Author Topic: Advice on how to catch up in your mid 30's-  (Read 3392 times)

NorthBend Stash Wannabes

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Advice on how to catch up in your mid 30's-
« on: September 20, 2016, 05:04:41 PM »
Hey There!

We are very new to the way of MMM, but are ready and excited to catch up.  We are so new, in fact, that it feels a bit overwhelming.  Below is our situation, in a nut shell:

Family:
35, 38 married couple
1 2 year old kiddo

House:
Recently purchased a house (6 months ago) with 20% down for 468,000.00. Apparently, according to Refin, the house "value" has increased to 531, 614. (I have no clue if this is significant in any way).

Monthly Expenses
Mortgage is $2,300.00
Food/Fun: $600
All other bills: $200

Debt:
8K between three credit cards. Thess will be paid off in full by December 1st

Retirement
We only have 1 retirement account, under my name. Husband is in restaurant industry with no offered retirement plans or benefits. Total amt: 70K.

Stocks:
14K in stocks

Car:
Owe 16K for our car at 2.8 interest rate.

HSA:
6K saved, contributing 6K a year (this includes company match)

Monthly Income after 401K & HSA withdrawls : 7,000 give or take, depending on restaurant tips

Main questions for the group:
1. How do we get my husband set up for retirement, without a work place plan?
2. Do we focus on paying off our mortgage faster?
3. Should we set up a 529 for our kiddo?
4. What would you start with?

Thanks much for any and all ideas.....your experience and expertise is totally appreciated.


« Last Edit: September 20, 2016, 05:11:10 PM by NorthBend Stash Wannabes »

robartsd

  • Handlebar Stache
  • *****
  • Posts: 2179
  • Location: Northern California
Re: Advice on how to catch up in your mid 30's-
« Reply #1 on: September 20, 2016, 05:12:22 PM »
Apparently, according to Refin, the house "value" has increased to 531, 614. (I have no clue if this is significant in any way).
Not really. The value of your house is only significant 1) when you purchase it, 2) when you sell it, and 3) when you use it to secure debt. Estimates from real estate sites are really only somewhat useful if you're thinking about doing one of those things - I suspect that they may inflate the estimates of off market properties in hopes of attracting sellers as clients.

Bracken_Joy

  • Walrus Stache
  • *******
  • Posts: 8758
  • Location: Oregon
Re: Advice on how to catch up in your mid 30's-
« Reply #2 on: September 20, 2016, 05:31:38 PM »
1- You can always set up an IRA for you and your husband. Either Roth IRA or traditional IRA. Roth has an income cap on being eligible at all, whereas the traditional it's just a question of if you can deduct it on your taxes. Here's a link about the differences: https://www.nerdwallet.com/blog/investing/roth-or-traditional-ira-account/
We just set ours up with Vanguard. Go to their website- they make it super easy, and if you have any questions, you can call them. They're always very helpful.

2- What rate is your mortgage at? If it's lower than 4%, no, most people would advocate not worrying about it. ESPECIALLY while you have credit card debt. Pay your highest interest rate debts off first. Then anything below 4%, just pay minimums and invest- the idea being that you'll get a better return on the market.

3- 529's are, in my opinion, overrated. You can set up an IRA for your child, and these are far more flexible. But, 529 details depend by state as well, so there's lots of debate. Most importantly, though, is that you need to save YOUR future before you pay for a part of your child's that they can take loans for, or get scholarships, or may not want to do at all. Paying for their college won't help so much if you burden them with your financial care when you're older.
https://momanddadmoney.com/5-good-reasons-not-to-use-a-college-savings-account/
http://www.cnbc.com/id/100769936

4- First off, make sure your paper work is in order. Advance directives, then your will. Name a guardian if anything should happen. Life insurance and disability insurance. Those sorts of considerations. As for investing, I like MDM's investing order he shares on here. I'll post below:
Quote
WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield. (note: currently 1.69%, so 6.69% and above)
3. Max HSA
4. Max Roth or Traditional IRA based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, swap #4 and #5)
6. Fund mega backdoor Roth if applicable
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield. (note: currently 1.69%, so 4.69% and above)
8. Invest in a taxable account with any extra.

WHY
0. Give yourself at least enough buffer to avoid worries about bouncing checks
1. Company match rates are likely the highest percent return you can get on your money
2. When the guaranteed return is this high, take it.
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.
4. Rule of thumb: trad if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between
5. See #4 for choice of traditional or Roth for 401k
6. Applicability depends on the rules for the specific 401k
7. Again, take the risk-free return if high enough
8. Because earnings, even if taxed, are beneficial

Bracken_Joy

  • Walrus Stache
  • *******
  • Posts: 8758
  • Location: Oregon
Re: Advice on how to catch up in your mid 30's-
« Reply #3 on: September 20, 2016, 05:33:05 PM »
Also, watch this (if you don't mind some... uh, a lot of swearing) so you don't fall prey to common retirement account traps. Index funds, directed by yourself, in tax advantaged accounts. https://youtu.be/gvZSpET11ZY

nereo

  • Senior Mustachian
  • ********
  • Posts: 10056
  • Location: la belle province
    • Here's how you can support science today:
Re: Advice on how to catch up in your mid 30's-
« Reply #4 on: September 20, 2016, 05:37:48 PM »
Quote
Main questions for the group:
1. How do we get my husband set up for retirement, without a work place plan?
2. Do we focus on paying off our mortgage faster?
3. Should we set up a 529 for our kiddo?
4. What would you start with?

Welcome to the group!

1) AS Bracken_Joy indicated, BOTH of you should have IRAs.  At your income a tIRA is most likely the clear winner.

2) I would say no.  You should concentrate on any debt above ~5% right now, which are probably your credit cards.  Then contribute $11,000 to your IRAs ($5.5k each) for 2016 (Deadline tax day 2017). Does your husband have a 401(k) or 403(b) option through work?

3) Briefly I agree with Bracken_Joy, but I'll add your first priority should be to cancel out your debt, max out your retirement accounts, and then worry about the 529. 

4)+1 to MDM's boilerplate investing order. 
Also - a great place to start for general knowledge about personal investing is the jlcollins stock series.  easy to understand, easy to read, and relatively short chunks.
http://jlcollinsnh.com/stock-series/

ETA:  Honestly you've got to be missing many of your household expenses. $200 for all non-mortgage/fun/food bills?  Where in your breakdown are expenses for internet, cell phones, utilities, gasoline (you have a car), insurance, maintenance, etc?
« Last Edit: September 20, 2016, 05:41:02 PM by nereo »

NorthBend Stash Wannabes

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: Advice on how to catch up in your mid 30's-
« Reply #5 on: September 20, 2016, 05:56:17 PM »
Thanks everyone for your input!

Love the marching orders:

Starting IRAs for us , and our kiddo, is a good idea. Will definitely take that step.
Will focus on paying off all of our credit cards--good advice.
Thank you for providing the Investing Order guide--this is very helpful in breaking it down.
Bracken-Joy- special thanks for the reminder on the paperwork we need to get in order-will, guardian, advance directive, etc.

Answers to some questions raised:

Husband has no retirement option through work, unfortunately.
Thank you on the call out of our monthly expenses--I hit save before finishing that:
Work covers internet and cell phone, so cost is $0.00
Gas is $50 or less a week putting us at $200/month
Food/Fun is $800/month.
Electric and heat averages about $35/month
Insurance--I need to double check on that (clearly, I have a lot of work to do! ;) )

Our mortgage rate is at 4.125%

We live pretty frugally, but I after reading this blog and forum and thanks to your advice, it is clear we need to continue paying down debts and directing the rest of our funds towards longer term investments.

Thanks to everyone who has taken the time to comment and provide detail.  It is very  helpful to us newbies who are learning. Nereo, Bracken_Joy,robartsd...YOU ROCK!
« Last Edit: September 20, 2016, 06:05:19 PM by NorthBend Stash Wannabes »

teen persuasion

  • Handlebar Stache
  • *****
  • Posts: 1048
Re: Advice on how to catch up in your mid 30's-
« Reply #6 on: September 21, 2016, 06:17:46 AM »
Not sure why an IRA for your child was suggested.  You can only contribute to an IRA if you have earned income, so unless your child has a job they cannot contribute to an IRA.

Also check on income limitations for your contributions to IRAs.  They vary based on whether you have access to an employer plan or not, and Roth vs traditional.

After all your tax advantaged buckets are filled, you should put remaining savings in taxable accounts.

boarder42

  • Walrus Stache
  • *******
  • Posts: 7849
Re: Advice on how to catch up in your mid 30's-
« Reply #7 on: September 21, 2016, 06:32:23 AM »
are you located in the US that is an extremely high 30 year mortgage rate based on current mortgage conditions.  i just REFI'd to a 3.25 on a 30 year and have a mortgage size similar to yours.  every 8'th of a point drop is worth 25 bucks a month.  you should be able to easily find something around 3.5 % assuming you have good credit.  this would save you over 125 a month in interest. 

but in either case dont pay it down early fund your retirement.  either rate is great. just your current rate is not ideal

NorthBend Stash Wannabes

  • 5 O'Clock Shadow
  • *
  • Posts: 3
Re: Advice on how to catch up in your mid 30's-
« Reply #8 on: September 21, 2016, 03:39:48 PM »
are you located in the US that is an extremely high 30 year mortgage rate based on current mortgage conditions.  i just REFI'd to a 3.25 on a 30 year and have a mortgage size similar to yours.  every 8'th of a point drop is worth 25 bucks a month.  you should be able to easily find something around 3.5 % assuming you have good credit.  this would save you over 125 a month in interest. 

but in either case dont pay it down early fund your retirement.  either rate is great. just your current rate is not ideal

Thanks boarder42!! We are in the US and do have good credit--I was thinkin go looking into refinancing.


Not sure why an IRA for your child was suggested.  You can only contribute to an IRA if you have earned income, so unless your child has a job they cannot contribute to an IRA.

Also check on income limitations for your contributions to IRAs.  They vary based on whether you have access to an employer plan or not, and Roth vs traditional.

After all your tax advantaged buckets are filled, you should put remaining savings in taxable accounts.

Thanks Teen Persuasion--that is a good call out and I was curious about the young age of my child / IRA recommendation.

I like the simple guidance you provided as well--will definitely fill up all tax advantage buckets and then move to taxable savings accounts.

Thanks again everyone!

boarder42

  • Walrus Stache
  • *******
  • Posts: 7849
Re: Advice on how to catch up in your mid 30's-
« Reply #9 on: September 22, 2016, 08:20:19 AM »
look into it sooner than later the rates are already up a lot from their lowest ever in July/August.

robartsd

  • Handlebar Stache
  • *****
  • Posts: 2179
  • Location: Northern California
Re: Advice on how to catch up in your mid 30's-
« Reply #10 on: September 22, 2016, 08:51:10 AM »
Not sure why an IRA for your child was suggested.  You can only contribute to an IRA if you have earned income, so unless your child has a job they cannot contribute to an IRA.

Also check on income limitations for your contributions to IRAs.  They vary based on whether you have access to an employer plan or not, and Roth vs traditional.

After all your tax advantaged buckets are filled, you should put remaining savings in taxable accounts.
If your child has a job, then they can contribute to an IRA (limited by earned income if less than the maximum contribution limits); however, there's nothing to stop those contributions from being gifts while the child spends the money they earned. You can hire your kids to do jobs for you so that they have earned income, but you'd need to document it well enough that it is clear that they truly earned the income. While the limit of your child's earned income poses a limit to using an IRA for college savings, I would recommend starting an IRA for your child the first year they have earned income.

robartsd

  • Handlebar Stache
  • *****
  • Posts: 2179
  • Location: Northern California
Re: Advice on how to catch up in your mid 30's-
« Reply #11 on: September 22, 2016, 09:02:02 AM »
The Mortgage Professor has lots of good information on mortgages and real estate transactions and tools for shopping online for a mortgage where the pricing information is the most accurate (sometimes people get bitten by increased fees between locking their rates and closing the deal). Just be sure that your interest savings will really be worth the transaction costs - generally you should target breaking even within a few years.