The story:

You are graduating Drexel in the Spring of 2023

Your starting salary in the field you have chosen is $75,000 a year.

You have plans to save 10% of your salary in a retirement account for the first ten years after you graduate (in a 401k) which is earning you a rate of 9% per year. In year 11 post graduation, you stop saving altogether but dont touch the money, it stays invested at the same rate of return.

You also have plans to save another $800 a month for 5 years to put money down on a new home. You save this in a conversative bank account earning you 2.5% annual interest.

In addition you want a car and plan to buy one with cash from graduation money you received. Your rich aunt gave you $10,000 for graduation. You can invest that money in a 18 month Certificate of Deposit paying 5.15% annual interest.

Lastly you have student loans that need to be paid off. You borrowed the average of student in the state of Pennsylvania (for real) which is 39,068. You will be paying the loans on a monthly basis immediately after graduation (you are not waiting six months!) for 10 years at a rate of 4.75% (which is the current interest rate this year). Assuming this is only one loan, not one per year.

Tell me a story, write out the financial objectives and plan for you below.

a) How much is the value of your 401k after 10 years?

b) How much is the value of your 401k after 40 years?

c) Do you have enough money saved to afford a 20% down payment on a $230,000 home?

d) What is the amount you need for the down payment

e) What is the amount that you have saved for the home?

f) If you put 20% down on that $230,000 and you took out a 30 year mortgage at 6.2% interest for 30 years what is the monthly payment you will have?

g) And how much interest will you pay back over thirty years for that $230,000 home (include both principal and interest). Principal by the way is the amount borrowed.

h) How much are your monthly student loan payments?

i) After 10 years of payments how much did that loan actually cost you in principal and interest?

j) You also want to finance a car you will buy for $24,000 with the down payment above after the CD matures. What is your payment if you finance the car at a rate of 5.5% for 36 months.

k) Create a payment time line and schedule (a.k.a. a budget) for the first year (2023), for year 5 (2028) and for year 10 (2033). Let me know what your cash inflow is each month assuming your take home pay is 75% of your gross salary (which is actually almost 100% accurate if you save 10% of your salary in a 401k). And then let me know each of your monthly payments out. Remember as time goes on some payments go away and some payments continue or are incurred later.

l) What did you learn from this exercise about savings, investing and debt repayment?