Author Topic: What to do, what to do?  (Read 3025 times)

0x2D

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What to do, what to do?
« on: July 12, 2013, 12:55:44 PM »
Hey guys, I hope this is the correct place for this.


So I am finally looking to start the journey to a better financial future. I am not sure what my ultimate goal is, be it early retirement, regular retirement, or something else.

I think right now my main focus is to just get a little stable, and show the wife the a bit more future planning is the right thing to do.

I just came into some prize money, and have used it to pay down some outstanding credit card / student loan debt. As of now I have:

  • ~$10k of open credit, with zero balance, across 4 cards.
  • An anticipated FICO of ~725 next cycle
  • A car, ~$300/mo payment, at 4.99%, with an outstanding balance of ~$11k
  • About $1250 in my credit union savings account @0.05%
  • Zero investments, IRAs, 401ks, etc
  • A new job I just started in May, netting ~$2,100 every 2 weeks
  • Monthly expenses minus car payment of ~$1100 (so, $1400 total)
  • An anticipated $2,250 that will be owed on my aforementioned winnings next tax season (a 1099 will be sent later, I'm told)


So, I've been all over the place these past few weeks trying to learn as much as I can about, well, money and finance.

I've been thinking about opening up an Ally MM / Savings @0.84%, and moving my bit of savings there. I have also been thinking about paying off the car aggressively, as it has a higher interest rate than the money would be making if I saved it (from my understanding).

I've also been thinking about finally starting a Roth IRA, at Vanguard, and pursuing the VFINX fund, just to try to get a bit of retirement starting.

But, I've also been thinking about just skipping the IRA, and putting money into VFINX anyway, so if need be, I can get at the $ (early retirement, or something). But this seems like it's not wise. I feel I should probably do the IRA, at max, and keep that as the long-term, and do something else in the near term, but what?

2 weeks ago I didn't know what an IRA or mutual fund, or an index was, and I'm still quite overwhelmed (but slowly coming along thanks to ficoforums, MMM, and Khan Academy).

In addition, the wife isn't too hot on the idea of strict savings, as we've been carte blanche spending for the past 4 years.

So, I don't know exactly what to do, and feel that before I can really get through to her, I need to make some progress of my own, to show her it can be done, and isn't horrible.

Thanks everyone, and if I missed anything, just let me know!

Edit: I'm 24, if that matters :)
« Last Edit: July 12, 2013, 01:04:03 PM by 0x2D »

Rebecca Stapler

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Re: What to do, what to do?
« Reply #1 on: July 12, 2013, 01:18:45 PM »
A few thoughts:
    *  Interest on your car loan is high
    *  You will need to have access to $2,250 by April 15, 2014
    *  It's a good idea to max out an IRA

3) With stability as your goal, I would focus on saving up what you will owe on your taxes first. Park it in a savings account. You can double-count it as your Emergency Fund with an emphasis on "Emergency" -- don't spend it until you have no other option, because you will have to pay it in taxes soon.

2) Second, I would focus on getting your 2013 contributions into your retirement account. Does your employer match 401(k) contributions? If so, contribute to their match. If now, max out your 2013 IRA limit ($5500). Given that you are young and have zero investments towards early retirement, I would use the tax advantages of retirement accounts now and, later, if you find that you have enough to ER and you need a way to access it, you can start thinking about putting it somewhere else. Once April 15 2014 passes by, you loser your opportunity to make your 2013 contribution to a retirement account. As for where to open it, I would go with a low-expense, index fund, at Vanguard.

3) Next I would pay off that car loan. It's 5% that's not tax-deductible, on a depreciating asset that requires higher insurance because of the loan.

You can switch these around, but keep in mind the deadlines -- April 15 2014, you want to aim to have $2,250 in the bank and $5500 in an IRA. Sure, you can get an extension on paying your taxes (I think!) but to me it's just painful to save $$ for taxes; I would just set it aside, forget about it for 8 months, and pay it ASAP so it's not hanging over my head.

Lans Holman

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Re: What to do, what to do?
« Reply #2 on: July 12, 2013, 01:38:30 PM »
Stan's plan sounds good.  It's sounds like you're at a kind of transitional moment between the windfall and the raise where you could pretty easily fall back into just spending it as it comes in, or you can get yourself straightened out for the long haul.  Getting your wife on board is going to be key, I like your idea of acheiving some successes you can show her.  Are there any goals the two of you share that you could talk to her about working toward?  It looks like your income is now about $2800 higher than your expenses, so there's a ton of potential here.  One suggestion I got when I first came on here that has really helped me is setting up automatic transfers.  Make your savings a part of your fixed expenses for the month and don't deviate from it. 

fiveoclockshadow

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Re: What to do, what to do?
« Reply #3 on: July 12, 2013, 02:13:16 PM »

First, you are young, getting your financial house in order and have a decent paying job.  Congratulations!  Bright future ahead of you...

But, I've also been thinking about just skipping the IRA, and putting money into VFINX anyway, so if need be, I can get at the $ (early retirement, or something). But this seems like it's not wise. I feel I should probably do the IRA, at max, and keep that as the long-term, and do something else in the near term, but what?

2 weeks ago I didn't know what an IRA or mutual fund, or an index was, and I'm still quite overwhelmed (but slowly coming along thanks to ficoforums, MMM, and Khan Academy).

First thing to realize about a Roth IRA - the *contributions* can be removed tax and penalty free at any time.  It is only the *earnings* that must stay in until you are old.  This is not the case with a traditional IRA in which it is much more challenging to get money out early.

Similarly, longer term as far as early retirement goes you can get money out of all your retirement accounts early and penalty free by jumping through the right set of hoops (search for SEPP and Roth Pipeline to learn more).  So even if essentially all your assets end up in tax-sheltered retirement accounts you can access all that money with an early retirement as long as you do a little bit of planning a few years before you actually need to start removing the money.

So - make use of that Roth IRA contribution for this year and every year you can in the future.  Yes, you certainly wouldn't want to raid your IRA, but that money isn't locked away forever and in a super-duper emergency could be accessed.

As pointed out already, if your employer matches 401k contributions then for sure contribute up to the point their match stops - that is about the best investment return imaginable (instantaneous 100% to 50% return depending on how your employers matching scheme works - people hope for a 7% long term return so an employer match is like fast forwarding those funds by many decades).

Car interest rate is high, attack that next.  Shouldn't take you too long.

It sounds like the remaining thing you need to do is come up with an estimate for your emergency fund.  And then pick a reasonably high interest rate place to park that.

Best of luck!

0x2D

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Re: What to do, what to do?
« Reply #4 on: July 12, 2013, 03:17:10 PM »
Wow guys thank you so much!

I /just/ minutes ago found out that my employer does offer some retirement stuff:

  • 401k
  • 4% of my salary matched, if I put in 5% of my salary
  • My salary is $72,500 / year

The problem is that I'm not eligible until 6 months of employment, which is November 3rd. So, should I still do an IRA, now, or ever?

It sounds like I should build back up the savings for the taxes I'll have to pay, as well as work on an emergency fund. Should I bother opening a 0.84% MM / Savings at Ally to do so? Or, should I just use my current credit union savings account.

Also, should I save 6 months of gross income? Or 6 months of expenses.

As far as the wife, I think she's just having too much fun right now. She was married and in horrible debt for 7 years before me, and together we got stable financially. She's just now having extra money (as am I) for the first time ever, and we both kind of are spreeing hard. I just came to a cold turkey stop though, with this prize and the realization that I can actually affect my future, now.

I think she's afraid of nickle and diming, or no fun, or not living now, or idk. We've always gone out to tons of movies and restaurants and such.

She usually has to leave for work everyday at 5am, but these past two days she didn't, so we woke up in bed, drinking coffee and Redditing until 7am, and it has been so nice. When she went to grumble leave this morning, I planted a "wouldn't it be so nice if we could leisurely wake up EVERY morning?". She did seem intrigued!


Lans Holman

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Re: What to do, what to do?
« Reply #5 on: July 12, 2013, 04:10:09 PM »
Congrats, you just got a 4% raise.  I would suggest signing up for the deductions now, just to build that into your expectations of what your paycheck will be.  November's not that far away. You're going to want to do an IRA too, but maybe not until you get the emergency fund built up.
To me how big an emergency fund you need is more complicated than just saying six months.  Try to imagine what it would really look like if one of you were, for example, in the hospital and unable to work.  How would you cope? 
As far as the savings go, if you put 2500 in an ally account from now till tax time, you're looking at about $20 in interest.  Probably worth your time to set that up, but that doesn't need to be your priority right now.  More important is just getting a plan together to keep your spending down as your income increases.
Maybe appeal to your wife's desire not to end up back where she was financially?  If she is feeling haunted by that sensation of crushing debt, the way out is not just living it up now, it's having a big enough cushion that you know you're never going back there.  It shouldn't have anything to do with "not living now".   I love going out to movies and restaurants, but  netflix and making fun meals at home are pretty great too.

ny.er

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Re: What to do, what to do?
« Reply #6 on: July 12, 2013, 04:20:11 PM »
Congratulations on your winnings, and your new, higher income. I wish I'd had MMM to remind & encourage my husband and me to curb our spending when the going got good a decade ago; as it all came to a screeching halt in 2009. We were good savers, but we could have saved MUCH more. Having more saved would have made the transition into (reluctant) early retirement much easier! I say stick with the current credit union savings account for now, get the emergency savings underway and save for the tax bill. Join the 401K in Nov., and you can always switch bank accounts later if the interest rate is better. Remind your wife of the security savings will bring if (when) the road gets bumpy :)
« Last Edit: July 12, 2013, 04:29:09 PM by ny.er »