New to this life!

[TaylorGuitar]

First, thanks to Jeffrey for monitoring this site! And thanks to everyone who's contributed. I've been reading on here for a bit, but just now posting. So here's my introduction followed by a request for suggestions.

I grew up learning the "paycheck to paycheck" lifestyle and never any savings set aside. And if I can just be brutally honest, I really didn't see it as issue until 2+ years ago. But after seeing my problem, I started focusing on paying off debt. Occassionaly, i would slip and put something on the credit card but was pretty good about getting back on track.

Fast forward mid-2009 --- I moved out of state for a new contracting job that paid really well. Recently I was able to pay off all my debt except my newer/used car. And lately I've been reading (including this site!!) on savings/emergency funds/IRAs, etc to really get my life financially on track.

So here's where I'm at now financially:

I just turned 41 and my only debt is my car ($18K with 5.5% interest). I have a few thousand in a money market acc't that I recently opened that pays about 1.3% on return. Because I'm a contractor with my company, until I got on their payroll I can't participate in their 401K (they match 50%).

Ultimately, I want to do what I can now to max out for retirement. The only somewhat short-term goal is to buy a house. But since I live in a great apt for $500 and i'm a mile from work, I'm okay for renting right now. I'd also like to have at least 20-25% cash up front if not more for a downpayment.

Hope I was clear in what i'm trying to figure out. And thanks for having compassion on an ideiot who's just now learning the value of savings/investment/debt.

So if anytone has any suggestions on what to do, that would be great. I want to eventually find a financial advisor to also help.

On a more fun note: I had 3 credit cards and cancelled 2 (newer) while keeping the one I've had for 10+ yrs. But as a reminder of what debt really is, I literally have my last credit card in my freezer, frozen in a block of ice!

[disneysteve]

Welcome and congrats on seeing the light. It is never too late to get started. Better late than never.

Since you don't qualify for the company plan yet, I'd start with maxing a Roth IRA. That lets you put away $5,000/year that grows tax free and is tax free in retirement.

You didn't state how much you earn so I don't know what % of income that 5K will represent. Your ultimate goal should be 15% of gross to retirement savings and another 5% of income to other goals, like buying a home and other needs. Until you can do the 401k, you can put the rest of the money into a taxable account but try to choose more tax-efficient investments.

A budgeting formula you'll see shared here a lot is 50/30/20. That 50% for needs, 30% for wants and 20% for savings. That is a good starting point and would keep you on track.

[kork13]

Just a quick thought... I don't know all of the details for them, but as a contractor (depending on exactly how you are contracted), perhaps you could qualify for a SEP-IRA? That would allow you to put quite a bit more into retirement (again, don't know exactly how much). I could be way off-base, but at least something you could look into.

[creditcardfree]

Congratulations on getting your financial life together! You have accomplished great things thus far.

Since you are self employed, you might look into establishing a SEP-IRA for your retirement contributions. You can deduct them from your income. You can read about the requirements at the irs website. Maximum contribution is 20% of your net self employed income.

I would definitely make sure you are contributing at least 15% of your income to retirement and try to increase this over time to make up for not contributing in your earlier years.

Once you have retirement going, focus on paying off your car debt while your housing costs are low. After that start saving for the down payment. Keep this money in a CD, money market or high interest checking account. You want to keep the principal intact since you will need the money relatively soon, so do not invest in the stock market with this money.

[TaylorGuitar]

"Since you are self employed, you might look into establishing a SEP-IRA for your retirement contributions."

--- I will defin. research that this week.


"You didn't state how much you earn so I don't know what % of income that 5K will represent. Your ultimate goal should be 15% of gross to retirement savings and another 5% of income to other goals, like buying a home and other needs. Until you can do the 401k, you can put the rest of the money into a taxable account but try to choose more tax-efficient investments."

--- My current take home before taxes is $8480.00/month. I set aside about $1980.00/month for taxes leaving me $6500.00 to distribute across the 50/30/20. But if my current expenses "needs" only amount to about 1900.00/month (about 30% of the required 50%), what do you suggest I dod with that other 20% of the "needs?"

Also, can one have multiple IRAs? Or start dumping it into my MMA? My monthly car payment is about 440.00/month --- maybe increase that monthly car payment to 1000/1500/2000 a month? Just wondering where's the best place to dump all my excess income to be work for me now.

I had also just dropped 3000.00 into a new Capital One MMA I setup, and I was planning on dumping huge chunks of my paychecks into this MMA (after maxing out some kind of IRA). I was thinking an MMA is the best kind of savings for now. But after finding this site, I found a listing of online MMAs/high-interesting rates of 2.0% being offered. Should I consider closing my newly opened Capital One acc't? Or just stick where I'm at now?


Seriously --- i really, really appreciate the input so far!

[EEinNJ]

As a contractor, are you a W-2 employee through a job shop or temp service? This makes a huge difference whether you are eligible for tax-deductible business expenses, collecting unemployment WHEN you get laid off, etc. Many contract agencies like Kelly offer benefits after you've been on the payroll 6-12 months.

Having been a contractor myself for a lot of years, the money is great while it lasts- save it or pay off debt, because the job may end and you could be "between assignments" for a while. Not to discourage you, because some people go "permanent" with the company eventually, but more often contract jobs end after 2 years because of co-employment rules.

[zetta]

--- My current take home before taxes is $8480.00/month. I set aside about $1980.00/month for taxes leaving me $6500.00 to distribute across the 50/30/20. But if my current expenses "needs" only amount to about 1900.00/month (about 30% of the required 50%), what do you suggest I dod with that other 20% of the "needs?"

Are you sure you're setting aside enough for taxes? How did you arrive at the figure of $1980?

30% needs is a great place to be! This will really enable you to pump up your savings. Keep your wants spending to no more than 30%, and send the extra 20% to savings. I suggest the following priorities:

1. Emergency fund of 3-6 months expenses
2. Max out SEP-IRA
3. Pay off car loan early
4. $5,000 to ROTH (if you qualify, traditional IRA if you don't), Yes, you can contribute to both a ROTH amd a SEP in the same year
5. Save for house downpayment

[coach2wealth]

Congratulations! You have goals, plans and your are executing. You're doing great. I suggest hard charging on the debt until it's gone, then build the emergency fund, then save for your down payment. As your cash balance grows your perspective will change too. You'll see things much differently when you have tens of thousands of dollars saved.

Great work!

[TaylorGuitar]

EEinNJ - I've been a 1099 contractor (no W2s & no temp agency) since June 2009. I submit weekly invoices on my 40/hour a week position. They brought on board to fill a new position they created and will eventually go permenant but no ETA has been set. When that does happen, my salary will drop to about 70K+.


I did read up some on the SEP-IRA, but was a little confused if I qualified. But I was going to keep reading up on it tonight.


zetta - Based on the taxes I paid last year (after deducations), it averaged to about $2000/month and actually got back about 200.00. But I can bump that up more if need be. But thanks for listing those things out.

coach2wealth - Ya know, just getting the rest of my toxic debt behind me in the past few months, I've felt so clear-headed. Not that I had a mountain of debt, but it was just always lingering around. Now I think, "Why the heck was I paying credit card companys to borrow money??"

Would anyone suggest how much more to pay into my car loan if my current payment is 440, but I've been paying 600.00/month.

Does this sound like an effective game plan:

1 - setup both ROTH IRA and SEP-IRA and look into maxing them out ...?
2 - increase monthly car payments to .... $1000/$2000 ...?
3 - continue to dump rest of left over savings into my MMA ...?