Reviewing current position

[cashrich]

Hello All,

Need some help with reviewing my current position in life at age 35 -

Checking Acct = $14000
Online Savings = $10000
High Yield Money Market = $2500
Stocks and MFs = $11000 ( down by @50 % i.e. $12000 negative)
Bonds = $4500
Debt at 11% = $3000
Debt at 0% = $5000
Debt at 0% until Sept09 = $10000

Single income family. Renting apartment. One 5 yr old son. Planning second kid shortly.

Job Monthly -
Income = $5000
Expense= $3000
Saving = $ 2000

I think I should go for more cash. Feels like burnt fingers in Stock Market.
No plans of owning home.

Just want to know from all folks around how does the above numbers look.
What should be my goals for Dec end 2009.

Appreciate all advice.
Thanks.

[disneysteve]

Welcome.

I think your goal for this week should be to get rid of that 11% debt. You've got more than enough in savings to cover it. I assume you are saving to be able to repay the 0% debts before the 0% rate expires.

You are saving 40% of income which is fantastic. Keep that up and you'll be able to retire to a life of leisure at a young age.

I would not pull out of the stock market, though. Sure, it had a rough time last year but is already leveling off. It has regained 25% since the bottom. You are young and have a lot of years of growth ahead of you.

Why no plans to own a home? And why so much in your checking account? Does it pay a good interest rate?

[cashrich]

Steve,

Thanks for your reply.

Ok will pay off that 11% debt.
Regarding so much in checking - I was waiting to make a decision on what to do with it.
No home coz - I can't handle too much debt.

Thanks!

[creditcardfree]

You could eventually buy a home with cash if you are risk averse to the debt that comes with it.

I would also put more in the stock market. Mutual funds lower your risk over picking one stock.

[swanson719]

97% of the 5 year periods in the stock market since 1900 show growth, and 100% of the 10 year periods. The average since 1910 has been roughly 11.5%. You're young enough that putting your money in and letting it sit for the next 30 years will probably be a good thing. Then again, it's easier said than done. I turned 22 this week and I won't put money in I wouldn't put in a fire. I don't trust this administration at all - they spend much too fast. At the same time, don't expect social security to be around when you retire. Yes, it will be nice if it is, but plan retirement as if it won't be.

That being said, it looks like you need to beef up your Emergency Fund. 3 months expenses are good, but 6 to 12 months is more realistic. You're looking at 3 months being your current expenses without any other issues - so what happens if you get in a car accident and have to pay a deductible, and then the car gets totaled but for less than you owe on it? Unless you have gap insurance, you'd end up paying on that, and then still need to buy a new car. When it rains, it pours.

A high yield savings account or a good money market mutual fund would be a good place to park about $18,000 in your shoes. You have it there, just move some over from checking. You're not in a bad position really, just need to move the accounts around. I don't see why you have online savings and high interest money market separate. Consolidate those two, making 12.5, add another 5.5, - the 3K on debt, and you're down to 6.5 in checking, but that's still 2 months expenses. Put another $3500 at the $5000 0% debt, knock that out next month with your extra $2,000 then roll over what ever you were using to pay towards that towards the $10,000 that's at 0% until Sept. Then put $2,000 a month at that, and and it pays off in September. Then after your debt free (yae), start maxing out Roth accounts for you and your wife at $5,000 each per year, and put $2,000 a year into a Education Savings Account (ESA) for your son each year. Pick a good, long term mutual fund. This will cover his college, and do the same for your second child starting the day it's born. That $14,000 a year will cover your retirement and your kids college, and still give you $10,000 a year to play with. You're not in a bad position by any means, but with a little direction you could save yourself a lot of trouble 12 years down the road when college hits.

[jIM_Ohio]

If the volatility of the stock market scares you, then you need to take the money you invest and be smart with it- put 75% of investment money into market at regular intervals and put 25% into cash and other liquid investments.

If you have a 3 month emergency fund and seeing 75% equity scares you, then keep a 6 month emergency fund...

if 6 months EF with 75% equity scares you, bump EF up to 12 months... if 12 months and 75% equity is not enough, bump EF up to 24 or 36 months....

the point is to commit to equities... with 75% of new contributions (because of the statistics provided by swanson and others), while still maintaining your risk profile as appropriate.

We are not suggest invest ALL of your money in equities, we are suggesting to put most of your new money (most=66% or 75% minimum) into equities. Being high in cash when market goes down is not bad- you might even begin to look at taking some of the cash and buying when market is 50% lower or 50% off its most recent high.