[jIM_Ohio]

Originally Posted by adaway

I am learning so much about this subject by reading through posts here. I was hoping that I can get input on some personal finance changes that are on my mind.

Originally Posted by adaway

Here is my situation:
Salary <50k
My 401 contribution is only 3% and the max I can contribute is 8%.
I have 0 allowances claimed for tax withholdings and last year my refund was around 2200.
My only debt is a big chunky student loan with min payments at ~600/m
Have a 6 mo emergency fund kind of built up (couple more k to go)

my first impression was the tax return is too high (that is close to $200 per month). Second reaction was to pay down the debt with an extra $50 per month.

Originally Posted by adaway

This is what I want to do:
I want to increase 401 to 6% (then 8% the following year)

makes sense

Originally Posted by adaway

I want to change my allowance to 1 so that I can offset the inc. in 401k contrib as far as takehome pay goes (I am thinking about 2 for allowances for down the road (maybe the year after) bc I think my st. loan deduction can be used as an additional estimate decision on whether to take another allowance? not sure...need to research this)

I would do this without consideration for the 401k. Because if you own a home, you'll need to do this again (mortgage interest deduction will increase tax return).

Originally Posted by adaway

My emergency fund is in a dinky money market savings account (2.5%) so I want to move that to something with higher yield. I need to research online savings banks although I am not comfortable with the thought if there is no branch locally. I think reading in posts that putting in cd's is a good option also?

My EF is ion CDs. I have one CD maturing each month, then it rolls over to a 90 day CD. I have 3 CDs set up. Interest rate/return is not my objective here. Keeping money illiquid (so my wife cannot spend it easily) and liquid (so if an emergency happens, we can get to money within 10 days). The bank we use is open 7 days per week and located at all grocery stores... so we can get access to money by showing up to bank. If you have 6 months in EF, consider 3 months in 90 day CDs, then put rest in I-bonds, money markets or something similar.

Originally Posted by adaway

If anything is left for additional savings (I need to recalculate things) then I am pondering a Roth IRA to save. I thought it would be good to save for buying a home also bc I think I read that after 10years it can be taken out for that (or is it 5years.) If it's 10years I don't think I would use it for that purpose bc that is way too long for me to wait.

I would rethink this. Maybe open a balanced fund or bond fund with a portion of EF (the extra 3 months), then when student loans are paid off, add the $650/month to this investment. Use this savings for the house. Maybe consider a 401k loan for a portion of down payment. I would NOT withdraw retirement funds for a house purchase. I might borrow, depending on real estate market and housing costs. For a Roth the rule is 5 years. I think you should consider other options before removing money from a Roth.

Originally Posted by adaway

Does this rational for changes make sense? Does anyone have any concern about my approach and am I missing something. I have little background knowledge in finance basics but I recently started reading online and books. But, I think the changes I want to make need to be made now.

I am hesitant about changing the allowances part and learning about better options to save for home would be great.

I think you need to continue asking questions. I also think you will learn most the last sentence will change once you learn more. If you are getting a $2200 tax refund, you are suggesting the US government can borrow money from you for free. Last I checked, I can make my money work for me better in 11 months at $175/month than a one time payment of $2200 would help me. Saving for a home can be tough. My advice is get a house as quickly as reasonable (are you living in the city you want to live?). Once you get the housing payment into the budget, more of your money will be working for you. Consider a small condo or small house for starters, making sure it is not a fixer upper.

Originally Posted by adaway

I look forward to hearing your responses.

see above