Help with financial planning

[jamreed02]

I'm a newbie at all matters financial... so bear with me:

I've got a checking account (overdraft backed by one of the credit cards), a savings account (even though it's currently empty), three credit cards (with too much on them left from a few months of unemployment). Oh, and some 529 savings accounts for our 3 kids. That's it, no investments (including retirement), no cd's, no life insurance, no house or mortgage (renting)... nada. So, as you can see, we've got some financial planning to do.

We're going to start doing Dave Ramsey's baby steps, first saving some emergency cash in savings, then paying off the credit cards, then adding more to our emergency savings, then investing money for retirement. etc.. etc... (most are familiar with the baby steps, as far as I've seen here)

So here's my questions:

Where does the life insurance fit in? Immediately?

Should we look into online banking? Which companies are good to look into? What are the pros and cons of each?

Should we put some of our emergency fund into CD's? (I'm thinking keep 3 mos expenses accessable, and put another 3 mos expenses in a short term CD)

What kinds of retirement accounts are there, and which one is the one that you don't pay interest on before contributing? Is it Roth IRA? and how exactly do those work? does it matter which company we open it with? or which company manages it?

A lot of questions, I know...
but the only dumb question is one you don't ask, right?

[Ima saver]

Your emergency fund should be in a savings account earning the highest interest that you can get. At your young age, you should open Roth Ira's, that way you can use the money for retirement and it will be tax free.
I would reccommend you open your IRA at Vanguard, I use the Index 500 fund. It has very low expenses and is diversified. They also have a Total market Fund.
Online banks pay higher interest. There are several threads on this and I will bring the one with all the rates back to the top for you!!

[Broken Arrow]

Hey jamreed.

That's right. When it comes to saving our finances, there is no such thing as a dumb question! In fact, I find that the wiser tend to ask more questions than those whom I find to be ignorant, but I digress....

Life insurance: Since you have 3 kids, I believe it should be immediate.

Online banking: It's good, but it's not as good as actually having money in the bank. Any bank. Personally, I don't have one yet either, but when my savings become sizeable enough for it to matter, then I'll go online. In other words, I wouldn't worry about it right now.

Emergency fund: Say no to CDs! Emergencies are inherently unpredictable, and therefore, your emergency fund should behave like the EMS in that it should ready to roll at a moment's notice. The purpose of CDs run contrary to that philosophy, although once you get to a certain point, laddering them is a worthwhile option. For now, I also wouldn't worry about CDs.

Retirement funds: If you company has 401k with employer matching, I would look into that first. Otherwise, yes, I recommend saving up some funds and opening up an IRA with Vanguard for example. Here's a LINK to help you get started.

I will say this about IRAs: Yes, it does matter. IRAs are nothing more than a tax umbrella. That's it. However, just about any kind of investments can be found within that umbrella. Others such as Sweeps can probably articulate all this better than I can anyway.

[sweeps]

Where does the life insurance fit in? Immediately?

You really should have some life insurance since you have children. Do you have life insurance through your job? That may be enough for the time being while you focus on other priorities.

Should we look into online banking? Which companies are good to look into? What are the pros and cons of each?

As Ima points out, online banks offer the best savings/money market accounts. The other thread Ima is bumping to the top has some good info.

Should we put some of our emergency fund into CD's? (I'm thinking keep 3 mos expenses accessable, and put another 3 mos expenses in a short term CD)

My opinion, no. Put your money in a high yielding savings account (paying 5% APY or so). CDs aren't paying much more -- at least not enough to justify locking up your emergency fund, in my opinion. Also there is good reason to believe the rates will go up more in the future.

What kinds of retirement accounts are there, and which one is the one that you don't pay interest on before contributing? Is it Roth IRA? and how exactly do those work? does it matter which company we open it with? or which company manages it?

The retirement account that you contribute to before taxes is a 401k (or 403b or traditional IRA depending on your circumstances). You contribute to a Roth IRA after taxes are taken out. Both are good, but in different ways. A lot of people will immediately say you need a Roth, but in some circumstances contributing to your 401k would be a better choice. Especially if your company matches contributions.

[autoxer]

my comments are in red

Originally Posted by jamreed02

I'm a newbie at all matters financial... so bear with me:

I've got a checking account (overdraft backed by one of the credit cards), a savings account (even though it's currently empty), three credit cards (with too much on them left from a few months of unemployment). Oh, and some 529 savings accounts for our 3 kids. That's it, no investments (including retirement), no cd's, no life insurance, no house or mortgage (renting)... nada. So, as you can see, we've got some financial planning to do.

We're going to start doing Dave Ramsey's baby steps, first saving some emergency cash in savings, then paying off the credit cards, then adding more to our emergency savings, then investing money for retirement. etc.. etc... (most are familiar with the baby steps, as far as I've seen here)

So here's my questions:

Where does the life insurance fit in? Immediately?

Should we look into online banking? Which companies are good to look into? What are the pros and cons of each? Your local checking account can probably be accessed online. For an online savings account, check out ING, Emigrant Direct and HSBC Direct.

Should we put some of our emergency fund into CD's? (I'm thinking keep 3 mos expenses accessable, and put another 3 mos expenses in a short term CD) I don't see much benefit of locking money into CD's when the online savings accounts are nearly matching their rates. With an online savings account, you don't have to wait for the CD to mature to access your money.

What kinds of retirement accounts are there, and which one is the one that you don't pay interest on before contributing? Is it Roth IRA? and how exactly do those work? does it matter which company we open it with? or which company manages it? With a Roth IRA, you pay taxes before contributing, but not when you withdrawal. With a traditional IRA, you don't pay tax until you withdrawal. So which one makes sense depends on what tax bracket you will be in when you retire. Kind of hard to predict, but the Roth has other benefits. It doesn't matter which brokerage you open the account with, but choose one with low fees. Check out Vanguard & Fidelity.

A lot of questions, I know...
but the only dumb question is one you don't ask, right?

[Ima saver]

I would not worry about the kids college funds yet. You need to get an emergency fund and some retirement savings for yourself first. Then pay off debt!! I did not mention a 401 because I did not know if you work for someone that offers them. They are great if you get an employee match. We have never had one, so I tend to forget about them.

[jamreed02]

DH just started a new job, and we've got about 45 more days until benefits kick in, then we'll have some life & disability insurance, and a 401K, but I'm not sure how much if any they match. And we'll have the company's health insurance, too. . that'll help. I stopped contributing to the college funds a few months ago, when money went short. planning to start contributing to them again after we get our emergency spending account up to around 6 months expenses, and get the retirement account started.

if the company matches, should we only have the 401K, or should we have that and another retirement account?

[Ima saver]

You should take the 401K first, then open roth Ira's when you can.

[sweeps]

Originally Posted by jamreed02

if the company matches, should we only have the 401K, or should we have that and another retirement account?

This question comes up a lot. The general rule of thumb is to contribute to your 401k enough to max out the company match, and then contribute as much as you can to a Roth IRA.

That's good advice, but I think even more important is that you build up your retirement fund as quickly as you can. If by going straight 401K, you'll contribute more to your retirement (because it's easier -- comes straight out of your paycheck), then there's nothing wrong with going that route either.