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    $30K in savings no 401K. Need some opinions

    Hello everyone,

    I'm so glad I found this site! I feel I've been pretty smart with money/bills over the years, however I need to start taking my retirement more seriously (I'm 35 years old/single). In fact, my financial suituation is starting to depress me a bit based off of the statistics I've read for where I should be at by my age. I'm about to start utilizing my employer 401K beginning January 1st (they match up to 3% I believe...maybe it's 6%?), but have no idea how much to contribute. My parents are going to have me talk to an advisor they know and trust, but in the meantime, I was hoping for some opinions here. My situation is as follows:

    - $65-$70,000 salary
    - $3,400 net/take-home pay per month
    - $1,500 in monthly bills (rent, utilities, student loan, car payment, car insurance, cell phone, cable/internet). This leaves me about $1,900 in monthly disposable income.
    - $30,000 in savings account
    - $10,000 in IRA (previous 401K)

    I have no credit card debt, so pretty much the only things it seems that I can pay off are my student loans ($5,000) and my car (I owe $11,000 and it's worth $25K). Both have a 2% or lower interest rate. I certainly don't want to be penny-pinching with whatever I decide, but some options that have been circulating in my head are:
    - Pay off my car and student loan ($16K) and contribute 25% to my 401K for a while (that would max my 401K at $17K/per year and allow me to "catch up")
    - Pay off car and student loan and contribute 10% to 401K.
    - Contribute 6-10% in my 401K, continue paying all my bills and and invest a chunck of my $30K elswhere?

    I don't know much about investing, but I feel like I need to be smarter with my money. Any initial thoughts? I would also like to buy a home in the next year or so if possible (not necessary but would be nice). I appreciate any feedback greatly!

    P.S. I realize I spelled "opinions" wrong in my title. The advanced edit function will not let me change it for some reason :-/
    Last edited by GoodSteward; 11-13-2016, 05:21 PM.

    #2
    You still have time to catch up. Here's what I would do:

    1. Don't pay off any of the loans. Keep making the min payments. At 2% or lower interest rates, you will be fine. Inflation adjusted, you're not really paying any interest.

    2. You can contribute $5500 this year to your Roth IRA. Do that. I think everyone here will agree with this one.

    3. If you have a Roth 401K option, I would do 50% Roth and 50% regular. I would personally max it out each year going forward and then figure out a way to make a bit more money so I can put some into a taxable investment account. Also note that your taxes will go down with the 401K contribution. I think you have room to max out 401K and still save a bit in a taxable account.

    4. Don't meet with an advisor. Total waste of money. There's nothing they will tell you that you can't figure out on your own.

    5. Learn how to make that 30K work for you. Invest it. And before that, learn more about investing. That's after you take a bit out for an emergency fund (3-12 months of expenses - whatever you're comfortable with) and fund your Roth IRA.

    Comment


      #3
      I wouldn't pay more than required on loans that are under 2% interest. You can earn more than that by investing.

      I'm going to resist giving you other advice until you tell us more about your house plans. How soon you plan to buy and at what price will greatly affect my advice.
      seek knowledge, not answers
      personal finance

      Comment


        #4
        Whatever you do, I think you have to start prioritizing retirement savings right away. Everything else--debt paydown, buying a house--needs to be a lower priority than that.

        If you figure you need a 6-month emergency fund, that's only $9,000. You might as well round up to $10,000 just for fun.

        Here's what I'd do.

        * Max out a Roth IRA for 2013. That's $5,000.
        * Pay off one of your loans just to reduce overall debt and free up the money going to the monthly payment.
        * Keep $10K as an emergency fund.
        * Max our your 401k, and continue to max it out every year.
        * Save all additional money for a house. It might take you longer to save for a house if you're throwing so much at retirement, but I think that's your best bet.
        * After you've got enough for a house, also start maxing out a Roth IRA every year on top of the 401K.

        Comment


          #5
          Thanks for the advice everyone! I really appreciate it. When it comes to buying a house, I have no definitive plans yet, all I know is my rent is going up every year and I'm sick of living in an apartment. I was thinking of maybe having a $1,000 mortgage payment (taxes and insurance included). But again, nothing definitive.

          What are the benefits of a Roth IRA and is it different than the IRA's that my 401K's were rolled over to this year? Would my credit union be able to do the Roth IRA? Sorry, I don't know much about this stuff.

          I'm also a little leary about maxing out my 401K without paying off any other bills even if they are only at 2%. It seems as if I maxed it out, that would make my monthly take-home about $2,400. That leaves about $200/week to live off of (after bills), which doesn't allow much for saving, vacation, etc (On a weekly basis, I currently spend $50-$75 gas, $75-$100 food, $50-$75 misc things).
          Last edited by cologero; 10-06-2013, 04:53 PM.

          Comment


            #6
            From a purely mathematical standpoint, it makes sense to invest before you pay off your debt. If you invest well, you can almost definitely earn more on that money than you are paying in interest on the debt.

            But.

            I am with you all the way. I would be much more comfortable in your shoes just paying it off. I say go for it.

            If you pay off both loans completely, that leaves you with $14,000 in savings. It also reduces your monthly bills a little because you don't need to keep servicing the debt. That will probably feel much better.

            You really, really should max your 401k. You are behind on retirement savings, but you have time to catch up as long as you really go for it. I think you should really go for it.

            So. Pay off the debt. Max your 401k. And save whatever else you can for a house downpayment.

            As for the Roth, yes, it's different from the Rollover IRA your old 401k is in. With a 401k or a Traditional IRA (including the IRA you already have) you are putting money in BEFORE taxes. That's nice because it reduces your tax burden now, and allows the money to grow. However, when you go to withdraw the money once you're retired, you'll have to pay taxes on it.

            A ROTH IRA is funded with after-tax money. So it doesn't reduce your taxes today, but you won't have to pay taxes on it when you withdraw it later on.

            If you have some money in a 401k and some money in a ROTH, you'll be in a better spot when you retire because some of the money you're withdrawing to live on will not be taxed upon withdrawal (the ROTH) and some of the money will be taxed (the 401k and the Traditional IRAs.)

            I wouldn't get a ROTH at your credit union. I'd open one at a discount brokerage like Fidelity or T. Rowe Price. Or you can see what investment company your 401k will be with and open a Roth IRA there.

            I hope this helps. The bottom line is that you're in okay shape, and you are set up to be in awesome shape very soon. Stick with this board. There are lots of smart people on here and they love to answer questions about money.

            Comment


              #7
              Thanks for the advice, honest feedback and taking some time to write out a detailed response! I'm assuming Roth IRA's earn interest? It sounds like that's a good route for me to take by the end of the year. I'm not sure who my company uses for our 401K's but I can find out. What is the difference between using a company like Fidelity vs. my credit union? Better interst rates? I will say this, and I hate saying it, I really have no interest in learning the stock market or that type of investing...which is why I hoped my 401K would take care of that aspect.

              The one god thing about paying off my car loan is that if I ever get into a major bind, I can easily sell it and net about $25K from it. So I look at that is sort of a short-term investment/savings in a weird way.

              What if I did this:
              1. Pay my car off ($11,000)
              2. Pay off my student loans ($5,000)
              3. Contribute $5,000 from savings to Roth IRA in 2013
              4. Contribute $5,000 from savings to Roth IRA in 2014
              5. Contribute maximum to 401K beginning in 2014

              That would leave me $4,000 in savings for emergencies. It would also make my monthly take home pay about $2,500 and my bills would fall to roughly $1,200. That would leave me with $1,300 in disposable income per month (or about $300 per week). If I could live like that for the next xxx years, would that be a good plan?

              I want to add that while I understand the importance of saving, I certainly want to make sure I have fun and get to see and do things in my youth, so I don't want to be broke because I'm saving everything. In all reality, I could get hit by a bus in upcoming years and none of this would even matter. Like the saying goes, "you only live once"... I just want to be realistic about it!
              Last edited by cologero; 10-06-2013, 05:53 PM.

              Comment


                #8
                It sounds like you need to decide what your priorities are. I suggest creating a budget. You need to prioritize "fun money", retirement savings and saving for a house.

                Regarding investing - you can learn the basics here: http://www.bogleheads.org/wiki/Bogle...g_start-up_kit

                PS - you are far behind on retirement savings. That's what you should focus on, IMO.
                seek knowledge, not answers
                personal finance

                Comment


                  #9
                  Thanks, I'll check out that link. Again, I do understand my situation and being behind (which is why I'm here) and I appreciate everyone's great advice! This is a difficult decision because I work 50-60 hrs a week, and don't want to feel like I'm barely keeping my head above water (especially since I'm single with no kids) and don't make a bad wage by any means. I hope this makes sense? On somewhat of a good note, if I were to liquify a few assets now, I could easily have $60K in my bank account. With that being said, I think a budget is a great idea and I'm going to put one together shortly so I'm ready to go by the first of the year.

                  After doing some research, I think I definitely want to put $5K in a Roth IRA this year and next year. Are there any questions I should ask when seeking a financial institution to open this account? As previously mentioned, I'm assuming I do not want to use my credit union because of lower interest rates??

                  Have a great Monday everyone...back to work for me!

                  Comment


                    #10
                    OK, what happens if tomorrow you lose your job?

                    I wouldn't dream of retirement, if losing my job or having a serious health issue would mean I'm still in debt and haven't solve any of my big problems. I'd first pay off ALL debt and then invest in the retirement, since, as soon as you're debt free, you can easily fall back on your feet if anything happens to your salary/health (you'd probably have an emergency fund anyway) and no one comes to reposes your car or sue you to get their money back.
                    Personal Finance Blog | Dojo's PF Musings

                    Comment


                      #11
                      Originally posted by cologero View Post
                      After doing some research, I think I definitely want to put $5K in a Roth IRA this year and next year. Are there any questions I should ask when seeking a financial institution to open this account?
                      IRAs are a very standard product. Any of the major investment houses can provide that service for you. Do a search to read previous discussions on where to open an IRA. Vanguard and Fidelity are the leading vendors.
                      seek knowledge, not answers
                      personal finance

                      Comment


                        #12
                        Originally posted by cologero View Post
                        Hello everyone,

                        I'm so glad I found this site! I feel I've been pretty smart with money/bills over the years, however I need to start taking my retirement more seriously (I'm 35 years old/single). In fact, my financial suituation is starting to depress me a bit based off of the statistics I've read for where I should be at by my age. I'm about to start utilizing my employer 401K beginning January 1st (they match up to 3% I believe...maybe it's 6%?), but have no idea how much to contribute. My parents are going to have me talk to an advisor they know and trust, but in the meantime, I was hoping for some opinions here. My situation is as follows:

                        - $65-$70,000 salary
                        - $3,400 net/take-home pay per month
                        - $1,500 in monthly bills (rent, utilities, student loan, car payment, car insurance, cell phone, cable/internet). This leaves me about $1,900 in monthly disposable income.
                        - $30,000 in savings account
                        - $10,000 in IRA (previous 401K)

                        I have no credit card debt, so pretty much the only things it seems that I can pay off are my student loans ($5,000) and my car (I owe $11,000 and it's worth $25K). Both have a 2% or lower interest rate. I certainly don't want to be penny-pinching with whatever I decide, but some options that have been circulating in my head are:
                        - Pay off my car and student loan ($16K) and contribute 25% to my 401K for a while (that would max my 401K at $17K/per year and allow me to "catch up")
                        - Pay off car and student loan and contribute 10% to 401K.
                        - Contribute 6-10% in my 401K, continue paying all my bills and and invest a chunck of my $30K elswhere?

                        I don't know much about investing, but I feel like I need to be smarter with my money. Any initial thoughts? I would also like to buy a home in the next year or so if possible (not necessary but would be nice). I appreciate any feedback greatly!

                        P.S. I realize I spelled "opinions" wrong in my title. The advanced edit function will not let me change it for some reason :-/
                        The single best advice is do not look for a quick way to catch up. Be caught up by time you are 50 (make that the goal), and set a goal to have between 6-12X your expenses in retirement accounts by time you are 50.

                        Before taking action, I would strongly focus on goal setting. You listed many issues (debt, investing, paying off loans), yet I did not see you state what your goals are.

                        For example, what is your #1 goal in life?
                        #2?
                        #3?
                        What do you want to get out of life, and how much of that needs money to make it happen?

                        If you have 3 goals and all need money, you would need to divide up the $1900/mo disposable income to reach those goals.

                        If the goals have a time table (like kids college), that is a different kind of plan than retirement (which you could change 5 years and not affect other people).

                        Don't let people talk you out of your goals, just be honest with yourself and spouse if the goals change. For example I had one attitude on kids college 6 years ago before they were born, and a much different perspective now.

                        Focus on goal setting, not the immediate problems you listed.

                        Comment


                          #13
                          Originally posted by feh View Post
                          I wouldn't pay more than required on loans that are under 2% interest. You can earn more than that by investing.

                          I'm going to resist giving you other advice until you tell us more about your house plans. How soon you plan to buy and at what price will greatly affect my advice.
                          Originally posted by feh View Post
                          It sounds like you need to decide what your priorities are. I suggest creating a budget. You need to prioritize "fun money", retirement savings and saving for a house.

                          Regarding investing - you can learn the basics here: http://www.bogleheads.org/wiki/Bogle...g_start-up_kit

                          PS - you are far behind on retirement savings. That's what you should focus on, IMO.
                          I disagree with the second post.

                          OP is not far behind... I say this because there is $30k savings and probable expenses of less than $2500/mo. He has a 1 year plus EF. Not behind at all, OP just needs to be educated on financial decision making.

                          $10k is worth a start for retirement savings, and considering OPs savings rate is 31% ($1900 of $6000 monthly gross), the entire focus should be educated decision making. At 31% savings rate, OP does not need to be aggressive in any decision, just deliberate and effective.

                          Comment


                            #14
                            Originally posted by cologero View Post
                            Thanks, I'll check out that link. Again, I do understand my situation and being behind (which is why I'm here) and I appreciate everyone's great advice! This is a difficult decision because I work 50-60 hrs a week, and don't want to feel like I'm barely keeping my head above water (especially since I'm single with no kids) and don't make a bad wage by any means. I hope this makes sense? On somewhat of a good note, if I were to liquify a few assets now, I could easily have $60K in my bank account. With that being said, I think a budget is a great idea and I'm going to put one together shortly so I'm ready to go by the first of the year.

                            After doing some research, I think I definitely want to put $5K in a Roth IRA this year and next year. Are there any questions I should ask when seeking a financial institution to open this account? As previously mentioned, I'm assuming I do not want to use my credit union because of lower interest rates??

                            Have a great Monday everyone...back to work for me!
                            Make sure you understand what can be put in an IRA (a savings account can at your credit union) and also understand that securities can (but credit union might not "sell" these). An insurance agent could put an annuity in an IRA, but not a savings account (because an insurance agent does not sell savings accounts). The single best thing you can do is educate yourself, so you know what is best.

                            Many people will suggest to invest in stocks and bonds (mutual funds/ETFs), and others might suggest a brokerage (like etrade). If you use the education material at etrade, vanguard or t rowe price, you should begin to piece together more questions.

                            Comment


                              #15
                              If you don't want to learn about investing, I suggest that you buy a Target-date retirement fund in your Roth IRA. You really don't want to do this at your credit union. Fidelity or Vanguard or T. Rowe Price should be fine. A target date fund is one where you are asking the fund manager to decide on a good mix of stocks and bonds for you based on your age and your likely retirement date. If you're 35, you probably want to participate in a fund targeted at around the year 2045.

                              You suggested this:
                              1. Pay my car off ($11,000)
                              2. Pay off my student loans ($5,000)
                              3. Contribute $5,000 from savings to Roth IRA in 2013
                              4. Contribute $5,000 from savings to Roth IRA in 2014
                              5. Contribute maximum to 401K beginning in 2014

                              The only thing that makes me nervous about that is that you're taking your cash balances down really low. I would personally like to see you keep a larger emergency fund. I don't think selling your car is a good emergency plan. Sure, it is an asset, but it's a depreciating asset, meaning it's worth less and less all the time.

                              What if, instead, you don't make your 2014 ROTH deposit at the beginning of the year, but instead wait and see how much you're able to save during 2014. If you start maxing your 401k, your taxes will be reduced. And your monthly expenses will go down because you won't be paying your car note or your student loan any more. Max your ROTH for 2013 now, get all signed up for the 401k for January 1, make a budget and see how things stand in a few months.

                              I think you are smart to resist a super draconian budget and savings plan that will leave you no room for enjoyment. If you do that, you will probably not be able to sustain it. Your budget should include a few line items that are just for you. Maybe a gym membership? A hobby? A little money earmarked every month for going out with friends? If you're working long hours, you don't want to make yourself feel too deprived. I think there is room in your budget to save aggressively AND live a little.

                              Comment

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