Debt free, what next?

[elessar78]

If everything goes according to plan (knocking on wood), I'll be debt free within the next 12 months. Yay.

Assuming, my emergency fund is fully funded. I'm just curious as to what I should do next. Not servicing any debt, frees up 10K annually.

What should I do with that "extra $$"? I have some ideas, but I don't want to be leading.

My wife and I currently contribute 5% towards our 401(k).

thanks.

[creditcardfree]

Increase your retirement funding....to at least 10%.

If you don't have a home, consider saving for a downpayment.

[elessar78]

CCF, those are good.

We don't own a house, but eventually want to buy one. We're just not at that stage in our life/career that we know we're gonna stay put in an area for at least 3 years.

[kork13]

I agree -- first increase retirement savings, and start saving for a home downpayment. you can't save too much for a downpayment, so you can take all the time you need to decide where you want to buy. Beyond that, get savings going for other large purchases that inevitably come up... new car, moves, vacations, etc.

[buildmybudget]

It's true you can't save too much for a downpayment...but with the first time homebuyer credit of $8000 if you purchase in 2009 it might be worth investigating if you can get yourselves into a small starter home. If that isn't an option and your EF is fully funded:
-increase your 401k to 10%
-Begin funding an IRA
-and finally...plan a vacation! =)

[maat55]

You will need a car fund and misc. fund to add to an down payment fund. Plan your future needs now so that you will not be borrowing for them later.

[Alex_Adviser]

You will need a car fund and misc. fund to add to an down payment fund. Plan your future needs now so that you will not be borrowing for them later.

I agree with Maat here. You must plan for your future requirements first and then only think about some investment if it is suiting your plan.

You have have enough so that you can make a down payment with any hassles in the future.

[bankbars]

Hi elessar78,
I would like to suggest to make investment in long term savings house downpayment, Retirement Account or emergency fund etc

Regards,
bankbars
barclays.in

[fruitbowlk]

If you haven't done already.

increase your 401k to 10%
Begin funding an IRA
Start a Car fund
Start a vacation fund
Start a house fund
Start a holiday/birthday fund.

[arthurb999]

Increase your 401k to max they match
Max roth ira

Is there anything left after this?
Maybe plow into house, college funds, etc.

[am_vanquish]

If you haven't done already.

increase your 401k to 10%
Begin funding an IRA
Start a Car fund
Start a vacation fund
Start a house fund
Start a holiday/birthday fund.

Only increase your 401(k) contributions to get the full employer match ... everything else should go into an IRA - preferably a Roth IRA. I doubt that your employer will match everything up to 10%, but I could be wrong. If there's no match then you'd be better off stopping your 401(k) altogether and instead funnel the funds into a Roth IRA.

Although many on this board will disagree with this strategy, I'd like to note that IRA contributions (but not earnings) up to $10,000 can be withdrawn penalty-free to put toward a house downpayment. This can only be done after the IRA has been open for 5 years. Still, knowing this should make you feel more comfortable about dumping everything into an IRA. You can basically build a portion of your downpayment fund (up to $10,000) inside of your IRA. Be sure that this portion is invested in a way so that the risk level matches your expectations for tapping into the money for a downpayment.

Just to get a better idea of where you guys are at, how long have you been contributing the 5% to the 401k? Finally, what do you consider a "fully funded" EF? For some people an EF is 3 months of expenses, for others its 6 months of earnings ... big difference.

[elessar78]

Just to get a better idea of where you guys are at, how long have you been contributing the 5% to the 401k? Finally, what do you consider a "fully funded" EF? For some people an EF is 3 months of expenses, for others its 6 months of earnings ... big difference.

I have been contributing 5% for about 4 years.

Fully funded EF for me is the equivalent of 6 months worth of our budget. So in dire straights, it might last longer than that because our monthly spending is also included in that.

[am_vanquish]

I have been contributing 5% for about 4 years.

Fully funded EF for me is the equivalent of 6 months worth of our budget. So in dire straights, it might last longer than that because our monthly spending is also included in that.

How did you arrive at the 5% mark for your 401(k) contributions? Better understanding the matching policies for you and your wife will make a difference in splitting the %'s you should be putting toward 401k / IRA.

The EF sounds good. I was really asking to get a feel for how badly you need a separate "car fund." Your EF does not sound large enough to have a built-in cushion for a car/vacation fund. To my wife and I, buying a new car would be an emergency, and so we have a few grand in our EF that is "partitioned" for car repairs/replacement. We refuse to have a separate "car fund" but the difference is really just psychological. The point here is that depending on how old your vehicles are, you should set aside a bit more on top of the EF to cover repairs/replacement.

[elessar78]

How did you arrive at the 5% mark for your 401(k) contributions? Better understanding the matching policies for you and your wife will make a difference in splitting the %'s you should be putting toward 401k / IRA.

The EF sounds good. I was really asking to get a feel for how badly you need a separate "car fund." Your EF does not sound large enough to have a built-in cushion for a car/vacation fund. To my wife and I, buying a new car would be an emergency, and so we have a few grand in our EF that is "partitioned" for car repairs/replacement. We refuse to have a separate "car fund" but the difference is really just psychological. The point here is that depending on how old your vehicles are, you should set aside a bit more on top of the EF to cover repairs/replacement.

That's good advice about the car. Hadn't really thought about that angle. But a 6 month emergency fund could easily pay for a car. I'd just have to repurpose my money to save back the 6 month EF.

I've been in the work force for approximately 6 years and have been funding 5% for 4 of those 6. I recently got married and my wife didn't have a retirement account prior to that. My company doesn't match 401(k) contributions. I've actually reconsidered that based on advice from this forum, to move to funding a Roth IRA. When we're debt free in a year, I'll start my wife's Roth.

[am_vanquish]

That's good advice about the car. Hadn't really thought about that angle. But a 6 month emergency fund could easily pay for a car. I'd just have to repurpose my money to save back the 6 month EF.

I've been in the work force for approximately 6 years and have been funding 5% for 4 of those 6. I recently got married and my wife didn't have a retirement account prior to that. My company doesn't match 401(k) contributions. I've actually reconsidered that based on advice from this forum, to move to funding a Roth IRA. When we're debt free in a year, I'll start my wife's Roth.

1. I wouldn't suggest depleting too much of the EF, even to pay cash for the car. You don't want to be raising your monthly expenses with the new car and simultaneously losing your safety net. The lower limit should reflect your personal comfort level, but I'd say never let the EF run under 3 months if at all possible.

2. I really think you should stop contributing to the 401k. Everything should go to a Roth IRA. You'll have better investment choices (likely with lower expense ratios), and there is no worry about dealing with a rollover should you find yourself leaving your job for some reason. Also, if your 401(k) contributions were being made before-tax, then you're missing out on the wonderful benefits of a Roth. ***ONE STIPULATION: you have to actually make the Roth contributions. The popularity of 401k plans without matches comes from the convenience of having your employer manage all of the contributions automatically. You can easily setup automatic transfers to the Roth IRA from any brokerage website. Just don't stop the 401k while you're "getting around" to setting up the IRA and then never set it up. If you're not disciplined enough to keep contributing to the IRA, go back to the convenience of the 401k. Same thing goes for your wife if she's not getting a match.