I'm 38yo female & I've come into money (over 50k) & I'm soon to receive my doctorate, I'll soon have to begin paying back student loans but will also see a significant jump in my income... I'm not sure where to start. Do I plan for retirement, pay down my loans, invest? I have no clue... any guidance is greatly appreciated.
First of all... Congratulations on receiving your doctorate. The dissertation process is grueling, and it is fantastic that you managed to come through.
You will likely get different answers from different people.
The first is of course... it depends (sorry).
You have given us some information, but typically in the financial planning process we would have all of the information so we could help you make an informed decision. For example: When would you like to retire? How much do you currently have saved for retirement? Do you have children? Do you have large expenses coming up soon? Will you have pension opportunities with your job? Do you believe Social Security will be around when you retire? When do you want to retire?
Now, to sort of answer your question, I always start with the most mathematically advantageous application for the $50k. Will paying interest on the loans exceed your return on your retirement? If so, then paying the loans off makes sense. If not, placing that money in retirement makes mathematical sense.
That said, from a behavioral perspective, people typically do not want to do what is mathematically advantageous because it may not "feel" right. The rational part of our psyche does not like certain choices.
If I were you, I would look for somebody who does fee-only financial planning (if possible, find someone who specializes in folks who have doctorates - ask your cohort and professors who they use), and then see if you can get a full evaluation of your situation.
I hope that helps!
One thing to consider, that a lot of us don't, is the establishment of an emergency fund. You say you will earn more in the future, but there is still the possibility that you may end up in a situation where you need to live without income from a job for a temporary period.
While I agree that the ultimate answer to your question is "it depends", a good place to start is to have 6-12 months worth of expenses available for the unexpected/unforeseen. Your emergency fund should be in an invested in asset that doesn't fluctuate in value. That most likely means something boring like a Money Market Account or CDs.
Congrats and good luck.
Write down your goals and prioritize. If something can be handles quickly apply all resources towards that goal. If it is long-term you may want to sprinkle resources between savings goals and debt payoffs. Make sure you keep a healthy emergency reserve and good luck!
Kate, you mentioned you already have a nest egg, and you will be earning a decent wage. Life has a way of throwing us curves, and so I would steer you more towards being pragmatic; not relying at this second on future anticipated earnings. I would not want to see you pay $50,000 of student loans, and then have nothing but anticipated earnings.
As financial advisors, we generally consider 3 – 6 months of expenses as an emergency fund. We do not really know what your expenses are, nor do we know any specifics about your expenses. If your student loans are high interest, you might want to accelerate payments some, but not just pay it off with all $50,000. If your payments are low, I would encourage you to be less anxious to pay off what might be ‘cheap money’.
Seek advice from a financial advisor in your area, preferably a CFP®. Find a financial advisor you feel comfortable with.
I know that to a student $50,000 sounds like a lot of money but it is not! Focus on the three most important things in your life today, one staying healthy, two completing your Doctorate education and three finding a rewarding job and career. Park ALL the money in a bank account and take no risks!! This is your emergency fund and future relocation fund! Only use these funds if you need something for school, medical related, or for other emergencies. Once you have your education completed and working at your new job, then and only then will all your retirement, tax and investment questions have meaning. Until then, park the money at a bank and keep studying!
Please contact a fee-based financial adviser when you are established and want an integrated financial plan.
Outside of having a loan with an astronomically high interest rate that you want to pay down, it makes the most sense to start an emergency fund with the money in my opinion.
My suggestion is to simply put the money into a bank account. I know it's not going to get a great return and it won't help you get out from the student loans that you have right now, but the first step in a successful financial plan is always making sure you have a sufficient emergency fund setup.
Think about it this way. If you were to pay down your loans with that money and then a situation came up where you absolutely needed some money right away, where would you go to get it? If your emergency fund is in place, you have the answer, if it isn't things could get much more complicated.