need advice on saving/investing

[kv968]

I would then open a mutual fund at Vanguard with your next $3000 savings.

I take it you are suggesting opening a taxable mutual fund at Vanguard AFTER maxing out the SEP-IRA and 401k? If not, I'd suggest to the OP that she does max those out first before opening a taxable account if it's all to be used for retirement.

[jIM_Ohio]

I get it from the library...there's a table in the lobby where people drop off magazines for other people to take. There are always recent copies of Money to pick up.



I'm getting the full match my employer offers, but my understanding is that I could still contribute more on my own up to 15% of my income. I will get a raise in July so I was planning to up my contribution at that point, where I wouldn't "notice" it so much. I guess that would also be a good time to start funding my IRA. Or should we keep working on the emergency fund first? Or is funding DH's IRA the top priority? See, this is where my head starts spinning.



My understanding on the rule of thumb about 3-6 months living expenses is that it's just that, expenses, right? Not 3-6 months income. Our expenses are very low. Very modest house payment, cars paid off, etc. I would feel better about getting that emergency fund up to a minimum of $10K though. Should be just a matter of a few months.

I would suggest doing some basic "retirement" analysis, then figure out a path to get there. Doing something will be better than doing nothing.

retirement analysis: whatever your expenses are, you will need 25X of these expenses to retire comfortably. So if you spend $40,000 each year on stuff, you will need 25X this amount ($1 M).

Whether this $1 M is in a 401k, Roth IRA or other really is not too much of a factor. My advice would be to have some in a Roth, some in a 401k, some in a taxable account... and take advantage of various tax situations in moderation.

For you... If the 401k choices are good, sending 10% to 401k is a great starting point (10% of your income... prior to match). A Roth IRA to compliment this would be a good thing. If you cannot do 10% to 401k and 4k to a Roth, get the match and open the Roth... increasing 401k to 10% when the opportunity arises. It's easier to put more into a 401k, because this money is pre-tax.

For your spouse, which is self employed, I see this situation as one which might be more problematic. Self employment to me suggests need for 12 months cash on hand. So a larger emergency fund is warranted. I would put priority on this (put this cash in laddered CDs or money market type investments). I also understand self employed people can use a SEP IRA, and this allows for more tax deductions than even a normal 401k. Consult an accountant to verify.

Some of the advice I gave is age specific and some age neutral. Depending on "how much" is saved for retirement already, your ages (the answer for age 25, 35, 45 and 55 is much much different) influence the situation more than any other single factor, IMO.

[disneysteve]

So if you spend $40,000 each year on stuff, you will need 25X this amount ($1 M).

Whether this $1 M is in a 401k, Roth IRA or other really is not too much of a factor.

Just remember to account for taxes. A balance of $1 million in a 401K is not the same as $1 million in a Roth since one account is taxable and the other is not.

[Scanner]

Yeah, those Money magazine articles and Kiplinger's articles where they feature the "Perfect Family" with the 5 BDR house, the manicured lawsn and a minor problem of "Oh, where do we put our extra $20,000 this year ?"kinda leaves you yearning to watch an old episode of Archie Bunker where he made $8.00/hour working at a loading doc, LOL. I think everyone kinda of identified with the Bunkers because that set looked almost exactly like the row home my grandparents grew up in in Philly.

I do like Kiplinger's but their journalists could do a better job of showing people with debt, struggling, healthcare, etc.

It can look deceiving when you see a 35 y.o. couple with a net worth of $500,000.

But try not to judge yourself by other people's worth. You just never know. For instance, that couple, with an illness and job loss, could not have healthcare locked down and all of the sudden, with an illness, that 500K goes down to 100K.

But the couple who makes $16/hour working for the state has great healthcare and retires that way.

Or they simply may have just done better and that's okay too.

I guess I struggle with this because my wife really gets caught up in what others have and we don't. That kind of thinking can be poison and I think that's why the Bible has 2 commandments on "covetousness."

Stick to a plan, modify it occasionally, and you'll do okay. Don't take unnecessary risks trying to get that Holy Grail.

Good luck.

[disneysteve]

Yeah, those Money magazine articles and Kiplinger's articles where they feature the "Perfect Family" with the 5 BDR house, the manicured lawsn and a minor problem of "Oh, where do we put our extra $20,000 this year ?"kinda leaves you yearning to watch an old episode of Archie Bunker where he made $8.00/hour working at a loading doc, LOL.

I guess I struggle with this because my wife really gets caught up in what others have and we don't.

To be fair, I think Money and Kiplinger's do a good job showing the other side of the coin, too. This month, for example, Money has an article on a couple that took early retirement and moved to Florida. They only had about $250,000 in savings. They planned to supplement their income by flipping houses. Needless to say, the market tanked and they are now stuck with two homes that are costing them a fortune to maintain while they are desperately trying to sell them. They are burning through their savings quickly and the man is now looking for work.

So they aren't all success stories.

[jIM_Ohio]

If you are reading articles on what other people have and using those articles to form opinions or make decisions, then you are already broke- emotionally anyway.

The articles I find which are helpful (in both magazines and forums) are decision making in general. Look at the decisions people have and how they make the decisions. What to invest in, what to spend on, how to increase one or decrease the other.

[disneysteve]

If you are reading articles on what other people have and using those articles to form opinions or make decisions, then you are already broke- emotionally anyway.

I agree that there are inherent flaws in comparing yourself to others, but at the same time, we all have some desire to know where we stand relative to our peers. I always read the articles in Money or Kiplinger's or Smart Money where they talk about where you should be based on age and income. I realize everyone's situation is different, but I like to see if I'm in the right ballpark. Same for checking out different formulas that get proposed by various finance authors.

Sometimes I'm right on the mark. Sometimes I'm a bit behind and sometimes I'm ahead. Overall, I just like to see that I'm at least on par with others in a somewhat similar situation.

[zetta]

Check out The Complete Idiot's Guide to Getting Rich from the library. Right now, you should be aiming for Wealth Level 1, when you reach this level you will be on-track with retirement savings. The analysis in that chapter will help you set a retirement savings goal. In general I agree you should fund your goals in the following order:

1) emergency fund 3-6 months expenses
2) 401k until you reach the match
3) $4k to ROTH IRA
4) more to 401k until you are on-track for retirement

I don't know much about the SEP-IRA -- you might want to talk to an accountant to find out whether it is better for your husband to put money there or in a ROTH first.

[Ima saver]

Steve, it is First start growth fund. I started them for my granddaughters cause they had such a low minimum. I put in $420 6 years ago and it is now worth $340.
I saw that article in Money. That magazine is what started me learning about investing.

[kv968]

Steve, it is First start growth fund. I started them for my granddaughters cause they had such a low minimum. I put in $420 6 years ago and it is now worth $340.
I saw that article in Money. That magazine is what started me learning about investing.

That fund took a harder than normal hit than it's peers in the dot com crash and never fully recovered. It also didn't fare well in the beginning of last year either. Lastly, it's not really a "growth" fund anymore but more of a large-cap blend with a slightly higher than normal expense ratio. In other words, you can find better similar funds out there.

[kv968]

In general I agree you should fund your goals in the following order:

1) emergency fund 3-6 months expenses
2) 401k until you reach the match
3) $4k to ROTH IRA
4) more to 401k until you are on-track for retirement

I don't know much about the SEP-IRA -- you might want to talk to an accountant to find out whether it is better for your husband to put money there or in a ROTH first.

I would suggest putting money into a SEP-IRA before adding more to your 401k after you reach the match. Reasons being, your husband is behind on his retirement funding and with a SEP-IRA you most likely have a broader and better choice of funds than you do in your 401k. That may not be the case but if he's behind on his savings you should still probably do it that way.

And as Zetta said, maybe talk to an accountant before deciding which to fund first, the Roth or SEP-IRA but, IMO I'd say go with the Roth. You don't get the tax deduction you would with the SEP, but you'll get tax-free money from it when you retire.

[disneysteve]

Steve, it is First start growth fund. I put in $420 6 years ago and it is now worth $340.

5 year average return of 4.66% with a 1.45% expense ratio.

Compare to Vanguard S&P 500 which has a 5 year average return of 8.41% and a 0.18% expense ratio.

Even though it is a small amount, get rid of it. You're better off keeping the money in a high-yield savings account.

[kv968]

5 year average return of 4.66% with a 1.45% expense ratio.

Compare to Vanguard S&P 500 which has a 5 year average return of 8.41% and a 0.18% expense ratio.

Even though it is a small amount, get rid of it. You're better off keeping the money in a high-yield savings account.

Actually a 19% loss. I agree with Steve...get rid of it.

[anonymous_saver]

Check out The Complete Idiot's Guide to Getting Rich from the library. Right now, you should be aiming for Wealth Level 1, when you reach this level you will be on-track with retirement savings. The analysis in that chapter will help you set a retirement savings goal. In general I agree you should fund your goals in the following order:

1) emergency fund 3-6 months expenses
2) 401k until you reach the match
3) $4k to ROTH IRA
4) more to 401k until you are on-track for retirement

I don't know much about the SEP-IRA -- you might want to talk to an accountant to find out whether it is better for your husband to put money there or in a ROTH first.

I disagree with the order of these suggestions. No matter what is going on, you must always put up to your companies match in your 401(k)! This is free money, you shouldn't turn it down. Once you have that step completed, I would save 1 month of an emergency fund. Then I would continue saving for my emergency fund but I would also start the Roth IRA. Once you have the full amount in your Roth IRA, I would increase your 401(k) contributions.