Finally have a real salary -- where to put the savings?

[hazelnut]

After spending most of my 20s living off a graduate school stipend, I finally have a real salary! The question is, where's the best place for me to put my savings? I am a saver by nature, so in grad school I always socked away whatever I could into a savings account. But I was always afraid to tie up any money where I couldn't immediately access it.

My gross salary is $50,800. Since starting my job in August, I've been putting $440/month into my 403(b) account, and $1100/month into a standard savings account (interest rate nonexistent). That savings account currently has $20,000 in it. I see four obvious options:
- Should I direct more of my savings into the 403(b) account? My employer match won't kick in until next year, and it's way less than I'm already putting in.
-Should I try to invest some of those savings? I don't know the first thing about investing.
-Should I pay off my $11k student loan debt (all from undergrad; took out no loans in grad school)? Interest rate is pretty low but I hate paying it!
-Or should I just leave things as they are, keeping the savings liquid since I may want to access it in the next few years (possible wedding, house purchase...who knows?)

As you can probably guess, I'm not new to the idea of frugality but I'm very green when it comes to doing anything with my money other than putting it away for a rainy day. Help!

[marty998]

Hi Hazelnut,

Lets go back a few steps. You've started at the solutions, when you haven't defined the problem yet.

Firstly, figure out (possible wedding, house purchase...who knows?) what your goals are.

Then define when you want to achieve them.

Then start looking at the "how".

It's a million times more motivating trying to reach a specific goal, than it is to save blindly just because you've got nothing to work towards.

Figure that out and then we can figure out what's the best way of getting you there.

[MDM]

As you can probably guess, I'm not new to the idea of frugality but I'm very green when it comes to doing anything with my money other than putting it away for a rainy day. Help!

Is Investment Order helpful?

Also see https://www.bogleheads.org/wiki/Getting_started.

Good luck!

[GizmoTX]

For a savings account, use an online bank that pays at least 1%: Ally, CIT, Synchrony. All are FDIC insured & can transfer between it & your checking account.

[Catbert]

If you hate the SLs then pay them off even if it isn't mathematically the best answer.  That'll give you time to define your goals and  educate yourself on investing.

[hazelnut]

Thank you all for these really helpful responses!

MDM, that Investment Order is very helpful. I'm doing my research to try to understand why an IRA is better than a 401(k), or in my case, a 403(b).

Marty998 - you ask a good and tough question! I don't really know what the next few years have in store for me, so I don't have a defined savings goal in mind. Right now, I save just to save. My boyfriend and I moved in together in August, and we're kind of figuring out what our life might look like together -- hence the "maybe wedding? Maybe house?" I guess right now, my goal is simply to make good use of my money, whether that means keeping it liquid for a future home purchase, or putting it away in retirement to have later. Reading through MMM's posts and the forums here, I feel like I'm not making good use of what I have if it's just sitting in a savings account not accruing interest.

Gizmo - I will check out those online account options, thank you!

mary w - I think it makes more mathematical sense to pay off the loans than to just keep the money in savings, since the loans do have interest accruing. Maybe I should pay a chunk of them off but not all. The idea of going from 20k in savings to 9k makes me nervous!

[terran]

MDM, that Investment Order is very helpful. I'm doing my research to try to understand why an IRA is better than a 401(k), or in my case, a 403(b).

It may not be any better. MDM's (excellent) investment order link is meant as a catch all that serves as near optimal advice for the vast majority of people. The reason it suggests switching to an IRA once you've maxed out your employer match is that many 401(k)'s and 403(b)'s offer poor investment options (high fees), while getting great investment options in your IRA is easy -- just open the account at Vanguard or Fidelity. If your 403(b) offers good low fee investment options (likely if you're in higher ed, less likely in secondary ed or small nonprofit), then investing there before opening an IRA is likely as good or better because the fees may be as low or lower than what you could get in an IRA and as long as they aren't higher, then not opening an IRA until you need to extra contribution space will at least keep things simpler.

[MDM]

MDM, that Investment Order is very helpful. I'm doing my research to try to understand why an IRA is better than a 401(k), or in my case, a 403(b).

It may not be any better. MDM's (excellent) investment order link is meant as a catch all that serves as near optimal advice for the vast majority of people. The reason it suggests switching to an IRA once you've maxed out your employer match is that many 401(k)'s and 403(b)'s offer poor investment options (high fees), while getting great investment options in your IRA is easy -- just open the account at Vanguard or Fidelity. If your 403(b) offers good low fee investment options (likely if you're in higher ed, less likely in secondary ed or small nonprofit), then investing there before opening an IRA is likely as good or better because the fees may be as low or lower than what you could get in an IRA and as long as they aren't higher, then not opening an IRA until you need to extra contribution space will at least keep things simpler.

+1

Yes, exactly this.  One other possible reason is noted in the sticky post: "...if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5"

[hazelnut]

Ah, I see - thank you for those detailed responses. I'm in secondary ed...and I have no idea what the fees are for my 403b. (*cringes, waits for facepunches*).

Guess I've got some more research to do!

[MDM]

I'm in secondary ed...and I have no idea what the fees are for my 403b. (*cringes, waits for facepunches*).

Nah, I suspect you'll beat yourself up well enough that we don't need to bother - see http://www.nytimes.com/2016/10/23/your-money/403-b-retirement-plans-fees-teachers.html and others in that series, http://403bwise.com/, etc.

[hazelnut]

Ugh. Thanks, MDM. I've been reading through my 403b statements, contract, etc, and I still have no idea what the fees are or how to figure them out. I feel so dumb.

I did run across an article that basically advises that any 403b accounts run by insurance companies are likely a bad deal. http://financeforteachers.com/should-i-change-my-403b/ Mine is through VALIC.

So, I guess I should only contribute up to my employer match and open an IRA instead.

[MDM]

So, I guess I should only contribute up to my employer match and open an IRA instead.

Looks good for the near term.

Long term - are you in a union?  Do you have a copy of the latest contract?  Does the contract include language similar to "a vendor will be added to the 403b plan if a dozen members sign a petition to that effect and deliver it to school district administration"?  If so, Fidelity/Vanguard/etc. funds may be only ~eleven signatures away....

More generally, see How to campaign for a better 401(k) plan - Bogleheads.  Good luck!

[hazelnut]

No union; I teach in a private school. Since it's a year-to-year contract, I should probably wait a couple years before I start agitating for change. ;)

[marty998]

Marty998 - you ask a good and tough question! I don't really know what the next few years have in store for me, so I don't have a defined savings goal in mind. Right now, I save just to save. My boyfriend and I moved in together in August, and we're kind of figuring out what our life might look like together -- hence the "maybe wedding? Maybe house?" I guess right now, my goal is simply to make good use of my money, whether that means keeping it liquid for a future home purchase, or putting it away in retirement to have later. Reading through MMM's posts and the forums here, I feel like I'm not making good use of what I have if it's just sitting in a savings account not accruing interest.

Gizmo - I will check out those online account options, thank you!

mary w - I think it makes more mathematical sense to pay off the loans than to just keep the money in savings, since the loans do have interest accruing. Maybe I should pay a chunk of them off but not all. The idea of going from 20k in savings to 9k makes me nervous!

I'll try and address the 3 bolded bits in one go.

Sometimes the best thing to do when you can't make a decision is to make no decision instead of a bad one. An online savings account that pays interest is fine.

In order to make choices you need to have capital. For example, no use locking up your capital in retirement accounts if you want to buy a property tomorrow.

Going from $20k to $9k savings only matters if you had a specific use in mind for that $11k.

And besides, with your new found frugality, it should only take a few months for you replenish that buffer. Plus you'll have less monthly payments to worry about.