Here's my entire financial situation, any advice?

[speaker55]

So I thought I was doing pretty good until I started reading this forum. I see quite a few here that are very disciplined. I used to spend less, but as my income has grown, so have my expenses. Big surprise huh? Still I feel pretty good because I don't live paycheck to paycheck. I have money left over each month.

What I'm wondering is, what should I be doing with the money left over each month. It's probably $1000-$2000. Recently I've just been paying my mortgage and heloc down, about $25K last year. But as you can see I'm not contributing to my 401K anymore, or any other retirement, because my employer stock contribution has been lucrative.


Cc debt $0
Student loan $5K, 2.8%
Mortgage $167K, 4.375%
Heloc $15K, 4.4%
Vehicle loan $30K, 3.15%
(total $217K debt)

Cash $8K
Savings $22K, 1% int
401K $49K, not currently contributing
IRA $2K, not currently contributing
Company Stock $215K
House $250K
Vehicle $45K
(total $591K assets)

Income $130K, age 32, single, no kids
Mortgage pmt $1700
Vehicle pmt $562
Utility bills $350
Food $565
Gas $200
Student loan $87
Vehicle ins $66
Savings acct transfer $400
Other purchases, entertainment $500
(total ~$4400)

[txmom842]

Congratulations, it looks like you are doing a great job so far. A few suggestions:

Student Loan-although it is at a good interest rate, I would try to knock that out this year. Sallie Mae is evil, lol.
Car loan-cars are a depreciating asset, try to pay that off before scheduled.

Savings--You need at least 6-8 months of expenses, work on increasing what you have.
IRA--are you still eligible for a Roth? If so, you should contribute to the max.
401k-does your employer offer a match? If so, contribute at least up to the match.
Company stock--Although it looks great on paper today, can't this number wildly fluctuate? Also, what are the tax consequences of cashing this in? Are these options?

Continue to save for your next "want" so you won't need to finance it (once you reach your target emergency fund amount).

That's it! Best of luck to you, welcome to the forum.

[kork13]

A few initial thoughts... You have a great income, so you have the potential to do very well for yourself. Overall, you're doing okay, but there are definitely some items for you to address.
- Debts: You're doing well enough here -- nothing unreasonable. The car (and associated debt) seems excessive, but it's too late to change that much, and it's at least affordable for you on your income. You should eliminate the student loan & HELOC ASAP to refocus those funds elsewhere.
- Expenses: Your food costs are quite high for a single person, and you might look at how you can reduce your utilities as well. Also, you tell us about $4400/mo in expenses & savings, but based on your income, you likely have over $7500/mo in take-home pay. Where is the other $3000 going?
- Savings/assets: You're only saving $400/mo... big problem. That's less than 4% of your income -- you should be saving closer to 15-20%. Start contributing again to both your IRA & 401k, and add more to your liquid savings as well. You also have WAAAAY too much of your assets in your company's stock. The standard recommendation is to have no more than 10% of your total assets in company stock -- you currently have nearly 40% there. Is there any way to sell off some of that company stock to reallocate in a smarter manner? Side note, the car shouldn't be counted as an asset... by the time you try to sell it, its value will be FAR below your purchase price.

Generally, you're doing fine, but you can do much better for yourself with some fine-tuning.

[speaker55]

Thanks for the reply, Txmom. Here's some info regarding your questions.

No 401K match.
Roth IRA. My understanding is that I'm not eligible b/c of my income.
Company stock is private. Not a publicly traded company. They are not options. I can't cash them in unless I quit or retire. If I did quit and cash out I'd pay a penalty. It doesn't vary wildly, although it's stock in 1 company so it's a lot of eggs in 1 basket.


Here's a concept regarding my savings emergency fund. I could contribute more to that and make 1%. Alternatively I could use my HELOC as an emergency fund. I have $27K of credit left on that. I could use that at any time. Or pay the $15K balance down. So pay down $15K @ 4.4% vs fund savings account @ 1%. Some might say I'd be coming out 3.4% ahead. I'm debating this.

[speaker55]

Thanks Kork. I'm having issues doing a reply/quote inline, so I'll just reply as below:


Yes, the vehicle is excessive, it was hard for me to spend that much. I enjoy it though. I could be struck by lightning at any time too

I'm surprised that 2 people have both already said pay off the student loan. I guess I need to reconsider.

My income includes bonuses that I don't factor in monthly. Take home is more like $6200/mo. The rest comes in big chunks, less often. Annually my income doesn't vary much though.

15-20% savings, is that of gross income? Wow, I'm way off.

No, I can't sell that stock. I'm stuck with it

[MonkeyMama]

Being single at that income level leaves you in a nasty tax bracket. Consider maxing out 401k. If investment choices are terrible I understand why you may not. But you may find you get back a considerable chunk in tax savings. So as a tax person, that just *really* stand out to me. On the flip side, I understand some times you can't max out at a higher income, due to retirement plan rules. But if you can, is $17,500 for this year.

Also, have you looked into refinancing? Seems to me you could probably get a much lower interest rate on the home?

I'd also knock out the student loan, just to be done with the hassle.

[disneysteve]

Can you list the minimum monthly payments on each of the debts?

[~bs]

I'd look towards divesting away from company stock, if I were you. Can any of it be sold and reallocated elsewhere? remember the lessons of enron.

Aside from that, pay down debt, and use the saved money to fund your 401k/roth.

It's nice you have a healthy income, as the more money you make, the more options you generally have. Many people have a savings focus in life, but IMO it's easier to make another 10k than to find ways to cut 10k off your expenses. Which is why I work a day job and run a business. If you're making 130k off a regular job, that's awesome.

[speaker55]

Can you list the minimum monthly payments on each of the debts?

Sure-

mortgage $1100 (previously I posted $1700, that was including the prop tax, ins, heloc, & some extra payment. those are broken out below)
prop. tax $350 (paid annually $4200)
home ins. $120 (paid annually $1440)
heloc (interest only) $65
student loan $87
vehicle $562
(total $2284)

[Petunia 100]

Thanks for the reply, Txmom. Here's some info regarding your questions.

No 401K match.
Roth IRA. My understanding is that I'm not eligible b/c of my income.
Company stock is private. Not a publicly traded company. They are not options. I can't cash them in unless I quit or retire. If I did quit and cash out I'd pay a penalty. It doesn't vary wildly, although it's stock in 1 company so it's a lot of eggs in 1 basket.


Here's a concept regarding my savings emergency fund. I could contribute more to that and make 1%. Alternatively I could use my HELOC as an emergency fund. I have $27K of credit left on that. I could use that at any time. Or pay the $15K balance down. So pay down $15K @ 4.4% vs fund savings account @ 1%. Some might say I'd be coming out 3.4% ahead. I'm debating this.

You can't contribute directly to a Roth, but you can contribute to a traditional then convert. You might consider converting the 2k already in your IRA too (assuming it is traditional, and assuming you deducted the contributions) just to keep the calculations simple.

Yes, you can use your HELOC at any time, so long as the creditor chooses to allow it. Your creditor can reduce or close your HELOC at any time for any reason. Therefore, relying on it in an emergency is risky. (Many people had their HELOCs frozen or closed during the latest real estate downturn.) Just something to keep in mind.

You should be saving more towards your own retirement. You shouldn't be relying on your employer's stock. If your employer goes bankrupt, your retirement savings goes down the tube along with your paycheck. Hopefully that will never happen, but what if it does? Protect yourself from that possibility as much as you possibly can. Have significant retirement savings in broadly diversified stock and bond mutual funds and your retirement savings won't vanish overnight if your employer should fail.

[PetMom]

Is the company stock a part of benefits or do you purchase them? Have never known how that works. Great if it is a strong company, but as others have mentioned a little much in one asset group.

If you purchase them then maybe opt out and put more in 401k or IRA.

Again, I don't know how the stock thing works or how employees obtain it.

Actual savings or emergency fund is good.

Guess you would work on what the others mentioned and great that you are making that kind of money - gives you a lot of options on what to do with a financial plan.

[speaker55]

Thanks everyone for the replies.

PetMom, the company stock is a benefit, I don't purchase it.

As many have commented, that company stock is a lot of eggs in one basket, no matter how good the company is. I'm going to treat this stock as if it had much lower value, say 25% of what it's worth. Then base my savings off that. So much more contribution toward 401K.