What to do with $25K?

**feh** · 09-30-2014, 05:47 AM

Check out the link in my signature. After that, read this:

http://www.bogleheads.org/wiki/Bogleheads%C2%AE_investing_start-up_kit

**Petunia 100** · 09-30-2014, 08:45 AM

Originally posted by cologero View Post

Hey everyone,

So I finally got a pay increase at work and also made some moves with my savings today. Here's what I did,
1. Paid off my car even though it had a low interest rate (I now own two vehicles valued at $7K and $23K).
2. Paid off my student loan.
3. Started a 401K putting 15% of my $77K annual salary in it (at 36 yrs old, all I have is $10K in a previous IRA at this point)

Well, here I am now. I have $1,250 in monthly bills and take home about $3,400 per month ($2,150 net). In addition, I have a rental property that I rent to a family member (mortgage and utilities are about $700/mo) and am about $5k underwater in it. I don't make anything off the tenant so it's not included in my take home pay or monthly bills. Lastly, I still have $25K in my savings account.

I'm looking for ideas as to what I should do with the $25K. I can also grow that due to my raise and paying off my bills. I'm obviously behind in terms of my retirement savings, but I'd like to buy a decent home eventually. Should I keep all of this as an EF? Should I invest the minimum of $3,500 into a Vanguard IRA? Should I give some of it to a financial advisor to invest? Aside from my rental property (I owe $43K), I'm basically debt free aside from apartment rent/car insurance/utilities/cell phone.

Thanks in advance everyone!

That's a 20 month emergency fund. In my opinion, that is too much for a young person to keep in cash.

Educating yourself is an excellent idea, and Feh provided you a link to an excellent source of information.

In the meanwhile, I think you should strongly consider contributing 5.5k to a traditional or Roth IRA. A Roth can double as a down payment fund and/or emergency fund, as your contributions (not earnings) are available to you at any time tax and penalty free.

Personally, I feel that there is nothing a financial advisor can do for you that you cannot easily do for yourself.

**autoxer** · 09-30-2014, 11:41 AM

If you can clarify your goals, then it'll be easier to decide what to do with that money, but I'll throw out an idea.

If the goal is to do some catch up on retirement savings, then you increase your 401k contribution up to 100% of your salary, and then live off the money that you have saved up for a few months. If you can do that for a few months, then you can contribute the max for 2014 @ $17,500.00. Then in January, you can drop the contribution rate down to 23%, so that it will also max out for 2015.

**JoeP** · 09-30-2014, 12:33 PM

What is your time horizon for buying a house? Regardless, the advice usually given here is to have at least 20% down, and get a 15 year fixed rate loan. The pinch you are in is that you simultaneously want to put a lot of money into retirement, and also save up for a house. You could use some of your cash to fund your Roth IRA for 2014 and then have more when 2015 rolls around, and then put all but 6 months worth of expenses into post-tax funds that do better than a savings account or CD alone. A mixture of cash, bond funds, and some safe index funds with low fees is pretty conservative.

**bjl584** · 10-07-2014, 06:19 AM

Originally posted by MichaelA2014

Invest in the land. I always quote a very smart old man that once told me "They don't make more of it" Buy you parcels of land.

That may be good advice on your home planet of Uranus, but here on Earth buying land is typically not a good investment.

**snafu** · 10-07-2014, 02:50 PM

Happy to see you back having mostly fulfilled your 2013 plan. I realize we try to shove a lot of information at you quickly in an attempt to block potential money mistakes. Feh offers an excellent link to help broaden your knowledge and understanding. Earlier [Nov. 2013], Petunia added the link to Morningstar.

One of the reasons we often suggest Vanguard is that they don't charge those ghastly front end loads that has you paying in advance for the privilege of absorbing all the risk from a 'boilerplate' program that doesn't reflect your needs . Further, Vanguard has an extremely low Management Expense Ratio. How does your employer's Plan Administrator compare Vanguard's results to those being offered by front load funds? Have you been able to capture your employer's 4% contribution you'd explained as $ 200. for your $ 800.?

2nd, you'd mentioned a previous employer's 401K but offered no details. Have you checked it's current value? Is it vested? How much you are losing/paying in administrative fees? What is it's specific investment? It needs to mesh with your risk tolerance and newer holdings. Depending on answers, you might consider having Vanguard make arrangements to transfer it to their plan as that is a smooth, easily carried-out procedure without tax implications.

3rd, Since any sum you put in a ROTH is retrievable, it seems like an ideal vehicle to hold your EF. The earnings accumulate tax free and will be tax free in the future when accessed as a retiree. Keep in mind retirement savings accumulate with tax free contributions but are taxed at the going rate some time in the future. I hope you are allocating sums via Index Funds as a starting point. Leaving retirement contributions in cash has potential for huge shortfalls in the future.

Finally, I think you need to re-evaluate how you're handling the rental house. I'm guessing that you are losing a major tax benefit by not deducting your shortfall and costs. Secondly, I'd worry IRS might have another viewpoint sometime in the future. At least I hope you'll run the figures. Filing an amended return is not difficult on-line.

sorry, so long...

**WillieGearhart** · 10-09-2014, 04:23 AM

I think you should invest it anywhere with no easy access, or start a saving account.

**cologero** · 10-11-2014, 06:31 PM

Originally posted by snafu View Post

Happy to see you back having mostly fulfilled your 2013 plan. I realize we try to shove a lot of information at you quickly in an attempt to block potential money mistakes. Feh offers an excellent link to help broaden your knowledge and understanding. Earlier [Nov. 2013], Petunia added the link to Morningstar.

One of the reasons we often suggest Vanguard is that they don't charge those ghastly front end loads that has you paying in advance for the privilege of absorbing all the risk from a 'boilerplate' program that doesn't reflect your needs . Further, Vanguard has an extremely low Management Expense Ratio. How does your employer's Plan Administrator compare Vanguard's results to those being offered by front load funds? Have you been able to capture your employer's 4% contribution you'd explained as $ 200. for your $ 800.?

2nd, you'd mentioned a previous employer's 401K but offered no details. Have you checked it's current value? Is it vested? How much you are losing/paying in administrative fees? What is it's specific investment? It needs to mesh with your risk tolerance and newer holdings. Depending on answers, you might consider having Vanguard make arrangements to transfer it to their plan as that is a smooth, easily carried-out procedure without tax implications.

3rd, Since any sum you put in a ROTH is retrievable, it seems like an ideal vehicle to hold your EF. The earnings accumulate tax free and will be tax free in the future when accessed as a retiree. Keep in mind retirement savings accumulate with tax free contributions but are taxed at the going rate some time in the future. I hope you are allocating sums via Index Funds as a starting point. Leaving retirement contributions in cash has potential for huge shortfalls in the future.

Finally, I think you need to re-evaluate how you're handling the rental house. I'm guessing that you are losing a major tax benefit by not deducting your shortfall and costs. Secondly, I'd worry IRS might have another viewpoint sometime in the future. At least I hope you'll run the figures. Filing an amended return is not difficult on-line.

sorry, so long...

Thanks everyone! Yes, it's very overwhelming to make time to try and read through everything, understand everything and then make the right decision with everything...so I've been moving at a very slow pace. I still feel like a fish-out of-water!

To try and answer some of the questions the best I could, the last quarterly statement I saw had my current IRA +$800 (up to $10,800) for the past year. I'm not sure of the fees off the top of my head. As far as my rental home I do not understand taxes at all, which is why my family does them. I know they ask me for interest paid each year when doing them for me. As for my current 401K, I went with 15% ($888 per month plus my employer match). I'm 40% vested now...and 60% come June (no fees on the funds either). Once I can see how this impacts my take home and lifestyle over the next couple of months, I'll probably increase the % so that I max out my 401K in 2015.

So back to my current situation, I'd like to move forward and do something with Vanguard due to all of the positive things I've read. Someone mentioned the Vanguard 500 which I'm not familiar with. My thoughts for the next 12 months are:

- Continue contributing 15% in 401K. Max out in 2015
- Put $5,500 in Vanguard Roth IRA for 2014 (or should I look into the Vanguard 500 or something else?)
- Put $5,500 in Vanguard Roth IRA for 2015

In the short-term, that will leave me about $14,000 in my savings account which should cover 6+ months of bills if I used it for my EF instead of counting on the ROTH IRA's...or should I invest a portion of that $14K differently? I still don't have a great handle on how I should start building my portfolio. Even after my 401K contribution, I should be able to save $500-$750 per month, so I want to make sure I'm being smart.

Lastly, owning a home is a big goal of mine (homes are $150-$200K for something decent in my area). Before I paid off my loans, I was actually thinking of buying something in 12 months, but that may have to change now. Realistically, I'll probably shoot for 10-20% down and finance for 30 years. I know I'll probably get blasted for saying that, but I don't want to wait 10 more years to buy a house, and I certainly don't want to buy a cheap house I'm not happy with. Anyway, the fact of the matter is, I may just have to keep renting for a while, which sucks!

As always, I appreciate everyone's feedback!

**cologero** · 04-14-2015, 05:17 PM

Hey everyone, so here is a quick update on how I've done over the last 6 months:

- Still have the same bills and no debt! (aside from rent, utilities & cell phone. My home is still being rented so I'm not counting that)
- $10K in Traditional IRA
- $11,400 in ROTH IRA (maxed out for 2014/2015. 70% domestic stocks/30% intermediate term bonds)
- $7K in 401K (still contributing 15% or approx. $1K/mo.)
- $20K in savings account
- $1K in HSA (contributing $100/mo.)
- 2 paid off vehicles valued at approx. $27K

Is this a good pace for me at 36 years old? I'm also really torn between buying a home in the next 6 months or staying in my apartment for another year or so to save money. My gut says stay in the apartment, but I'm miserable paying over $800/mo. but I don't want to move until I'm ready for a house. I feel like taking a second job to earn more $ quicker, but I'm already working 60+ hrs per week. I digress, I'll probably stay in my apartment unless a great deal pops up on something that makes sense for me.

Hope everyone is doing well!

**autoxer** · 04-14-2015, 06:18 PM

I think you are doing great things, but it looks like you are behind on retirement savings for your age. You have almost as much $ tied up in depreciating vehicles as you do in retirement accounts, so that shows where your values lie. In your 10-11-2014 post, you mentioned maxing out the 401k for 2015, is that still part of your plan?

**autoxer** · 04-14-2015, 06:31 PM

You even mentioned maxing out the 401k back in October of 2013. Just go ahead and do it. It feels really good to max it out.

Saving Advice Forums

http://www.savingadvice.com/forums/personal-finance/74440-30k-savings-no-401k-need-some-opions.html#post369145

**CashUp Sammy** · 04-15-2015, 04:21 AM

I wouldn't worry TOO much about the pace you are going at.

Take care of your health, find work you love and continue working - even if part time - and continue earning. The older gents/ladies in a workplace can be real links to how things used to be. The oldest fella at my work - 69 - is full of knowledge and nostalgia for how the company was 30+ years ago.

You've done well to secure a raise. Now get the next one. Diversify your $ and you'll be fine.

**tripods68** · 04-15-2015, 07:28 AM

Originally posted by cologero View Post

Hey everyone, so here is a quick update on how I've done over the last 6 months:

My home is still being rented so I'm not counting that)

I have no idea why are continuing to invest on something that is losing money? Are you still upside down? How much do you owe on this home versus how much can you sell it for?
Get rid of it. Can you pay off your rental? I'm against owning something that continue to lose money. That's doesn't make sense.

If you are single, why do you have own two cars? That means you are paying more insurance and maintenance upkeep when you don't really need too. Can you get rid of one, and maybe add those proceeds to towards paying down your rental property?

**snafu** · 04-15-2015, 02:34 PM

I'm wondering what's driving your desire to buy a house since you have experience being upside down in ownership. You
know the pitfalls, interest is front loaded, taxes keep increasing, upkeep demands time and cost of materials and trades. A wrong decision has potential to create an unending money pit.
* What is making you unhappy in your current rental?
* Are you taking advantage of the negative flow on your current rental on your Income tax? Lowering tax payable means more income!
* I'd like to have you more involved with the $ 10K IRA from previous employment. What fees are you paying? What income is it earning for your future while the market is at an all time high?

* It's in your interest to watch new listings on-line in search of a 'deal,' you might talk to a very experienced realtor in your preferred area to let him/her know you seek 'X' sf,, 'X' bedrms, 'X' bthrm, and your must have's and deal breakers in hope of seizing a 'real deal.' Would you take in renters and give up privacy to lower your costs? Perhaps there are other options for your rental that have not yet been explored.

You're working 60 hours, realistically, where does time stretch for home ownership and all it's demands?

What to do with $25K?