Live off savings or keep as "emergency fund"

[okokok]

I'll be matriculating next fall. I'm in my late 20s. I'll have about $10,000 in savings when I matriculate. I'll use this to cover moving costs (estimating, hopefully generously, $1,500-$2,000 for moving, first month's rent, security deposit, and incidental costs). For the remaining amount, do you recommend living off of it during M1, setting it aside as an "emergency fund" and not touching it, or a mix of both? It makes me nervous to not have savings to fall back on, but I also want to take out only as many loans as necessary.

Thanks for sharing your thoughts.

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[Gauss44]

I'll be matriculating next fall. I'm in my late 20s. I'll have about $10,000 in savings when I matriculate. I'll use this to cover moving costs (estimating, hopefully generously, $1,500-$2,000 for moving, first month's rent, security deposit, and incidental costs). For the remaining amount, do you recommend living off of it during M1, setting it aside as an "emergency fund" and not touching it, or a mix of both? It makes me nervous to not have savings to fall back on, but I also want to take out only as many loans as necessary.

Thanks for sharing your thoughts.

I would keep it as an emergency fund where FAFSA won't count it, such as into a Roth IRA if you are working. As you might know, a Roth IRA doubles as an emergency fund because you can take out up to the amount you put in without penalty and without paying tax because it was after-tax money to begin with.

I would try to live off financial aid and any income during school. If you really got in a bad situation, I would look into getting a 0% apr promotional rate on a balance transfer credit card and have the balance transfer check sent to yourself so you can deposit in your checking account. That way you're not paying any interest until the promotion expires, usually 12 or 15 months later, at which time you can transfer to another card with another promotion. Just make the minimum payments in the meantime which are never much. I explain because I've found that a lot of medical students don't know about that option. If you were ever in a situation where you had to pay the normal interest rate on a credit card, currently 18.99% apr, I would find a way to pay off that debt immediately, even if it meant using part of that 10K. If I were you, I would always try to keep a few months worth of a financial buffer somewhere. You never know when you will truly need it and for what.

 

[dpmd]

I would keep it as an emergency fund where FAFSA won't count it, such as into a Roth IRA if you are working. As you might know, a Roth IRA doubles as an emergency fund because you can take out up to the amount you put in without penalty and without paying tax because it was after-tax money to begin with.

I would try to live off financial aid and any income during school. If you really got in a bad situation, I would look into getting a 0% apr promotional rate on a balance transfer credit card and have the balance transfer check sent to yourself so you can deposit in your checking account. That way you're not paying any interest until the promotion expires, usually 12 or 15 months later, at which time you can transfer to another card with another promotion. Just make the minimum payments in the meantime which are never much. I explain because I've found that a lot of medical students don't know about that option. If you were ever in a situation where you had to pay the normal interest rate on a credit card, currently 18.99% apr, I would find a way to pay off that debt immediately, even if it meant using part of that 10K. If I were you, I would always try to keep a few months worth of a financial buffer somewhere. You never know when you will truly need it and for what.

The problem with doing the balance transfer is that there is usually a fee associated with it that means it isn't free money. Also, not everyone is going to be able to qualify for getting a new card with enough credit available to keep transferring the money (especially as those fees start to add up)

Putting the money in a Roth is a good idea. It is not as accessible as having it in your checking account so you won't be tempted to spend on unnecessary stuff, but if the **** hits the fan you could move it quickly. Having a credit card with a zero balance but enough credit limit for emergencies is also a good idea. Even if it has a high interest rate you could tap the Roth if you aren't able to get loans or some other way to pay it off by the end of the billing period. If all goes well without emergencies you will have started your retirement fund which over time will be a big help to you.

 

[okokok]

Thank you both for your advice. Unfortunately, I'm currently ineligible to contribute to my Roth IRA, but as soon as I can I plan to invest in it. I found a credit union that gives 3% back on the money in your checking account, which is better than nothing, so I'm planning on keeping my money there and living off loans. I keep a pretty strict budget now so I don't think I'll have a problem not spending it on unnecessary things. Plus, my car is constantly temperamental, so I might need the money for that down the road. So loans for living costs it is. Thanks again!

 

[dpmd]

Thank you both for your advice. Unfortunately, I'm currently ineligible to contribute to my Roth IRA, but as soon as I can I plan to invest in it. I found a credit union that gives 3% back on the money in your checking account, which is better than nothing, so I'm planning on keeping my money there and living off loans. I keep a pretty strict budget now so I don't think I'll have a problem not spending it on unnecessary things. Plus, my car is constantly temperamental, so I might need the money for that down the road. So loans for living costs it is. Thanks again!

Are you sure it isn't 0.3% and if not, where is this?

 

[okokok]

It's 3% on up to $15,000. I haven't investigated it fully yet so there very well may be some catch. But all the requirements on the site (eg you have to use your debit card at least 10 times a month) look bearable. It's at Lake Michigan Credit Union. I live across the street from a location but I have read in the comments section about someone doing it completely by mail/online (I think that was for a loan or something though). Here is the info on the checking account that gives 3% back: https://www.lmcu.org/banking/checking/checking_max.aspx . Let me know what you think, I really don't have a lot of financial experience but am trying to learn how to be smart with what little money I have.

 

[dpmd]

Just wondering how you will keep much money in there if you are using your card 10 times a month. Other than that it seems like there isn't much of a downside (although someone made a comment about not having paper checks-that could be annoying in a pinch)

 

[okokok]

I mean, a coffee or a snack from a corner store or whatever - making small purchases could keep the total cost less than $50 a month, even using it ten times. I agree the no checks thing is kind a bummer. I also don't think I meet the direct deposit requirement, as my job is kind of an informal arrangement and they don't offer that. I'll have to go in to the credit union and look into it more. Thanks for your opinion on it.