What to do about your 401(k)? You make 65,000, have no debt, and live at home with your mother. I am not even sure why this is a question. Contribute the maximum to your 401(k), 18,000 a year. This is $1500 monthly, or, if you are paid twice a month, $750 a paycheck.
This will reduce your taxable income by $18000, so you will pay less in taxes.
Why do you want a $10,000 emergency fund?
Why do you want a $10,000 emergency fund?
What to do about your 401(k)? You make 65,000, have no debt, and live at home with your mother. I am not even sure why this is a question. Contribute the maximum to your 401(k), 18,000 a year. This is $1500 monthly, or, if you are paid twice a month, $750 a paycheck.
This will reduce your taxable income by $18000, so you will pay less in taxes.
Why do you want a $10,000 emergency fund?
If I pay $750 a paycheck, I'm left with no money left for myself... then I have to eliminate the money I put into my savings account of $875 each paycheck?
Dude, that was fast! Thanks for replying btw.
What to do about your 401(k)? You make 65,000, have no debt, and live at home with your mother. I am not even sure why this is a question. Contribute the maximum to your 401(k), 18,000 a year. This is $1500 monthly, or, if you are paid twice a month, $750 a paycheck.
This will reduce your taxable income by $18000, so you will pay less in taxes.
Why do you want a $10,000 emergency fund?
If I pay $750 a paycheck, I'm left with no money left for myself... then I have to eliminate the money I put into my savings account of $875 each paycheck?
Dude, that was fast! Thanks for replying btw.
You make $65000 a year. Contributing 18000 to your 401(k) leaves you with $47,000 a year, which is about average household income in the United States (including one and two earner families), and you do not even have a household to support.
This is a no brainer, and you will thank me later. Just do it!
Yes, I would stop putting $875 each paycheck into a savings account. The savings account will not grow. It just sits there. That is why I asked why you want such a large emergency fund.
Since it brings your taxes down the max 401k contribution practically pays for itself.
10k is the emergency fund I use as a single earner of a family of 4. You could get away with less in your situation.
$128.04 GEICO - Every month (I drive a 2008 Rav4 Limited, that's it)Wow! That's a lot! Is this full coverage? You have enough in savings already to just about buy another one even if you totaled the car, and it was your fault. If the wreck is somebody else's fault, then their insurance has to pay to fix your car. I would consider self insuring the cost of this car and carrying minimum liability insurance only.
$200-250 Gas - Every month (I commute 18 miles to get to work, and 18 miles back)Houston has bus and rail, and they let you bring your bike on board. Is there a bus or rail stop close enough to you to bike to it? You could eliminate 200-250 monthly from your budget in one fell swoop.
plus $400 on food (ROUGH estimate) - as mentioned below . . .Well, you know the answer here. Stop doing that! LOL! Insert face punch here. I do not spend much more than you to feed five people. Pack your lunch and bring it to work. Also, here you are mentioning how horrible the traffic is again - look into bus and rail!
Current expenses: Other than my monthly expenses... I do eat out more than I should. Yes, I should prepare food for myself to save money but I am so tired from work when I get home... I work from 8 to 5, but I get home at 6 because I have a 50 minute commute from work since traffic in Houston is HORRIBLE. My mom does time to time prepare food for me (without me paying for groceries as she does her own thing for food, she cooks for people). This might be a rough estimate on how much I spend on food monthly... but I think it's around $400. There was a month recently that I did go to Smoothie King every day and spent $13 on a large smoothie... that adds up, yes.
So currently I'm close to achieving my goal of $10k emergency funds.Why so much? What sort of emergencies are you anticipating covering?
After that, what do I do? And yes, please help me arrange what I should do with my 401k.Index funds, Vanguard if its available in your plan.
I do want to get into investing, but I have no idea where and how to start. I'm read that vanguard is the best around here. But i'm still not sure if that's what I should do right away after I achieve my $10k emergency fund.I would not wait to get $10,000 together. I would start your 401(k) maximizing now. You are 27, you make a BUNCH of money, and you have discovered Mr. Money Mustache. You are going to be rich in your 30s.
I plan to get Lasik surgery next year, so that will be around $1500.Ok, well set that aside in cash, since you are going to need it. This is a good reason to have a savings account.
Basically I just need a good sequence of a plan so I can go from one step to another. I already have step 1 of emergency funds... unless you guys tell me to increase that.Increase? I would tell you to decrease.
I just honestly don't think I earn enough (I wish i had a wife already to help me out).... but I did read the philosophy of MMM is that's a misconception and I'm just not saving enough.Dude, you earn plenty. You are killing it for somebody so young. Good job!
I plan to get Lasik surgery next year, so that will be around $1500.
I plan to get Lasik surgery next year, so that will be around $1500.
Have you had a consultation for this yet with an actual quote for the full cost of the surgery? My costs were much higher when I had Lasik (~$3500 total) so $1500 seems low to me. Regardless, if you still have the opportunity to do so, you should allocate as much as possible of the cost of the Lasik to a FSA account for 2016. The max you can contribute is $2500, but you'd be contributing pre-tax income to this so you'll save a good amount in the end. Lasik isn't cheap but I absolutely recommend it if your prescription is as bad as mine was (-6.75/-7).
I'm still not sure how FSA works and what you mean by pre-tax income...Pretax income means that it is a deduction that comes out before your income taxes are calculated. In other words, you are not taxed on it. It is tax free money.
Malum,Just this. Reduce the insurance coverage to the minimum liability coverage. If you get drunk and drive off the road and crash into a tree, totaling your Rav4, you have enough cash to go out an buy a replacement used car.
It's almost full coverage, without vandalism I think. What do you mean about "self insuring the cost of the car"?
Malum,
It's almost full coverage, without vandalism I think. What do you mean about "self insuring the cost of the car"?
I just did a quick research on bus routes. It takes approximately two hours going to work and two hours going back home. that's way too long...
Btw, so if I put in a lot of money in 401k, how does that help me in the future? Once it gets to 100k, I can retire? Sorry, I'm a newbie.
If I do put that $750 into 401k every two weeks. I'll only have about $500, maybe less, a month to do with what I wish. So this goes into Vanguard or house saving?
What about if I want to get married... Don't i need to save up for a wedding and a ring too?
Thanks guys!! Love ya!
Malum,
It's almost full coverage, without vandalism I think. What do you mean about "self insuring the cost of the car"?
I just did a quick research on bus routes. It takes approximately two hours going to work and two hours going back home. that's way too long...
Btw, so if I put in a lot of money in 401k, how does that help me in the future? Once it gets to 100k, I can retire? Sorry, I'm a newbie.
If I do put that $750 into 401k every two weeks. I'll only have about $500, maybe less, a month to do with what I wish. So this goes into Vanguard or house saving?
What about if I want to get married... Don't i need to save up for a wedding and a ring too?
Thanks guys!! Love ya!
i dont quite understand how you're an engineer and cant understand the math with all these questions you ask
the 1500 per month doesnt hit you at 1500 per month. at 65k you're in the 25% bracket... texas doesnt have state income tax so you are only going to see an 1125 per month hit.
128 on car insurance is bat shit crazy on a monthly basis. shop around find something lower.
400 on food for one person - bat shit crazy
250 for gas - bat shit crazy
even if we assume this and dont decrease your expenses posted one bit. you're at 1600 a month or 19.2k per year. YOU HAVE MONEY GOING SOMEWHERE ELSE
so lets say youre spending 25k per year. give you some fluff
you make 65k - contribute 18k to your 401k now you're making 47k
taxes on 47k - 12k
FICA on 65k - 5k
so now you have 30k leftover after just maxing your 401k
now to the what do i need to retire. You gotta do some reading around here man...
25x your expenses. so righ now lets say you're spending 30k annually. you need 750k to retire.
good luck ... you're an engineer. look around the site take it in do some math.
also if you like the SUV and feel like you have to have one. since you said you have an hour commute over 18 miles i assume you're sitting or traveling under 40MPH alot. get a ford escape hybrid i get 45MPG in the summer in mine and 38 in the winter.
i know you said its non negotiable but that 440 tithe is 10% of your income. is there anyway to donate your time right now? If you were investing this now you could tithe more later in life and make up the contributions.
how can you have 0 expected expenses in ER. are you planning to buy a farm and live a sustainable life as a hermit?
ER is early retirement
Retirement is leaving the work force
Early means doing something sooner than others in this case.
Expenses are the money you spend
so ER expenses would be the money that you plan to spend annually when youre no longer working at a younger age than 65
The ways in which you accrue funds such that you have 25x your expenses are numerous
Diffenent savings vehicles available to you
1. Tax Advantaged savings accounts are best your 401k is one of these accounts others include
a. IRA - Individual Retirement Account (Roth - Post Tax maybe your only option based on income level)
b. HSA - Health Savings account - you have an HRA at work so you can open one of these to avoid taxes on health related expenses
2. Taxable account - An account you put funds in after you have maxed out all Tax advantaged savings account.
what i would do if i were you.
1. Max your 401k
2. Max an HSA - see if your work has this as an option to come out of your paycheck as it will avoid FICA (FICA is the money the govt takes away from you for social security and medicare)
3. Max your IRA or Roth IRA depending on what you have decreased you taxable income to
4. fund a Taxable account.
Lol, I like your post bro.Have you had a chance to read this one yet? http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/
It's not the math that's hard. It's all the linggo and how those terms are applied, I find difficult understanding just yet.
But I'm learning.
As far as the car insurance, I already went through shopping for cheaper insurance. I might just follow the guy's advice and remove the other stuff and only do liability...
4. Fund a taxable account... i think this is one I need more clarification on.Well, note that he listed that one last, but what he means is something like this, go to Vanguard online and open and account and start stuffing money in VTSAX like crazy. That is, whatever extra money you have left over after fully funding tax advantaged accounts like your 401(k) at work and an IRA that you open (which you can also do at Vanguard online). IRAs are limited to a maximum contribution of $5500 a year.
FSAs suckLOL! What boarder42 means is, in an FSA you lose whatever your do not use each year. An HSA can sit there and grow into your old age. You own it.
i just find it utterly astonishing we allow people to get thru a school system and know this little about money and taxes.If I moved and took a job in the Phillipines I would have no idea about investing for retirement and taxes and such over there. I would have to learn about PERAs and all sorts of new stuff. These things have to be learned.
i see you said your degree is from the philippeans meaning you may not have come up thru the school system here.
but to make the comments that you have made (which i really think YOU DONT KNOW), its just crazy. People spend 4-5 years getting an undergraduate engineering degree but there is no required class on what to do with the truck load of money you will be given when you leave school. I mean even people who do personal finance for others don't really understand how all this works.
The thing about my commuting expenses... it basically offsets if I had been renting an apartment. Sure, it makes my vehicle depreciate more by the miles I put in it, but still...This community will drastically change the projection of your life if you stick around to learn. Home ownership beliefs are split here, everyone thinks given the option it has to be a smart financial move, but many believe the non tangibles of owning a home sometimes outweigh the financials. The advice here is to know if the home is a good buy when compared to renting.
Another thing I forgot to mention...
How come no one has mentioned saving up for a down payment on a house? Is that against the MMM rule?
I may need to save up for one for my dad... who is basically homeless and I may need to help buy him a small home. ($50k) is this too much and will put a damper on my plans? Or does anyone have an alternative on what I can do for my dad? Move into an apartment with him? He basically has nothing for his future and I am his only son. He works a 10 dollar security job. Please help.
Malum,Just this. Reduce the insurance coverage to the minimum liability coverage. If you get drunk and drive off the road and crash into a tree, totaling your Rav4, you have enough cash to go out an buy a replacement used car.
It's almost full coverage, without vandalism I think. What do you mean about "self insuring the cost of the car"?
I realize the RAV4 is the largest asset in your life right now (but not for long!), but you are overinsured. You can afford to replace it, maybe with a slightly cheaper car, but you can afford to replace it. Losing the car to a crash you caused would not be financially devastating.
So see if you can knock that insurance premium down from 128.04 (1536 a year) to less than fifty bucks a month.
Then you will have just that much more money to buy your future.
I'm going to follow the stickied topic's guideline on how to make posts easy for people to help me. If it's wrong in any shape or form, please forgive me. Also, I found the spreadsheet provided very intimidating, so I did not do it.If, as it appears from previous posts, you are starting with almost no financial knowledge, the spreadsheet probably is intimidating. I'll suggest, however, that you go back and give it another try, posting specific questions here as needed. By doing so, it should help you understand
Adjusted Gross Income: Umm if this means how much I get out of my paycheck....This is a term used for federal tax returns - see Form 1040 (https://www.irs.gov/pub/irs-pdf/f1040.pdf). We ask for this as a double check on what you have entered for gross income and pre-tax deductions.
Taxes: Federal, state/local, and FICA. - I have no idea what this section is.How much you pay for each. For FICA, pay=withhold. For Texas, state=0. For federal, the spreadsheet (or TaxCaster, etc.) can tell you the annual amount you should owe, and you can compare that with the amount you are having withheld.
Specific Question(s):See the 'Investment Order' tab in the spreadsheet (http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-%27case-study%27-topic/msg274228/#msg274228).
So currently I'm close to achieving my goal of $10k emergency funds.
After that, what do I do?
Ok, thanks guys.For getting out of debt? It's great for focusing on that task. For investing for FI, I do not so much like his advice. After getting rid of debt, he suggests 3-6 months of emergency savings, then investing only 15%, then college funding for children . . . Those with a focus on FIRE are going to have to do way better than that on savings rate and put their money to work.
What do yall think of Dave Ramseys advice? Yay or nay?
Ok, thanks guys.
What do yall think of Dave Ramseys advice? Yay or nay?
OP: i think before you do anything, you need to take a class, read up, whatever you need to do to learn and understand all of these very basic things.Very good advice. Of course, reading here and on MMM's blog should be a part of that.
Personally, i would not do anything internet strangers tells you without fully understanding the consequences.
Right now, everything's in PABAX ($4,500)1% expenses
Right now, everything's in PABAX ($4,500)1% expenses
How did you get 1 when i got 4.16% on my 401k site?
Yes, I should prepare food for myself to save money but I am so tired from work when I get home...
So is getting your 401k money without penalty legal or just a very big and secret loophole? Because no one I know seems to know about it.Legal, and you should not be surprised that nobody with whom you are acquainted knows about it. I also do not personally know anybody who saves 50% or more of his income.
Here is my opinion.+1 for what Check said. Great advice.
1) open a Mint. com account. Lots of colors and graphs and trends and lets you start learning where your money is going.
2) Cut the Equifax. You'll be able to monitor you Credit cards via mint, and there is no reason that you will need to have $250/year for this unnecessary service.
3) Find out what you are contributing to your 401K, and then max it out. It sounds like you're doing around 1500 a year right now at a minimum (you have $56 every two weeks listed at 401K match). Either way, if you are interested in early retirement, go ahead and start maxing it out now, or at least start the first paycheck of 2016 at max to finish off your emergency fund.
-----The reason that this is recommended is that it saves you money that grows exponentially. For every 1500 you put into your 401k, you "lose" about only about 1000 from your paycheck since that money is not taxed. Yes, you will have less money. This is what you need to do though, it will train you automatically to live within your budget.
4) If you can sell your SUV and get a hybrid, then do so. You'll save a good chunk of gas money which, along with the insurance going down because you're going to take the good advice here and get a bare bones policy, will help make up the retirement savings you won't get coming through your paycheck.
Or use Schwab and SCHB and skip the $10k VTSAX annoyance.
If i do all you guys say and do it right, how early would i be able to retire with the salary i have?Depends on how much of that salary you invest, how much you expect to spend in retirement, etc. See some numbers below. If you have different assumptions, see the 'Misc. calcs' tab in the case study spreadsheet and enter your numbers there.
Quick calculation of "Time to FI" | |||
| Planned Withdrawal Rate | WR | 4.0% | |
| Annual Savings Invested | S | 30,000 | $/yr |
| Annual Retirement Expenses | E | 30,000 | $/yr |
| Current Assets Invested | A | 0 | $ |
| Investment return | r_ | 5.0% | |
| Time to FI | t | 16.6 | yr |
| Desired time to FI | t | 6.0 | yr |
| Annual Savings Needed | S | 110,263 | $/yr |
Or use Schwab and SCHB and skip the $10k VTSAX annoyance.
Or just buy VTSMX and start with 3k.
Or use Schwab and SCHB and skip the $10k VTSAX annoyance.
Or just buy VTSMX and start with 3k.
.17% ER. SCHB is 0.04%. People really let their Vanguard loyalty blind them sometimes.
A couple of cultural notes:
If your Filipino family (aunts, uncles, cousins living in the Philippines) is similar to my GF's family, you're going to have to get comfortable with saying "no." A lot. An American salaried engineer looks a lot like an ATM to someone who works at Jollibee in the province.
Where does your father live currently? I assume he's able to work now, but possibly not much longer? And he has little or no retirement savings? When the time comes, you might want to move him back to the Philippines where housing and medical expenses can be very cheap.
Feel free to disregard the above, especially if I've made incorrect assumptions.
Or use Schwab and SCHB and skip the $10k VTSAX annoyance.
Or just buy VTSMX and start with 3k.
.17% ER. SCHB is 0.04%. People really let their Vanguard loyalty blind them sometimes.
Depends on where you WANT to be long term. As long as you meet the 10k before the end of a quarter you can reclassify and get the lower ER.
edit: And speaking of blindness...
I think SCHB is missing some stocks. 2,081 vs 3,809 (VTI/VTSMX/VTSAX)
I guess the fund should cost less if the managers are doing less work. ;)
Geez, i'm sorry. And i'm not trolling. Im going to put in time to learn these things, just havent had a chance yet ( posted this topic less than a week ago)
What CHECK said above makes sense to me. Using a ROTH will allow you access to any contributions you make while also allowing you to have tax-free money later in life. So long as you are putting enough money into the 401k to reduce your taxes to the lowest category, it seems like a win-win!Agreed. But let's leave the IRA to Roth IRA conversion ladder (http://www.madfientist.com/retire-even-earlier/) process to a later date once he has begun investing for FI. But agreed that should eventually be in his plan. Best tax advantages are if he performs conversion(s) once he's at FI and in a lower tax bracket, hence my suggestions in a step-by-step list include put funds in a Traditional IRA.
As for the 401k transfer, I think it is very legal, though I haven't looked into it much. Not to overload you, but there is something called a "ROTH conversion ladder/pipeline", which allows you to convert funds in (I believe, don't quote me on this--I'm just starting to explore it myself) a 401k or Traditional IRA. Since the money you convert is considered a "contribution," you can access it after 5 years. There may be other ways to get get money directly out of a 401k penalty-free, but I am not well-versed in 401k stuff yet, as I only got a job offering a 401k two months ago.
Better minds than mine can certainly help you with this! A forum member called "seattlecyclone" comes to me. He writes a lot on 401ks and IRAs.
Also, i know MMM provided a list of his favorite books, but is there an end all, be all MMM book? Would be useful on my vacation train ride coming up next week.
Also, i know MMM provided a list of his favorite books, but is there an end all, be all MMM book? Would be useful on my vacation train ride coming up next week.
You could always start from the beginning on the blog :P
Also, i know MMM provided a list of his favorite books, but is there an end all, be all MMM book? Would be useful on my vacation train ride coming up next week.
You're good to go Traditional IRA. you're income after maxing a 401k and HSA will put you in the ballpark to go traditional.
You're good to go Traditional IRA. you're income after maxing a 401k and HSA will put you in the ballpark to go traditional.
Now that I dont have an option for HSA, dont go traditional? Thanks boarder. Youre the bomb.com.
You're good to go Traditional IRA. you're income after maxing a 401k and HSA will put you in the ballpark to go traditional.
Now that I dont have an option for HSA, dont go traditional? Thanks boarder. Youre the bomb.com.
your company doesnt have to have an HSA option. you can do your own HSA as long as youre on the high deductible health plan at work.
You should and still can go Trad IRA you're only making 4k above the max so if you put 18k in your 401k you can still go trad IRA, regardless of if you setup an HSA or not
Me and my friend just dissected HSA a bit from the mad fientist website. And i get it kinda..
So i put in 3000 every year, and for every medical expense i do i can get reimbursed at any time i want, so i can keep that in my HSA and at my retirement, all the reimbursements I have will likely equal or outweigh the tax from when i withdraw all the money i had that was growing in HSA
Correct? So it sounds like a loophole, and the only way anyone who does this will get screwed is if they change the rule to doing reimbursements allowable up til one year on the receipts.
You have until tax day in April to fund your IRA for 2015 just an FYIEmergo, I just wanted to make sure you did not miss this deadline. You get until April 15, 2016 to fully fund your IRA for the prior year (2015).
Why do you want a $10,000 emergency fund?
In case I get laid off or any emergency event in my life or family. I thought this was the common thing people do?
You have until tax day in April to fund your IRA for 2015 just an FYIEmergo, I just wanted to make sure you did not miss this deadline. You get until April 15, 2016 to fully fund your IRA for the prior year (2015).
Your tax return filing deadline (not including extensions). For example, you have until April 18, 2016, to make your 2015 contribution.