23 Year old in need of advice

**jpg7n16** · 09-17-2011, 05:47 PM

Right now while you have such a large gap between income and expenses, you might consider upping the 401k to 20%. Get that large headstart now and if you need to cut back to pay for living expenses of marriage/kids/college savings/etc. you'll already be ahead of the game. You might even be able to max your Roth too.

For your current economic picture, you've got too little in cash. You need more than $3k - probably about $5,000 - 7,500 seems right for this time in your life. Once you get married w/ kids - up that to 6 months expenses. It's not about how much that's earning - it's about the need for liquid money if the need arises.

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Having said that... you're doing VERY well for 23. So you find yourself in a great position! Early in life, extra money each month, time to plan and save.

What are your goals? What do you want out of life?

**JustBill** · 09-17-2011, 07:00 PM

You're doing very well, and have a great attitude when it comes to your money! I do suggest additional cash reserves, somewhere in the range of 6 months take home pay. Being a home owner you never know what may require cash, not to mention the continuing weak economic performance the country is experiencing.

With a larger CR, considering your young age, you may wish to invest any further retirement funds in a Roth IRA to reap tax-free withdrawals way down the road in retirement, plus you have many more investment options by using a Roth in the open market than your employer's 401k plan will offer. Otherwise I would suggest you amortize the mortgage for a much earlier payoff schedule than 30 years.

**maat55** · 09-17-2011, 07:19 PM

The rule of thumb is to put 15% towards retirement, have a six months emergency fund and apply extra funds towards paying down the house. Once you have kids, you will want to dedicate your extra funds towards college.

**esb3357** · 09-24-2011, 08:27 PM

Since you are young and the markets are done you might want to start aggressively investing in mutual funds. Not necessary as a retirement account but long term savings.

**naomibatac** · 09-27-2011, 04:23 AM

I agree with esb3357, consider investing in mutual funds or other bank investments whereby you can get the benefit of compounded interests for your future finances.

**MonkeyMama** · 09-27-2011, 09:26 AM

I would:

A - Consider maxing out 401k. You can put $16,500 in there per year. This is assuming that your investment choices are decent. The reason I Would do this is for tax savings. Though 15% or 20% are worthy retirement goals, I Would not limit myself to those percentages. For every $1000 you put into your 401k, you save $250 taxes, probably. (Maybe more, maybe a little less). So, you only need to come up with $12,000 cash to put $16,000 in your 401k. ($12k + $4k in taxes saved). Keep that in mind.

B - I'd build up some cash savings. You could always put cash in a ROTH IRA. $5k per year. This might be a good compromise for you. You can pull the money out pretty easily for non-retirement (emergency), but if you don't need it, you are socking away money that will grow tax-free. I'd keep it in cash for now, for liquid cash/emergency reasons, but later you could always invest it. Point is, you will not lose opportunity to sock the money away in tax-free vehicle. Maybe $k5 in ROTH this year, and $5k next year, and you will have some decent liquid savings. (If you don't put $5k into ROTH this year, you can never get that opportunity back. You are limited to $5k ROTH contributions, per year).

C - I would consider refinancing home to 15-year at 3.25%. If you have equity and good credit. This way, you pay off home sooner without tying up liquidity. I am assuming with the lower interest rate, you would have similar mortgage payment to what you do now. That said, 4.25% is pretty respectable for 30 years, and you are young, so I see no problems with just leaving the mortgage as is.

D - Don't put *all* your savings into retirement vehicles and home. (I guess ROTH is exception since you can pull money out). Though it sounds like you don't have any immediate goals, like home purchase, etc. You are young and other financial goals will come. Having savings that you can actually access buys you flexibility down the road. I literally know types who don't have a penny to their name because they put all their savings into their mortgage and retirement. It happens, so though I say not to limit yourself on your savings goals, it is just as important to make sure you enjoy some of it and have some more readily accessible savings.

These are all things I probably didn't understand at 23. Good Luck!

23 Year old in need of advice