito, certified financial planner at Landmark Wealth Management. So that might mean that if you believe it will cost $500,000 to buy the home you want, you might want to want to put down at least 20% to avoid mortgage insurance, which means you’d need to save about $100,000 over and above your emergency fund. That’s about $2,777 per month for three years with no earnings. “Then, you want at least an additional six months of emergency funds based on what your cost of living will be when you own a home, factoring in taxes, insurance, utilities and food,” says Favorito. Ultimately, it may pay to redirect some of the student loan money temporarily, but as your income grows, you can always pay additional principal, says Favorito. “Once you’ve secured a down payment, target at least 10% of your gross income to retirement accounts on a consistent basis,” says Favorito. (Of course, once student loan payments resume, always pay the minimum amount due.)

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But should you even be saving for a house? Well, that depends. It may feel hard to prioritize securing a long-term residence, and a home isn’t always the best investment, due in part to the carrying costs over time. It also may not be the right move for someone who might want to move soon, or a person who doesn’t want to deal with maintaining a home. But there are plenty of reasons to buy too: “While renting is something that might allow you to live with a positive cash flow, if your goal is to be married and raise a family, a home is a much more practical solution,” says Favorito. “Once you’ve got a fixed mortgage in place and your income grows over time, you’ll be able to catch up to some of the other savings and debt reduction goals.” That said, any money saved towards a home should be invested in cash-like investments like money markets, CDs or ultra-short term bond funds, not in anything that would introduce volatility, unless your home purchase is a number of years down the road. 

And you may want to look at paying down your student loan like this: It’s basically equivalent to buying an investment with a guaranteed return equal to the interest rate, because they would each have about the same impact on your cash flows, says certified financial planner Eric Figueroa of Hesperian Wealth. “I can’t predict the future, but high and rising inflation, high stock market valuation, negative stock market momentum, rising recession risk and rising interest rates together seem to confirm your suspicions that the outlook for stock and bond returns is poor,” says Figueroa. Some pros say this could mean it may be a better idea to focus on paying down student loan debt rather than…

Read More: ‘My friends and family say I’m rich.’ I’m 26 and make $100,000 a year living in St.

2022-09-24 17:53:00

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