When's the right time to invest?

[Skalm]

24M, wife is 22F, we make $2500/mo, going to school.

I owe $5k in student loans, I can defer those as much as I want. And I have a motorcycle worth $4k with a lien of $4k. It's at the shop getting some stuff fixed and then we'll sell it, might take a wash of $500 with that. She has a car worth $2800 in good repair. We keep about $800 in the checking, it fluctuates, and $2k in the savings.

Because we didn't withhold properly when we first got married, too much in taxes was taken out and when we corrected it, we decided not to overcorrect to avoid a refund, so this year we'll be getting $3k back. I figured that we could take $1500 and put it in a Vanguard starter account, spend a little bit, maybe on a day trip, or some steaks to cook up at home, or just use it to cashflow school some more and save more, and then stuff the rest into savings, which by next February should be up to $4.5k, bringing it to $5.5k, which might be a little rich for an e-fund.

Is $1500 enough? Am I being too conservative? Should I get into investing now?

[ShoulderThingThatGoesUp]

First, do as much 401k withholding as you can stand.

[use2betrix]

As other said, 401k first, then Roth IRA, then other funds.

Most importantly, I'd also make sure you have several months living expenses saved.

What are the interest rates at on your loans? If they are over 5% I'd likely pay them off first. 4-5% I consider a grey area, below 4% it's a personal choice between the gratification of paying them off and being debt free, or using that money to invest. The key is, you actually NEED to invest it.

[FLBiker]

Good advice here.  It's never too early to start investing, and you want to do tax advantaged first (401K, Roth, etc.).

Personally, I'd do Roth before 401k (unless there's a match) because your tax rate should be pretty low right now.

[Skalm]

As other said, 401k first, then Roth IRA, then other funds.

Most importantly, I'd also make sure you have several months living expenses saved.

What are the interest rates at on your loans? If they are over 5% I'd likely pay them off first. 4-5% I consider a grey area, below 4% it's a personal choice between the gratification of paying them off and being debt free, or using that money to invest. The key is, you actually NEED to invest it.

I have a state pension plan with my job (6% of my pay goes in from my paycheck pre-tax, 11% of my pay goes in from my employer's match), so there's no 401k, just a 403b and I think a 457. I glanced at their average rates of return a few months ago and they seem ok, but no match. My wife's job has no match and just... abysmal choices for mutual funds, although the company is switching to Vanguard so that may change. She's looking to leave that job in less than two years so I don't know if that will mess up any transfers or anything.

If we're planning to FIRE, does that still mean we should prioritize retirement accounts, even if that means later that we have penalties pulling them out? And as I understand it, a Roth is tax-deferred, meaning you don't pay taxes as you put it in, but do pay as you take it out, and traditional is you pay taxes as you put it in, but don't pay as you take it out? Which would benefit more from <$40k/year gross income?

My motorcycle is at 2.99% interest, and we're saving some money to get it sold if I get an offer that requires me to pay a little out of pocket, my student loans are at 4.8% and 6.4% totaling $5k, but the interest is not accruing while I go to school, which, with my job (I work for a state university), I can do as much as I want because 9 credits per semester costs me $90.

[Frankies Girl]

Yes, you should prioritize retirement accounts since they are tax deferred right now, and even if they have pretty awful choices in general. You pick the least cost expense ratio mutual fund that works with your asset allocation (AA). Once you leave that job or FIRE, you can roll those accounts over to Vanguard and invest in their low cost funds. But don't lose out on the fantastic double play of reducing your taxable salary NOW (saving you money right this minute) and saving/investing in tax deferred accounts that are offered through work that mean you are saving and growing your money for the future.

and yes, you can tap retirement accounts before the age of 59.5, so that's why if you have them available, you should be taking advantage of them: http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

[Skalm]

Yes, you should prioritize retirement accounts since they are tax deferred right now, and even if they have pretty awful choices in general. You pick the least cost expense ratio mutual fund that works with your asset allocation (AA). Once you leave that job or FIRE, you can roll those accounts over to Vanguard and invest in their low cost funds. But don't lose out on the fantastic double play of reducing your taxable salary NOW (saving you money right this minute) and saving/investing in tax deferred accounts that are offered through work that mean you are saving and growing your money for the future.

and yes, you can tap retirement accounts before the age of 59.5, so that's why if you have them available, you should be taking advantage of them: http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

Perfect! I thought I'd heard about the 5-year conversion ladder but I thought it was for way less money than $40k+ a year.
I'll have to dig up my papers for the 403b and 457 to see which ones I like, and see what my wife's 401k looks like, she just got a packet today from Vanguard through her company. Haven't opened it yet, but it's probably an info packet on what's going to be available. I'll probably start slow, and ramp it up as my budget allows and the e-fund/long-term savings grows.

[neo von retorch]

I'd just want to point out that the money you overpaid in taxes is money that you could have saved (and invested) throughout the year. You know that, but why do you want to use some of that savings money for a day trip or some steaks? I'm not saying you should never treat yourself, but there is zero difference from taking money out of savings to spend on a day trip or steaks compared to taking some of your tax refund and doing the same thing. Now, maybe you need a reward to feel good about putting the rest of the money in savings, but you might want to challenge yourself to treat all your money the same, and put every dollar to work for you. And if you want some kind of strategy to treat yourself with a tiny slice of your budget, go ahead, but I'd separate that from your tax refund entirely so you get used the mindset of treating every dollar with the same reverence.

[irishbear99]

And as I understand it, a Roth is tax-deferred, meaning you don't pay taxes as you put it in, but do pay as you take it out, and traditional is you pay taxes as you put it in, but don't pay as you take it out? Which would benefit more from <$40k/year gross income?

You have them backwards. You pay taxes on Roth IRA contributions and can withdraw tax free. A traditional IRA is tax deferred, so you don't pay taxes on the money when you contribute, but you do when you withdraw it. The general rule of thumb is that it's more advantageous to contribute to the Roth when your earnings are lower since you have a lower overall tax burden, and to contribute to the traditional IRA when your earnings are higher since you can benefit from the tax deferment. That being said, I go for the Roth IRA even though I'm in the 25% tax bracket because I want to diversify my tax requirements in retirement. So I'll have some income on which I'll have to pay taxes and some on which I won't.

[KCM5]

You should probably be putting as much money in the 457 as you can (at least to get you down to owing no tax) because the 457 is available to you as soon as you are no longer working for that company and is the perfect early retirement savings vehicle. If you can get down to owing no tax or very little tax you may want to consider a Roth IRA. But start with the 457.