401k, mortgage, investment, emergency and more. help

[matt-dp]

Hi,

Me and my wife just moved to the US from the UK, and we're setting ourselves up financially. We're late to the game and should be more educated on the topic than we are, but that's where we are.

The issue we're having, is deciding how to use our cash. Specifically, these are the things I'm aware of that I need to consider:

1. 401k (contributing 15% currently, then employer adds too)
2. Emergency savings
3. investing (I know zero about this)
4. overpaying mortgage
5. childs college savings

The problem comes that we have no idea how best to spend the cash considering the above, and also with an eye on trying to retire early e.g. 55. Google helps zero here, because for every site recommending to do X, there are just as many recommending Y and Z.

So, if for example I have $1k spare a month, do I overpay my mortgage? pay extra in to 401k? split it up between a number of them? etc etc

Really hope someone may have suggestions as it's our #1 worry point in this new country.

[Jluke]

not enough info...

but build your emergency fund first - use an online account like Ally or CapitalOne360

[disneysteve]

Welcome to the site, and the country.

I don't have time for an extended answer but I'll start with some basics.

Emergency fund comes first. You should save up a minimum of 3 months of living expenses before worrying about anything else, unless you have a bunch of consumer debt that you need to clean up.

#3 on your list concerns me especially because of #1. If you "know zero" about investing, how are you handling the 15% of income that you are investing in your 401k? That is your biggest single investment and probably always will be.

What to do about college savings and mortgage repayment is more nuanced and we need more info to give opinions there.

I'll leave it at that for the moment as I'm busy at work.

[Guppy Tender]

My ideas.

Hi,

Me and my wife just moved to the US from the UK, and we're setting ourselves up financially. We're late to the game and should be more educated on the topic than we are, but that's where we are.

The issue we're having, is deciding how to use our cash. Specifically, these are the things I'm aware of that I need to consider:

1. 401k (contributing 15% currently, then employer adds too)
2. Emergency savings
3. investing (I know zero about this)
4. overpaying mortgage
5. childs college savings

The problem comes that we have no idea how best to spend the cash considering the above, and also with an eye on trying to retire early e.g. 55. .

Truthfully need some more information to give solid advice.
Any Debt? Car Loans?

1. Contributing a significant amount to 401K is a great start to getting a good hold on finances.
2. Emergency Savings-You have how many months worth?
3. Investing? Okay, this might seem silly- Assume you have zero debt outside of your mortgage. If you have debt, pay this off as fast as possible. Without debt, you will be way more secure for the future.
Invest through a reliable investment firm(Sorry, but there are many suggestions on which ones to rely on)
4. Pay about half your extra money to Mortgage, half to investing towards future. The extra towards either here puts you in better position for the future.
5.Child's college fund-Sure you should put some here. Though I am not one to ask-no children(so I have never even contemplated college funding)

Want to retire early. Learn to live on less. Not saying you can not have nice things, just evaluate what your true needs are and live on the least amount possible. Check out "Money Mustache", or FIRE(Financial Independence Retire Early). The more you save of your income the earlier you can retire. The less you need to pay your living expenses, the less you need to have saved to retire.

Want a decent plan for going forward-My suggestion would be look into the ideas that "Dave Ramsey" has. Not saying that this is the perfect plan to follow, just that it is one of the best starts.

[disneysteve]

Want a decent plan for going forward-My suggestion would be look into the ideas that "Dave Ramsey" has.

Dave Ramsey isn't a bad idea IF you are buried in debt.

If debt isn't an issue, Dave Ramsey really has little to nothing to offer.

[kork13]

Matt-
Welcome to the site and the US! How old are you & your wife? What is your monthly income, and your monthly expenses? What assets (savings, investments, 401k, etc.) do you currently have? Any debts (need balance, interest rate, and term/duration)?

In general terms, you'll want to:
1) Save up an emergency fund with at least 3-6 months' worth of expenses.
2) Save/invest at least 15% of your monthly income toward retirement (401k, Roth or Traditional IRA, etc.)
3) Budget roughly 50% of income for essential living expenses, up to 30% for non-essential expenses, and at least 20% for savings/investments. Keep your spending in check, and save as much as is reasonably possible.
4) Eliminate higher interest rate debts (>5% interest) as quickly as possible.
5) Depending on your personal level of comfort, you can either pre-pay your mortgage, or use that money to invest. Or, you can do a mix of both.
6) Plan to save/invest at least 50% of any pay raises or extra income.
7) Prioritize retirement over children's education savings, but once retirement is on track, then you can save toward college funds if desired
8) Invest, invest, invest. This can be in the stock/bond markets, hard assets, real estate, or whatever you are most comfortable with. But the more you can save/invest for yourself, the more flexibility you'll have in the future. Especially considering you want to retire in your mid-50s, you'll need to have a significant amount saved up outside of your retirement accounts in order to cover expenses until you're able to tap your 401k, etc.

That is all very general advice. If you can provide more detail about your situation, we can give you much more specific advice.

[matt-dp]

Thank you everyone. At this point because my finances are in such flux with the move over here, selling my UK house, and a promotion coming which I don't know the increase of, I'm looking for guidance on general principles.

What's been said so far though pretty much aligns with whats been in the back of my head i.e. 401k and emergency savings come first.

[Milly]

Dave Ramsey isn't a bad idea IF you are buried in debt.

If debt isn't an issue, Dave Ramsey really has little to nothing to offer.

I'm going to say false. I just finished reading the Total Money Makeover, but only have my mortgage debt left. Sure I started on "baby step 6", but it was still nice to see the order laid out.

1. Make a $1,000 emergency fund (in just a few months)
2. Pay off all debt except mortgage (via snowball, easy online calculator: http://www.calcxml.com/calculators/r...ebt?skn=38&r=2)
3. Get 3-6 months expenses in savings (very fast after you freed up your debt payments)
4. Invest 15% of your gross income for retirement
5. Set up a college fund (529) for your kids and start funding it
6. Pay off your mortgage early
7. Build wealth and give!

Personally, I'm switching the order of 6 and 5

[disneysteve]

I'm going to say false. I just finished reading the Total Money Makeover, but only have my mortgage debt left. Sure I started on "baby step 6", but it was still nice to see the order laid out.

Sorry, I should have answered in more detail. Yes, the "baby steps" are a plan that goes beyond just repaying debt.

The order is debatable but that's not the topic of this thread.

[matt-dp]

I must admit I have to skip a few step myself, as I don't really have debts (will soon though when I get a mortgage).

I think I have a plan together now, but one thing i'm not clear on when considering mortgages and investing is:

1. do you focus on investment until retirement, at which time the house will be paid off normally
2. OR, do you at a point in time use your investment to pay off the mortgage early and then keep investing afterward.

here's my plan so far:

1. Lock down our household budget (nearly done)
2. Fill emergency savings with 6 months expenses (will be done this year)
3. Maximize tax free savings contributions (all 3 will be done within 6 months of #2)
3.a. max out pension
3.b. max out HSA
3.c. max out traditional IRA (earn too much to do roth)
4. Setup up index investments (~7% return. comes after 3)
5. ????

[disneysteve]

1. do you focus on investment until retirement, at which time the house will be paid off normally
2. OR, do you at a point in time use your investment to pay off the mortgage early and then keep investing afterward.

There's no "right" answer to this question. There are also not only 2 choices. What many people do, myself included, is a bit of both. We pay extra principal on our mortgage every month and have done so for years. We used to pay a larger amount extra. In more recent years, college and some other things took priority and we've just round up the payment to the next $100 mark.

The issue generally is that mortgage rates have been super low so prepaying hasn't made a whole lot of sense.

[snafu]

Welcome to SA and hope you adjust easily to new job, new country, new culture. If you and DW have time, please scan some threads to see details on various issues like cable and phone craziness for example. I've a bit different viewpoint after EF, employer pension and interest added debt like auto loans or Credit Cards [CC].

I'm concerned that you don't know what your employer has offered for investment choices and the cost of choices you select. I wonder what interest rate you've negotiated for your new mortgage, that you've fought for every point and sought reduced closing costs. Your mortgage amotorization table is critical, you need to know exactly how your monthly payments are allocated.

Dollar figure for principal, interest, municipal taxes HOA [if applicable], PMI [if applicable], home insurance and anything else tacked on. Initially a huge percentage is deducted for interest, very little to principal which is why we advocate paying extra [rounding up] to feel like the principal is reducing. If you buy home and auto insurance together, ask for a discount for multiple plan.

Unless you're in a zone with good public transportation a car is a huge depreciating expense, a topic SAers weigh in strongly so that there is best value for dollars.

I don't know if UK CCs offer cash back incentives. There are several types and it's important to understand what percentage is offered for items you buy repeatedly. Know the billing dates and due dates. It's so detrimental to pay interest, penalties or fees just because you inadvertently missed a date.

Banks often offer incentives, if you buy 'X' dollars of stuff within certain dates, they give cash incentives. On the other hand banks charge for all manner or services. It's easy to save by choosing the right type of account for your banking activities. I keep asking what credentials are needed for no service charge account. A lot of these seem paltry in themselves but over several years it's alarming how easily major sums of money floats away.