Author Topic: Help wanted--starting on my FI journey  (Read 1349 times)

urbanbirding

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Help wanted--starting on my FI journey
« on: December 29, 2016, 09:20:47 PM »
I have lurked on these forums for many months, and I am now throwing my own financial question out to the group. Let me begin by saying that you all have changed my life--reading this website has made me realize how in control of my finances I could actually be. But I am really not a numbers person (those are just the facts!) and investing stresses me out to the max.

Here is my situation. I will preface by saying I am very grateful to not be in debt, and I owe a lot of that to fortunate circumstances. I am 31, no kids, no marriage, no house (I rent in a very high COL city, and have no desire to own at this time), no car (don't need one in my city), no debt (yay!). I get the employer match on my 401k (5%) and currently have about 34k in that account. I just opened a Roth IRA and have not yet maxed out for the year on that. I also have 9k in a brokerage account, and a little less than 7k in a high interest savings account with various set asides (travel, etc).

I just got a very generous cash gift of 10k from my family. I am grateful for it, and believe it will continue to happen annually for my foreseeable future (again, I am very grateful and know this is nothing but luck/my parents' fiscal wherewithall coming home to roost). My question is this--what the hell do I do with it? I don't need it for anything pressing. Do I add it to my brokerage? Max my Roth out? This is my first year getting this gift since I've become aware that I should be doing something other than spending it (I know that sounds awful--I am new to moustachism). Any advice or a point in the right direction would be so appreciated.

Of note, my goal is not early retirement. I actually love my job/line of work, and am very fulfilled by it. I just want to know that when I do retire I will be okay.

ysette9

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Re: Help wanted--starting on my FI journey
« Reply #1 on: December 29, 2016, 09:45:08 PM »
I vote for maxing our your IRA and then putting the rest in your checking while you figure out your Personal Investment Policy Statement. Do some reading on the bogleheads wiki to understand what that is and then do some self reflection over a glass of wine one evening. Once you have some ideas there, post here again.

omega13

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Re: Help wanted--starting on my FI journey
« Reply #2 on: December 30, 2016, 12:09:42 AM »
Do you have enough of an emergency fund? 6-9 months of expenses?

If so, I would max the Roth out since you are working (a requirement) and the clock for max deposit resets every year. Technically every 15 months.

If any money is left over, you can always put it in a brokerage account, up to at least 10k (if with Vanguard) so you can get bumped into Admiral shares.

former player

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Re: Help wanted--starting on my FI journey
« Reply #3 on: December 30, 2016, 04:17:32 AM »
I hope you are maxing out your 401k rather than just putting in enough to get the employer match.  Also, have you checked the fund options to see whether you are in the right one for you (ie a low percentage cost index fund).  After that, max out your Roth IRA and again, make sure it is invested in a low cost index fund.  Both the 401k and the Roth IRA are "set it and forget it", so once you have set up regular contributions and checked the funds you are in the 401k and Roth IRA take all the stress out of investing those amounts of money each year.

Your high interest savings account is the right place for cash to cover two separate matters: your emergency fund (given your lack of debt and responsibilities, 6 months of expenses should be more than adequate for this) and your sinking funds that have the money you set aside for one-off and large annual expenses (travel, etc.).

After all that and paying your (mustachian level!) expenses, if you still have cash to spare then that is the bit you need to think about - but it shouldn't be a cause of stress: this is "spare" money you can do whatever you want with.  Some people here put it towards FIRE.  You say you do not want to retire early, so if you continue contributing the max to your 401k and Roth IRA your retirement at normal retirement age will be safely covered.  But circumstances change, and there is merit in being Financially Independent even without the Retiring Early bit of FIRE, so putting this "spare" money into a low cost index fund gives you options in the future should you need them.  But if you want to buy art or give to charity or find some other way to dispose of the money that pleases you and doesn't trash the planet then that too is a mustachian choice.




urbanbirding

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Re: Help wanted--starting on my FI journey
« Reply #4 on: December 30, 2016, 09:47:28 AM »
Thank you all for your help (I'm not sure how best to reply individually). This is really useful information for me to consider, and I will get started on a Personal Investment Policy statement to guide me. Also, I hadn't yet thought of the possibility of working towards FI without needing to want RE at this point. And I need to remember that being happy at work at 31 doesn't necessarily mean that I will still feel that way in 20 years :). I will confirm that my retirement investments are in a low percentage cost index fund.

I can't tell you how much your thoughtful replies have been helpful so far. Thank you!


Slow&Steady

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Re: Help wanted--starting on my FI journey
« Reply #5 on: December 30, 2016, 10:52:13 AM »
I find this information very useful.  This is not mine, I copied it from a user on here (I believe) and refer back to it when I have questions.

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.           
3. Max HSA             
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level           
5. Max 401k (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)           
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.           
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: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between (or see           
   http://forum.mrmoneymustache.com/investor-alley/deciding-between-roth-and-traditional-ira-based-on-marginal-tax-rate/         
   if you want even more details on that topic).  See also         
   https://www.bogleheads.org/forum/viewtopic.php?f=2&t=182081,         
   http://forum.mrmoneymustache.com/ask-a-mustachian/case-study-overwhelming-student-loan-debt-how-would-you-get-started msg868845/#msg868845 and other posts in that thread about exceptions to the rule.         
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           
           
The emergency fund is your "no risk" money.  You might consider one of these online banks:           
   http://www.magnifymoney.com/blog/earning-interest/best-online-savings-accounts275921001         
               
If your 401k options are poor (i.e., high fund fees) you can check           
   http://forum.mrmoneymustache.com/investor-alley/to-401k-or-not-to-401k-that-is-the-question-43459/         
for some thoughts on "how high is too high?"           
           
Priorities above apply when income is primarily through W-2 earnings.  For those running their own businesses (e.g., rental property owner, small business owner, etc.),           
   putting money into that business might come somewhere before, in parallel with, or after step 5.

For the 2016 money I would max Roth IRA for 2016 (you have until April), Put the other $4500 into Roth IRA for 2017 and find $1000 to bring it to the max through out the year.