Author Topic: 26 Year old, $30k debt roasting  (Read 6854 times)

Mustache_Wallace

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26 Year old, $30k debt roasting
« on: August 14, 2017, 12:11:34 AM »
Mustache_Wallace here and ready to enter into the fight for freedom. First obstacle in the way is a debt emergency. Here's the stats:

Age: 26
Single, 3 Roommates

Student loans:
Loan 1
--Outstanding balance: $7,744.64
---Interest: 6.550%
Loan 2
--Outstanding balance: $21,015.86
---Interest: 5.960%

Total Debt: $28,760.50
Minimum Payment: $400 split between the two loans

Revenue:
Job: ~$3,000/month

Expenses:
Rent/ Utilities: $600
Phone/ Car Insurance: $200
Groceries: $300
Gas: $150
Gym: $20
Xbox/ Netflix: $21
BoA Fee: $12
Misc: $75

Total: ~$1378

Apparent monthly payment able to put towards debt: $1622 (4x current payment)

Cash on hand: $8,033.41

Initial target: 20 months to freedom (based off of half of income put towards loan)
Strategy: Pay off the smaller loan as fast as possible, then attack the larger loan

Let the roast begin!

Mustache_Wallace

Paul der Krake

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Re: 26 Year old, $30k debt roasting
« Reply #1 on: August 14, 2017, 02:32:00 AM »
Your car expenses are way too high. Phone should be $25 at most, which means you are spending $175 on car insurance. Either you are over-covered, or you own a car that's well beyond your means, or you are/were a terrible driver. Which is it?
$150 in gas PER MONTH? Either you own a ridiculous car, or you drive way too far to work, or you just like going around town for no reason. Which is it?

$12 per month in banking fees? It's dead simple to avoid fees. Direct deposit, minimum requirements, or switch banks altogether. That's $144 per year that you don't have. Why are you wasting it?

Snow

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Re: 26 Year old, $30k debt roasting
« Reply #2 on: August 14, 2017, 02:36:37 AM »
Considering your other thread about your nightlife/going out habits, where is that in this budget? Misc?

$300 for groceries for a single person? You should be able to cut that down to $200 easily, in addition to everything Paul der Krake pointed out.

pumpkinlantern

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Re: 26 Year old, $30k debt roasting
« Reply #3 on: August 14, 2017, 07:58:30 AM »
Also consider any possibility of freelance/part-time work to supplement your income.

Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #4 on: August 14, 2017, 10:22:27 AM »
Quote
Considering your other thread about your nightlife/going out habits, where is that in this budget? Misc?

$300 for groceries for a single person? You should be able to cut that down to $200 easily, in addition to everything Paul der Krake pointed out.

It's not in the budget anymore.

Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #5 on: August 14, 2017, 10:32:51 AM »
Quote
Your car expenses are way too high. Phone should be $25 at most, which means you are spending $175 on car insurance. Either you are over-covered, or you own a car that's well beyond your means, or you are/were a terrible driver. Which is it?
$150 in gas PER MONTH? Either you own a ridiculous car, or you drive way too far to work, or you just like going around town for no reason. Which is it?

$12 per month in banking fees? It's dead simple to avoid fees. Direct deposit, minimum requirements, or switch banks altogether. That's $144 per year that you don't have. Why are you wasting it?

To be honest, I'd have to get back to you on that one. Phone and car insurance are carry over bills from when I lived at home, I just give my padre $200 a month. The car he drives could be a potential factor. I've only had one ticket in like ten years of driving.

I live 15 miles from work. I can't exactly change this as I just got signed a one year lease unless I find a closer job which I know some of you recommend and will look into.

It is Bank of America. I don't know why I'm charged $12 a month because I direct deposit enough and actually have a savings.

$300 in groceries was taken from the last month when I spent this much on groceries. I just gave that as a number. I bet I can get it to $150 easy.

Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #6 on: August 14, 2017, 10:36:36 AM »
Quote
Also consider any possibility of freelance/part-time work to supplement your income.

Freelance what, like writing?

Part-time weekend work is definitely an option. Also, what I left out above is the potential overtime I could make from my company. Starting September and going to January, I could be making an extra $1k/ month. If not, I'll probably work at some nearby Liquor Store.

Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #7 on: August 14, 2017, 10:43:43 AM »
Quote

   
Quote
Considering your other thread about your nightlife/going out habits, where is that in this budget? Misc?

    $300 for groceries for a single person? You should be able to cut that down to $200 easily, in addition to everything Paul der Krake pointed out.



It's not in the budget anymore.

To clarify, a combination of factors led me to reevaluate my lot in life on Saturday. I went out on Friday but could tell, deep down, I didn't want to be out. I didn't want to do it anymore as it did not align with my goals (health, financial independence, freedom from debt). This was heavily influenced by that thread, other case studies I've read and rereading some MMM articles. That and realizing I'm 26 years old, and have nothing to party about with $30k debt.

Snow

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Re: 26 Year old, $30k debt roasting
« Reply #8 on: August 14, 2017, 10:55:46 AM »
To clarify, a combination of factors led me to reevaluate my lot in life on Saturday. I went out on Friday but could tell, deep down, I didn't want to be out. I didn't want to do it anymore as it did not align with my goals (health, financial independence, freedom from debt). This was heavily influenced by that thread, other case studies I've read and rereading some MMM articles. That and realizing I'm 26 years old, and have nothing to party about with $30k debt.

Sounds good, especially while getting rid of the debt!

By the end of it, you may find that the nightlife didn't give you that much after all, or that you have gotten some new hobbies that are way more interesting.

Best of luck!

Bracken_Joy

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Re: 26 Year old, $30k debt roasting
« Reply #9 on: August 14, 2017, 11:16:55 AM »
So this sounds like your theoretical budget, not your real? Have you been tracking your real numbers via something like Mint or YNAB? Rolling averages will be a massive help to you, because while 'cold turkey' can work for some people, and tapering down works better for others, knowing your biggest areas of challenges helps the most period.

You've got some good underpinnings here- your debt isn't at absolutely insane interest rates, you have roommates, you have the luxury of time.

Have you seen MDM's investing order? With debt interest rates at your levels, I would make sure you're taking full advantage of retirement plan employer matching. https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153
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Frankies Girl

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Re: 26 Year old, $30k debt roasting
« Reply #10 on: August 14, 2017, 11:30:48 AM »
I really don't have anything to add as the other posters already hit everything I'd have said something about and it sounds like you've had a bright and shiny epiphany regarding personal enjoyment time/lifestyle stuff and how maybe time to rein it back a bit to get out of debt/realize goals. Good luck, OP!
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Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #11 on: August 14, 2017, 11:47:17 AM »
Thanks all. I'll report back next month. Do you think dropping most of my savings to pay off the small debt is a good idea? I'm strangely scared to do it.

Laura33

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Re: 26 Year old, $30k debt roasting
« Reply #12 on: August 14, 2017, 12:05:36 PM »
Thanks all. I'll report back next month. Do you think dropping most of my savings to pay off the small debt is a good idea? I'm strangely scared to do it.

No.  No way I'd be comfortable with only a few hundred bucks in an EF.  Focus on the lifestyle changes, on cutting everything back and throwing it all at the loan.  If you are impatient, challenge yourself to work that OT to get it done faster.  I guarantee you'll feel better when you make that last payment, because you will feel like you really earned it.  And you will then have the confidence to tackle the next bit, which then further increases your confidence to tackle the next, until you are in a virtuous cycle instead of a vicious one.
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nouveauRiche

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Re: 26 Year old, $30k debt roasting
« Reply #13 on: August 14, 2017, 12:19:13 PM »
It is Bank of America. I don't know why I'm charged $12 a month because I direct deposit enough and actually have a savings.

I would spend the time to find out.  No reason in the world to give BofA $144 per year. 

Bracken_Joy

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Re: 26 Year old, $30k debt roasting
« Reply #14 on: August 14, 2017, 12:38:13 PM »
Thanks all. I'll report back next month. Do you think dropping most of my savings to pay off the small debt is a good idea? I'm strangely scared to do it.

No.  No way I'd be comfortable with only a few hundred bucks in an EF.  Focus on the lifestyle changes, on cutting everything back and throwing it all at the loan.  If you are impatient, challenge yourself to work that OT to get it done faster.  I guarantee you'll feel better when you make that last payment, because you will feel like you really earned it.  And you will then have the confidence to tackle the next bit, which then further increases your confidence to tackle the next, until you are in a virtuous cycle instead of a vicious one.

+1. Go read the investing order. You NEED an emergency fund. If you had loan sharks threatening to take your kidneys, then yeah, sure, don't have an e fund while paying off debt. But in your situation, you need at least a $1000 safety net. That's kinda the bare minimum for "shit life can throw at you" fund.
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PDXTabs

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Re: 26 Year old, $30k debt roasting
« Reply #15 on: August 14, 2017, 09:37:17 PM »
Personally, I would:

1. Find a good local credit union that won't charge you any fees.
2. Put 1000-1500 in a savings account and use the rest of your free cash to pay off most of the 6.55% loan.
3. Shop around for car insurance (I did this when I was approximately your age any my bill went down by 60%).
4. Look at your phone and plan to see if you can do better (I'm in a T-Mobile family plan for $22/mo, Mint SIM has cheap options).

You are in a good spot relative to lots on this forum. You have lots of cash flow to take care of those loans and move on with your life debt free.

Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #16 on: August 14, 2017, 09:47:12 PM »
Quote
Quote

       
Quote
Thanks all. I'll report back next month. Do you think dropping most of my savings to pay off the small debt is a good idea? I'm strangely scared to do it
.


    No.  No way I'd be comfortable with only a few hundred bucks in an EF.  Focus on the lifestyle changes, on cutting everything back and throwing it all at the loan.  If you are impatient, challenge yourself to work that OT to get it done faster.  I guarantee you'll feel better when you make that last payment, because you will feel like you really earned it.  And you will then have the confidence to tackle the next bit, which then further increases your confidence to tackle the next, until you are in a virtuous cycle instead of a vicious one.


+1. Go read the investing order. You NEED an emergency fund. If you had loan sharks threatening to take your kidneys, then yeah, sure, don't have an e fund while paying off debt. But in your situation, you need at least a $1000 safety net. That's kinda the bare minimum for "shit life can throw at you" fund.

I've been looking at the MDM investing order and don't really know half the shit on there. Probably a bad sign. Either way, I've achieved Step 1, pretty sure I've achieved Step 2 for my company, and now I'm on Step 3. I'll be messaging you when I get to Step 4, or if I need to do something about Step 2. 

Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #17 on: August 14, 2017, 09:51:30 PM »
Quote
I would spend the time to find out.  No reason in the world to give BofA $144 per year.

I figured it out, I think. Sometime long ago they changed my savings to a checking because I was constantly transferring money from the savings over to it. So if I don't have $1500 in each, they'll bill me. The path forward is: a) Keeping $1500 in each (not really difficult) b) going to the bank, and my employer to have them direct deposit $250 from my check to one of the accounts, and the rest to the other c) get a saving account, close one of the checking, and maintain $1500 in that, while saving in the other.

Bracken_Joy

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Re: 26 Year old, $30k debt roasting
« Reply #18 on: August 15, 2017, 08:36:06 AM »
What doesn't make sense about the investing order? That's what we're here for =) Let us know your sources of confusion, and we can help from there!

In short, for your circumstances:
-Get your emergency fund to $1000 minimum
-If your work offers a 401k (a type of retirement account), put in money up to the match they offer (if they offer one). Ex, my company does a partial match on up to a 6% of my paycheck contribution, so I would contribute 6%.
-Pay off debts above 7.25% (5%+ treasure note yield of 2.25%).
-Max your HSA if you have access to one. Here's info on that: https://www.cnbc.com/2016/06/15/health-savings-accounts-a-second-retirement-plan.html
-Max an IRA. Traditional or Roth depending on your income level.
-Max your 401(k)
-Pay off debts above 5.25% (3% + treasury note yield of 2.25%)
-Finally, invest in taxable accounts

I hope the rewrite helps =P A lot of it is learning different retirement vehicles (IRA, 401k, HSA).
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Re: 26 Year old, $30k debt roasting
« Reply #19 on: August 15, 2017, 08:59:13 AM »
I think you would benefit from being way more granular about your expenses. A bunch of things are not in your budget and I bet they'd eat up more than the $75 a month you call "misc":
-- Holidays and gifts
-- Car maintenance/eventual tire replacement
-- Health & dental expenses (do you have copays? Out-of-pocket expenses for some things?)
-- Personal care (haircuts, etc.)
-- Clothing and care of clothing (laundry, dry cleaning)
-- Home furnishings (even just for occasional replacing broken stuff)

This stuff can add up. I'll make a pitch for YNAB (You Need a Budget) here, in particular the "classic" version of the software.

Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #20 on: August 15, 2017, 11:16:33 AM »
What doesn't make sense about the investing order? That's what we're here for =) Let us know your sources of confusion, and we can help from there!

In short, for your circumstances:
-Get your emergency fund to $1000 minimum
-If your work offers a 401k (a type of retirement account), put in money up to the match they offer (if they offer one). Ex, my company does a partial match on up to a 6% of my paycheck contribution, so I would contribute 6%.
-Pay off debts above 7.25% (5%+ treasure note yield of 2.25%).
-Max your HSA if you have access to one. Here's info on that: https://www.cnbc.com/2016/06/15/health-savings-accounts-a-second-retirement-plan.html
-Max an IRA. Traditional or Roth depending on your income level.
-Max your 401(k)
-Pay off debts above 5.25% (3% + treasury note yield of 2.25%)
-Finally, invest in taxable accounts

I hope the rewrite helps =P A lot of it is learning different retirement vehicles (IRA, 401k, HSA).

Lol, I'm not sure I have ever heard about IRA (traditional or roth) or HSA. But I'm going to read that link about HSA. As far as 401k, I have to work at my company for two years if I want to get their matching. I'm either at 5% and they match 4% or 6% and they match 5% (this being the max). But again, I only receive that money if I'm at the company for two years (daunting but I could commit). I don't think I did anything special or extra with my 401k so I'd have to look into this more. I've worked there for one year.

Also, I might be keeping 4k for now. That would leave $1500 in each 'checking' account and the extra 1k. I also have some expected expenses coming up.


Paul der Krake

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Re: 26 Year old, $30k debt roasting
« Reply #21 on: August 15, 2017, 11:21:46 AM »
You need to do some tax reading. Knowing the tax code is one of the few activities you can do this week that's guaranteed to save you a couple thousand bucks without changing anything to your income.

Bracken_Joy

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Re: 26 Year old, $30k debt roasting
« Reply #22 on: August 15, 2017, 11:22:44 AM »
What doesn't make sense about the investing order? That's what we're here for =) Let us know your sources of confusion, and we can help from there!

In short, for your circumstances:
-Get your emergency fund to $1000 minimum
-If your work offers a 401k (a type of retirement account), put in money up to the match they offer (if they offer one). Ex, my company does a partial match on up to a 6% of my paycheck contribution, so I would contribute 6%.
-Pay off debts above 7.25% (5%+ treasure note yield of 2.25%).
-Max your HSA if you have access to one. Here's info on that: https://www.cnbc.com/2016/06/15/health-savings-accounts-a-second-retirement-plan.html
-Max an IRA. Traditional or Roth depending on your income level.
-Max your 401(k)
-Pay off debts above 5.25% (3% + treasury note yield of 2.25%)
-Finally, invest in taxable accounts

I hope the rewrite helps =P A lot of it is learning different retirement vehicles (IRA, 401k, HSA).

Lol, I'm not sure I have ever heard about IRA (traditional or roth) or HSA. But I'm going to read that link about HSA. As far as 401k, I have to work at my company for two years if I want to get their matching. I'm either at 5% and they match 4% or 6% and they match 5% (this being the max). But again, I only receive that money if I'm at the company for two years (daunting but I could commit). I don't think I did anything special or extra with my 401k so I'd have to look into this more. I've worked there for one year.

Also, I might be keeping 4k for now. That would leave $1500 in each 'checking' account and the extra 1k. I also have some expected expenses coming up.

Ooooh, you get to learn about IRAs! They're awesome. You should be excited. It's a whole world of financial opportunity you didn't even know you had, and not reliant on an employer! =) I'm not being sarcastic, btw, this is legitimately awesome stuff.

An IRA, in short, is a "bucket" you put your money in. This bucket has special tax rules. There are two types- roth or traditional. They're a bit different from each other, but either option is what is called "tax advantaged". There's a yearly limit for contributions- $5500 per person per year (until you're a lot older, so doesn't apply to you). IRAs are so awesome because they help you pay less in taxes. A traditional IRA can help you pay less in taxes now, whereas a roth IRA can help you pay less in taxes later (at retirement age, essentially).

The "stock series" is really helpful for all this. Here's the whole thing: http://jlcollinsnh.com/stock-series/ and here's the section about retirement accounts: http://jlcollinsnh.com/2012/05/30/stocks-part-viii-the-401k-403b-ira-roth-buckets/

I hope that helps! Keep asking questions and we'll keep helping you to find answers!
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Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #23 on: August 15, 2017, 11:24:01 AM »
I think you would benefit from being way more granular about your expenses. A bunch of things are not in your budget and I bet they'd eat up more than the $75 a month you call "misc":
-- Holidays and gifts
-- Car maintenance/eventual tire replacement
-- Health & dental expenses (do you have copays? Out-of-pocket expenses for some things?)
-- Personal care (haircuts, etc.)
-- Clothing and care of clothing (laundry, dry cleaning)
-- Home furnishings (even just for occasional replacing broken stuff)

This stuff can add up. I'll make a pitch for YNAB (You Need a Budget) here, in particular the "classic" version of the software.

I do suppose you are right. The plan was to get expenses to zero. That 'budget' I put up was sort of just a list of everything I'm paying for/ average of things I've paid for. The Misc was entirely unrelated to anything too, I just didn't want to put what it actually was on the list. That expense is gone, however, I'll still have misc expenses as you point out. So I might still have 75$ in misc, but not on top of the 75$ misc payment above, lol. If that makes sense. That being said, I started MMM like half way through this month so my final August report is going to be bad.

Also, I have no utilities bill and any detergent I'd buy for laundry is considered in groceries. Haircuts, yeah. I'd say I get one every two months, equating to $15 a month.

Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #24 on: August 15, 2017, 11:26:25 AM »
What doesn't make sense about the investing order? That's what we're here for =) Let us know your sources of confusion, and we can help from there!

In short, for your circumstances:
-Get your emergency fund to $1000 minimum
-If your work offers a 401k (a type of retirement account), put in money up to the match they offer (if they offer one). Ex, my company does a partial match on up to a 6% of my paycheck contribution, so I would contribute 6%.
-Pay off debts above 7.25% (5%+ treasure note yield of 2.25%).
-Max your HSA if you have access to one. Here's info on that: https://www.cnbc.com/2016/06/15/health-savings-accounts-a-second-retirement-plan.html
-Max an IRA. Traditional or Roth depending on your income level.
-Max your 401(k)
-Pay off debts above 5.25% (3% + treasury note yield of 2.25%)
-Finally, invest in taxable accounts

I hope the rewrite helps =P A lot of it is learning different retirement vehicles (IRA, 401k, HSA).

Lol, I'm not sure I have ever heard about IRA (traditional or roth) or HSA. But I'm going to read that link about HSA. As far as 401k, I have to work at my company for two years if I want to get their matching. I'm either at 5% and they match 4% or 6% and they match 5% (this being the max). But again, I only receive that money if I'm at the company for two years (daunting but I could commit). I don't think I did anything special or extra with my 401k so I'd have to look into this more. I've worked there for one year.

Also, I might be keeping 4k for now. That would leave $1500 in each 'checking' account and the extra 1k. I also have some expected expenses coming up.

Ooooh, you get to learn about IRAs! They're awesome. You should be excited. It's a whole world of financial opportunity you didn't even know you had, and not reliant on an employer! =) I'm not being sarcastic, btw, this is legitimately awesome stuff.

An IRA, in short, is a "bucket" you put your money in. This bucket has special tax rules. There are two types- roth or traditional. They're a bit different from each other, but either option is what is called "tax advantaged". There's a yearly limit for contributions- $5500 per person per year (until you're a lot older, so doesn't apply to you). IRAs are so awesome because they help you pay less in taxes. A traditional IRA can help you pay less in taxes now, whereas a roth IRA can help you pay less in taxes later (at retirement age, essentially).

The "stock series" is really helpful for all this. Here's the whole thing: http://jlcollinsnh.com/stock-series/ and here's the section about retirement accounts: http://jlcollinsnh.com/2012/05/30/stocks-part-viii-the-401k-403b-ira-roth-buckets/

I hope that helps! Keep asking questions and we'll keep helping you to find answers!

Lol! The ignorance of my ways is starting to seep in. I'm going to start reading, but, just to be clear, I shouldn't start these until my debt is paid off, correct? Not 401k, that's #2, but everything #4 and up.

Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #25 on: August 15, 2017, 11:38:47 AM »
What doesn't make sense about the investing order? That's what we're here for =) Let us know your sources of confusion, and we can help from there!

In short, for your circumstances:
-Get your emergency fund to $1000 minimum
-If your work offers a 401k (a type of retirement account), put in money up to the match they offer (if they offer one). Ex, my company does a partial match on up to a 6% of my paycheck contribution, so I would contribute 6%.
-Pay off debts above 7.25% (5%+ treasure note yield of 2.25%).
-Max your HSA if you have access to one. Here's info on that: https://www.cnbc.com/2016/06/15/health-savings-accounts-a-second-retirement-plan.html
-Max an IRA. Traditional or Roth depending on your income level.
-Max your 401(k)
-Pay off debts above 5.25% (3% + treasury note yield of 2.25%)
-Finally, invest in taxable accounts

I hope the rewrite helps =P A lot of it is learning different retirement vehicles (IRA, 401k, HSA).

Lol, I'm not sure I have ever heard about IRA (traditional or roth) or HSA. But I'm going to read that link about HSA. As far as 401k, I have to work at my company for two years if I want to get their matching. I'm either at 5% and they match 4% or 6% and they match 5% (this being the max). But again, I only receive that money if I'm at the company for two years (daunting but I could commit). I don't think I did anything special or extra with my 401k so I'd have to look into this more. I've worked there for one year.

Also, I might be keeping 4k for now. That would leave $1500 in each 'checking' account and the extra 1k. I also have some expected expenses coming up.

Ooooh, you get to learn about IRAs! They're awesome. You should be excited. It's a whole world of financial opportunity you didn't even know you had, and not reliant on an employer! =) I'm not being sarcastic, btw, this is legitimately awesome stuff.

An IRA, in short, is a "bucket" you put your money in. This bucket has special tax rules. There are two types- roth or traditional. They're a bit different from each other, but either option is what is called "tax advantaged". There's a yearly limit for contributions- $5500 per person per year (until you're a lot older, so doesn't apply to you). IRAs are so awesome because they help you pay less in taxes. A traditional IRA can help you pay less in taxes now, whereas a roth IRA can help you pay less in taxes later (at retirement age, essentially).

The "stock series" is really helpful for all this. Here's the whole thing: http://jlcollinsnh.com/stock-series/ and here's the section about retirement accounts: http://jlcollinsnh.com/2012/05/30/stocks-part-viii-the-401k-403b-ira-roth-buckets/

I hope that helps! Keep asking questions and we'll keep helping you to find answers!

Lol! The ignorance of my ways is starting to seep in. I'm going to start reading, but, just to be clear, I shouldn't start these until my debt is paid off, correct? Not 401k, that's #2, but everything #4 and up.

Sorry#2 and up, emergency fund is 0.

Bracken_Joy

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Re: 26 Year old, $30k debt roasting
« Reply #26 on: August 15, 2017, 11:43:26 AM »
So a couple things. With your 401(k), that 2 year period you're talking about it called "vesting". Only one more year until you're vested isn't bad at all! I have a 5 year vesting schedule, where each year I'm with my company I earn 20% more of their match. So you definitely want to be going up to the match right now, even if you're not vested YET. Unless you're certain you'll leave within the next year, then that's debatable. But yeah, I would recommend contributing 5% of your paycheck, if that's what they match up to, otherwise part of your rightful compensation is being left on the table!!

As for debt first or IRAs first. Check the investing order =) Your debts are less than 7.25%, but above 5.25%, right? So you actually DO want to max your IRA first! You can expect a better return, between market and tax advantages, on the IRA than the return you get paying down the debt. Remember, whether it's subtracting a negative (paying off a debt) or adding a positive (investing), it's all about increasing your networth.

So then your action plan should be:
-Save $1k
-Set paycheck contributions to 5% for your 401k
-Learn about roth vs traditional IRAs and decide which one id best for you to invest in (I would guess traditional, but I don't know your situation well enough). Open an account (lots of us around her like Vanguard). Start putting money into your IRA for the 2017 year.
-IF you can fully fund your IRA for 2017, then extra goes toward debt.

Hope that helps.
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Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #27 on: August 15, 2017, 10:21:40 PM »
So a couple things. With your 401(k), that 2 year period you're talking about it called "vesting". Only one more year until you're vested isn't bad at all! I have a 5 year vesting schedule, where each year I'm with my company I earn 20% more of their match. So you definitely want to be going up to the match right now, even if you're not vested YET. Unless you're certain you'll leave within the next year, then that's debatable. But yeah, I would recommend contributing 5% of your paycheck, if that's what they match up to, otherwise part of your rightful compensation is being left on the table!!

As for debt first or IRAs first. Check the investing order =) Your debts are less than 7.25%, but above 5.25%, right? So you actually DO want to max your IRA first! You can expect a better return, between market and tax advantages, on the IRA than the return you get paying down the debt. Remember, whether it's subtracting a negative (paying off a debt) or adding a positive (investing), it's all about increasing your networth.

So then your action plan should be:
-Save $1k
-Set paycheck contributions to 5% for your 401k
-Learn about roth vs traditional IRAs and decide which one id best for you to invest in (I would guess traditional, but I don't know your situation well enough). Open an account (lots of us around her like Vanguard). Start putting money into your IRA for the 2017 year.
-IF you can fully fund your IRA for 2017, then extra goes toward debt.

Hope that helps.

That does help. I am slightly skeptical about putting money into an IRA mainly because I don't understand it but also because I've always thought getting rid of debt ASAP is the key to wealth (Dave Ramsey and MMM article about debt).

So what I'm slowly gathering in my tax deficient brain is this: traditional IRA = max out now and get a tax break during tax season (deductible?), pay taxes when you withdraw at retirement or ROTH IRA = pay taxes now but have no taxes on withdrawal when you retire. Either way, I can't touch this money until 60? Does this help me retire earlier? And these funds only 'grow' so long as I contribute, but the contributions have tax benefits at some point (now or later) which is the idea behind putting money in them in the first place? You would think Roth is better. I've been reading all the links you sent me as well as some random articles explaining the stuff. I know its a dumb way to think but things like IRA and 401k always have me worried because you can die at any time. My goal is to pay off debt and then retire as soon as humanly possible however I'm probably missing some key points here.

If I'm making 52K pretaxes (pretty sure this is without overtime), which is the better option?

Bracken_Joy

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Re: 26 Year old, $30k debt roasting
« Reply #28 on: August 16, 2017, 08:43:07 AM »
You're definitely catching on! And if it makes you feel any better, you're having the same questions we ALL do initially! =) I didn't want to provide info about accessing the funds early, because it can be massively overwhelming until you understand the basic ideas of the accounts, period!

Okay, part 1: "no access until I'm 60?"
-There is a fancy thing called the "roth pipeline" that lets you access funds early for early retirement if you plan your affairs appropriately. I'll admit that we're getting into the areas I don't understand as well, so I can't explain them as well. (Well, I have understood them, gone, "yup that's what we'll do", then promptly forgotten because we're a long way from FIRE (financial independence, retire early). But I have links! This is where we get into what is called "drawdown strategy".
https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

Part 2: Roth or traditional IRA?
The mustachian tax guide: https://forum.mrmoneymustache.com/taxes/the-mustache-tax-guide-(u-s-version)/
There's a section in there called "traditional and roth IRAs". So, this is where it might be useful to ask someone better versed, but it seems *to me* like you would benefit most from traditional. The thing is, it takes a lot of forecasts of things that are just so hard to tell when you're very young. What will your tax rate be when you retire? Higher or lower than now? Etc. When DH and I were earning ~$55k, we opted for traditional. As our earnings have grown, and we only qualify for some of the deduction for the traditional, we do part traditional and the rest roth. When you get a high enough income, you don't qualify for the roth anymore though.
Here's a good article about it all: http://www.madfientist.com/traditional-ira-vs-roth-ira/ It explains it *way* better than I'm doing, haha.
 

Part 3: I could die at any time.
-Welcome to rolling into your mid 20s, when your brain starts straddling the line between nihilistic YOLO!!!! and being like 'wait I should have a plan... maybe'. It's an uncomfortable spot psychologically. I address this specifically because honestly, you can learn every bit and scrap of investing info there is, but if you follow the traditional young man psychology, you cannot fathom yourself as old. You expect to die young, simply because you cannot conceive of old age. And so why plan for it? But statistically, you will live until you're old. And you need to plan accordingly. Obviously don't make your life suck now for the hope of tomorrow (see: "deferred life plan"). But as it seems you've been realizing, the happiness that comes from throwing money at binge drinking is incredibly fleeting (I've been there, I'm not judging in the least, to be clear!). This actually has some physiological underpinnings, by the way. Alcohol is a depressant, and that's not an arbitrary term. Among other things, frequent use of alcohol (particularly with a binge intake model) tends to lessen life satisfaction overall. Which I am way too lazy to cite right now, but I'll dig it up tomorrow if anyone is curious about it and can't find the info on their own.
Anyway, I ran into this constantly with my ex. Anytime anything got too uncomfortable to think about, he would drop into "well, I'll probably die young anyway". When pressed, the most he would say was "I can just tell. I can just feel it". Unsurprising considering the fatalism, he joined the military (and a boots on the ground branch, no less). He just honestly couldn't think ahead to the future, it was too uncomfortable. So when I see someone retreat back into the "well we can die anytime", it seems that's because that's the self-protective option. Yeah we need to keep a tiny bit of that perspective, or we become boorish, but if we actually let that view permeate us? We become incredibly self-destructive. If everyone was waiting with bated breath to get smashed by a car tomorrow, no one would build or do great things, you know? Because those take time and faith (in the non-theistic sense of the word).
Sorry for getting all esoteric there. I'm a nurse, and I had to fight through a lot of that nihilism in nursing school, and come around to a comfortable and stable place with it. But I think most of us work through it and end up in a healthy place, where we try to build a future but still practice mindfulness about the joys in our lives now, and cultivating those.

Keep the questions coming =) I literally keep a file of useful links for case studies.
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DarkandStormy

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Re: 26 Year old, $30k debt roasting
« Reply #29 on: August 16, 2017, 09:29:34 AM »

$150 in gas PER MONTH? Either you own a ridiculous car, or you drive way too far to work, or you just like going around town for no reason. Which is it?

15 miles round trip = 30 mile daily commute.
30 x 250 work days (5 days a week x 50 weeks) = 7,500 commute miles / year
Even with some other driving, a road trip, etc. it shouldn't be much more than 10,000 miles/year and that's on the high side.

So 10,000 miles @ 25mpg (which was the average in 2016) = 400 gallons/year

400 gallons @ $2.25/gallon = $900

$900/12 = $75/month

Even with a 20 mpg vehicle it comes out to $93.75/month
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Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #30 on: August 16, 2017, 10:36:54 AM »
You're definitely catching on! And if it makes you feel any better, you're having the same questions we ALL do initially! =) I didn't want to provide info about accessing the funds early, because it can be massively overwhelming until you understand the basic ideas of the accounts, period!

Okay, part 1: "no access until I'm 60?"
-There is a fancy thing called the "roth pipeline" that lets you access funds early for early retirement if you plan your affairs appropriately. I'll admit that we're getting into the areas I don't understand as well, so I can't explain them as well. (Well, I have understood them, gone, "yup that's what we'll do", then promptly forgotten because we're a long way from FIRE (financial independence, retire early). But I have links! This is where we get into what is called "drawdown strategy".
https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

Part 2: Roth or traditional IRA?
The mustachian tax guide: https://forum.mrmoneymustache.com/taxes/the-mustache-tax-guide-(u-s-version)/
There's a section in there called "traditional and roth IRAs". So, this is where it might be useful to ask someone better versed, but it seems *to me* like you would benefit most from traditional. The thing is, it takes a lot of forecasts of things that are just so hard to tell when you're very young. What will your tax rate be when you retire? Higher or lower than now? Etc. When DH and I were earning ~$55k, we opted for traditional. As our earnings have grown, and we only qualify for some of the deduction for the traditional, we do part traditional and the rest roth. When you get a high enough income, you don't qualify for the roth anymore though.
Here's a good article about it all: http://www.madfientist.com/traditional-ira-vs-roth-ira/ It explains it *way* better than I'm doing, haha.
 

Part 3: I could die at any time.
-Welcome to rolling into your mid 20s, when your brain starts straddling the line between nihilistic YOLO!!!! and being like 'wait I should have a plan... maybe'. It's an uncomfortable spot psychologically. I address this specifically because honestly, you can learn every bit and scrap of investing info there is, but if you follow the traditional young man psychology, you cannot fathom yourself as old. You expect to die young, simply because you cannot conceive of old age. And so why plan for it? But statistically, you will live until you're old. And you need to plan accordingly. Obviously don't make your life suck now for the hope of tomorrow (see: "deferred life plan"). But as it seems you've been realizing, the happiness that comes from throwing money at binge drinking is incredibly fleeting (I've been there, I'm not judging in the least, to be clear!). This actually has some physiological underpinnings, by the way. Alcohol is a depressant, and that's not an arbitrary term. Among other things, frequent use of alcohol (particularly with a binge intake model) tends to lessen life satisfaction overall. Which I am way too lazy to cite right now, but I'll dig it up tomorrow if anyone is curious about it and can't find the info on their own.
Anyway, I ran into this constantly with my ex. Anytime anything got too uncomfortable to think about, he would drop into "well, I'll probably die young anyway". When pressed, the most he would say was "I can just tell. I can just feel it". Unsurprising considering the fatalism, he joined the military (and a boots on the ground branch, no less). He just honestly couldn't think ahead to the future, it was too uncomfortable. So when I see someone retreat back into the "well we can die anytime", it seems that's because that's the self-protective option. Yeah we need to keep a tiny bit of that perspective, or we become boorish, but if we actually let that view permeate us? We become incredibly self-destructive. If everyone was waiting with bated breath to get smashed by a car tomorrow, no one would build or do great things, you know? Because those take time and faith (in the non-theistic sense of the word).
Sorry for getting all esoteric there. I'm a nurse, and I had to fight through a lot of that nihilism in nursing school, and come around to a comfortable and stable place with it. But I think most of us work through it and end up in a healthy place, where we try to build a future but still practice mindfulness about the joys in our lives now, and cultivating those.

Keep the questions coming =) I literally keep a file of useful links for case studies.

Definitely cite that binge alcohol intake model leading to less life satisfaction study. I've felt extreme unsatisfied with life the past year - the year in which I've been binge drinking pretty much the most - and only been feeling alive when binge drinking. It's weird, you could be having so much 'fun' and at the same time feel like this is not the right life path.

Funny also, I've only ever 'wanted' to join a boots on the ground military branch. I think my 'we could die at anytime' was more of a, well, maybe plan a little bit and keep some money to for now but even saying that I have some sort of cognitive dissonance. Like eh, who are you kidding, you're gunna buy steak and cheese subs and booze anyways, might as well just open an IRA.

We become incredibly self-destructive. Get out of my head. If everyone was waiting with bated breath to get smashed by a car tomorrow, no one would build or do great things, you know? This one made me look down at the ground, like damn she's right. Hit hard like a body shot. Because those take time and faith. There is also a great impatience that my generation apparently has, and I feel it too. I want my debt gone now, I want to be retired now, when I was lifting I wanted to be jacked now. Often times with these longer goals, you work hard for awhile, get bored or discourage, look at the mountain still before you (because its been two months), think, why am I spending my one life doing this shit? And give up. Part 3 was way more up my alley. Psychology, philosophy, etc. Taxes are hard, man. I'm gunna have to read those links and get back you again, lol.

Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #31 on: August 16, 2017, 10:45:54 AM »
As far as IRAs, how do you figure out if you qualify? And does this have anything to do with employment even though it is individual?

Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #32 on: August 16, 2017, 10:59:37 AM »

$150 in gas PER MONTH? Either you own a ridiculous car, or you drive way too far to work, or you just like going around town for no reason. Which is it?

15 miles round trip = 30 mile daily commute.
30 x 250 work days (5 days a week x 50 weeks) = 7,500 commute miles / year
Even with some other driving, a road trip, etc. it shouldn't be much more than 10,000 miles/year and that's on the high side.

So 10,000 miles @ 25mpg (which was the average in 2016) = 400 gallons/year

400 gallons @ $2.25/gallon = $900

$900/12 = $75/month

Even with a 20 mpg vehicle it comes out to $93.75/month

Yeah, my vehicle situation is bad. I can't defend it. I might even be getting 18 mpg. Keep in mind that $150 was somewhat arbitrary, and also based off of driving to the gym roughly seven days a week, which may or may not be .... seven miles each way. That was until I badly injured my back, and now I haven't been in three weeks.

I suppose if it is arbitrary it could be more or less than the $150. When this month is over, I'm going to post everything I spend and where this month in order to be shamed by the mustachian community. Half the month I was antimustache, and now I'm learning and applying all this shit trying to grow a mustache (It's weird when I say that because I actually have a full beard).

DarkandStormy

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Re: 26 Year old, $30k debt roasting
« Reply #33 on: August 16, 2017, 11:03:13 AM »
As far as IRAs, how do you figure out if you qualify? And does this have anything to do with employment even though it is individual?

http://money.cnn.com/retirement/guide/IRA_traditional.moneymag/index3.htm?iid=EL

http://money.cnn.com/retirement/guide/IRA_Roth.moneymag/index4.htm?iid=EL

Does not have to do with employment (unless you are self-employed, then there's a different route).  You just need to have taxable income not over the limitation amounts.
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Bracken_Joy

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Re: 26 Year old, $30k debt roasting
« Reply #34 on: August 16, 2017, 11:21:22 AM »
First, the binge drinking. This is a super complex topic, because causality goes *both ways*. Ie, we have decent evidence that both that depression leads to binge drinking (self medication) and binge drinking leads to depression. It's obviously incredibly hard to tease out these factors though, because the only way you can truly prove causality is a double blind trial, which... yeah, you can't do that with binge drinking and depression, that would never be approved by an internal review board, lol. Anyway, here are some links on it. First are more accessible articles about it, second set are studies and lit review.
http://www.huffingtonpost.com/hannah-sentenac/drinking-depression-and-t_b_5787796.html
http://www.webmd.com/depression/guide/alcohol-and-depresssion#1

http://www.sciencedirect.com/science/article/pii/S0376871616000478
Arghhhh I'm having a hell of a time finding articles that aren't paywalled right now. Driving me nuts, I miss my full ebsco access. >.< I'll have to come back to this another time, slow loading plus pay walls are annoying me right now.

Second:
As far as IRAs, how do you figure out if you qualify? And does this have anything to do with employment even though it is individual?
Only very vaguely associated. They are not through work in any way, you set it all up and contribute on your own. However, you have to have earned income to contribute to them, and the contribution limits are based on what you've earned. https://www.irs.gov/retirement-plans/traditional-and-roth-iras and https://www.irs.gov/retirement-plans/ira-deduction-limits
Since I know you have access to a 401(k), here's this: https://www.irs.gov/retirement-plans/2017-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-covered-by-a-retirement-plan-at-work Below $62k mAGI you can take the full deduction as a single filer. $62-72k is a partial, and above $72k is no deduction.
For roth IRA, here's the table: https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2017 you can contribute if you're below $118k mAGI as a single filer. Hope that helps!

Final thought:
I really find that nihilism and self destruction grow out of uncertainty. So let's step waaaaaay back and ask the biggest question of all: WHY? Why are you here? Why do you get out of bed? What do you feel your purpose in life is?

This isn't religious stuff (although I suppose it could be). I'm an atheist and I have my own answers to those, they aren't incompatible. But you sure as heck need answers to those types of question, about your life's purpose, or you will always be adrift without a sail.
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Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #35 on: August 17, 2017, 08:33:51 AM »
So one more question regarding an IRA... With overtime, I'm not sure if I might exceed 61k gross pay for 2017. I haven't worked a full calendar year yet, so it is hard to gauge. Would going over that totally fuck with/ make not worth it, to do a traditional IRA?

Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #36 on: August 17, 2017, 08:55:39 AM »
So one more question regarding an IRA... With overtime, I'm not sure if I might exceed 61k gross pay for 2017. I haven't worked a full calendar year yet, so it is hard to gauge. Would going over that totally fuck with/ make not worth it, to do a traditional IRA?

Also, on the investment order, an HSA is before and IRA?

Bracken_Joy

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Re: 26 Year old, $30k debt roasting
« Reply #37 on: August 17, 2017, 09:16:50 AM »
So one more question regarding an IRA... With overtime, I'm not sure if I might exceed 61k gross pay for 2017. I haven't worked a full calendar year yet, so it is hard to gauge. Would going over that totally fuck with/ make not worth it, to do a traditional IRA?

That does make it hard. I'm in a similar boat. Both DH and I have variable incomes, so year to year we can have $30k+ swings in mAGI. What we did the first year is not *optimal*, but it is *easy*. We just waited until spring, got all our tax paperwork in order, (this happened early Feb), and THEN we did our IRAs. You have until April of the following year to do IRA contributions for the previous year (ie, until taxes are due in 2018 for your 2017 contributions). This is sub-optimal though, because you lose a ton of time in the market.  For this year, I think we put the funds in for 2017 in like May when we got the money together? And I think our plan is just to recharacterize if we need to. I forget. Maybe we're doing the same thing this year haha and I've forgotten.

So one more question regarding an IRA... With overtime, I'm not sure if I might exceed 61k gross pay for 2017. I haven't worked a full calendar year yet, so it is hard to gauge. Would going over that totally fuck with/ make not worth it, to do a traditional IRA?

Also, on the investment order, an HSA is before and IRA?

Yeah, an HSA is considered "triple tax advantaged". Here's an article on why people love it: http://www.madfientist.com/ultimate-retirement-account/
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Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #38 on: August 17, 2017, 09:48:20 AM »
Lol, crap. So I'm not even to consider an IRA until I max an HSA? This is like 10 grand gone too. It's so hard for me to accept this this is better than getting rid of debt. I guess that's my impatience again. What is the optimal HSA provider?

Bracken_Joy

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Re: 26 Year old, $30k debt roasting
« Reply #39 on: August 17, 2017, 12:55:51 PM »
Lol, crap. So I'm not even to consider an IRA until I max an HSA? This is like 10 grand gone too. It's so hard for me to accept this this is better than getting rid of debt. I guess that's my impatience again. What is the optimal HSA provider?

The HSA question is out of my depth (we don't have 'em), so that may be one for the wider forum to ask.

Why do you feel like this is going backward, vs paying off debt? Do you have an insight into your thoughts on this?
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DarkandStormy

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Re: 26 Year old, $30k debt roasting
« Reply #40 on: August 17, 2017, 01:07:52 PM »
Lol, crap. So I'm not even to consider an IRA until I max an HSA? This is like 10 grand gone too. It's so hard for me to accept this this is better than getting rid of debt. I guess that's my impatience again. What is the optimal HSA provider?

You contribute to an HSA without paying taxes on those contributions, the earnings grow tax free, and you don't have to pay tax when you use those funds to pay for medical costs.  No taxes paid ever (except perhaps, sales tax upon the purchase).

Here is a list - http://www.investors.com/news/special-reports/best-hsa-providers-by-fees-features-and-investment-options/

Generally, employers offer health plans which have an HSA as an option of a high-deductible insurance plan.  The contributions can be taken out pre-tax from your paycheck.

An IRA gets taxed once, either on contributions (Roth) or distributions (Traditional).

Hope that helps.
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Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #41 on: August 17, 2017, 05:09:10 PM »
Lol, crap. So I'm not even to consider an IRA until I max an HSA? This is like 10 grand gone too. It's so hard for me to accept this this is better than getting rid of debt. I guess that's my impatience again. What is the optimal HSA provider?

You contribute to an HSA without paying taxes on those contributions, the earnings grow tax free, and you don't have to pay tax when you use those funds to pay for medical costs.  No taxes paid ever (except perhaps, sales tax upon the purchase).

Here is a list - http://www.investors.com/news/special-reports/best-hsa-providers-by-fees-features-and-investment-options/

Generally, employers offer health plans which have an HSA as an option of a high-deductible insurance plan.  The contributions can be taken out pre-tax from your paycheck.

An IRA gets taxed once, either on contributions (Roth) or distributions (Traditional).

Hope that helps.

Alright thanks. I'm not quite sure I can utilize an HSA through my employer or plan. I don't think I have an hdhp.

Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #42 on: August 17, 2017, 05:12:20 PM »
Lol, crap. So I'm not even to consider an IRA until I max an HSA? This is like 10 grand gone too. It's so hard for me to accept this this is better than getting rid of debt. I guess that's my impatience again. What is the optimal HSA provider?

The HSA question is out of my depth (we don't have 'em), so that may be one for the wider forum to ask.

Why do you feel like this is going backward, vs paying off debt? Do you have an insight into your thoughts on this?

Because everything I've ever known about financial independence has been to get rid of debt first. Debt, to me, equals slavery as it is a payment that must be met every single month. The faster you pay it off the faster you have one less payment. Even without these retirement accounts, you can still accumulate wealth. That being said, I can see why it is a good idea to max out yearly contributions because they are once a year/ once in a lifetime 'investments?'.

Bracken_Joy

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Re: 26 Year old, $30k debt roasting
« Reply #43 on: August 17, 2017, 06:38:54 PM »
Lol, crap. So I'm not even to consider an IRA until I max an HSA? This is like 10 grand gone too. It's so hard for me to accept this this is better than getting rid of debt. I guess that's my impatience again. What is the optimal HSA provider?

The HSA question is out of my depth (we don't have 'em), so that may be one for the wider forum to ask.

Why do you feel like this is going backward, vs paying off debt? Do you have an insight into your thoughts on this?

Because everything I've ever known about financial independence has been to get rid of debt first. Debt, to me, equals slavery as it is a payment that must be met every single month. The faster you pay it off the faster you have one less payment. Even without these retirement accounts, you can still accumulate wealth. That being said, I can see why it is a good idea to max out yearly contributions because they are once a year/ once in a lifetime 'investments?'.

Well, you're literally keeping more of your money. It's money you are saving and not paying taxes on. As opposed to "losing" like 25% or more to taxes. That's a big deal! Your using federal law to make your money worth more than what it was worth before.

So yeah, debt is an obligation. But so are housing costs and food. Where will the money for those come from? Even with zero debt, you're still a wage slave unless you gain financial independence. What's it matter if you have too much negative or not enough positive? The result is the same. It's all about rate of return/interest rate , not which side of the balance sheet it's listed on.
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Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #44 on: August 17, 2017, 08:11:48 PM »
Lol, crap. So I'm not even to consider an IRA until I max an HSA? This is like 10 grand gone too. It's so hard for me to accept this this is better than getting rid of debt. I guess that's my impatience again. What is the optimal HSA provider?

The HSA question is out of my depth (we don't have 'em), so that may be one for the wider forum to ask.

Why do you feel like this is going backward, vs paying off debt? Do you have an insight into your thoughts on this?

Because everything I've ever known about financial independence has been to get rid of debt first. Debt, to me, equals slavery as it is a payment that must be met every single month. The faster you pay it off the faster you have one less payment. Even without these retirement accounts, you can still accumulate wealth. That being said, I can see why it is a good idea to max out yearly contributions because they are once a year/ once in a lifetime 'investments?'.

Well, you're literally keeping more of your money. It's money you are saving and not paying taxes on. As opposed to "losing" like 25% or more to taxes. That's a big deal! Your using federal law to make your money worth more than what it was worth before.

So yeah, debt is an obligation. But so are housing costs and food. Where will the money for those come from? Even with zero debt, you're still a wage slave unless you gain financial independence. What's it matter if you have too much negative or not enough positive? The result is the same. It's all about rate of return/interest rate , not which side of the balance sheet it's listed on.

You certainly make it hard to argue with that logic. I suppose if we treat our personable finance as a business, some businesses take on debt to ensure larger growth rate. That's assuming I know anything about business. Also I need to detach from my money.

Mustache_Wallace

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Re: 26 Year old, $30k debt roasting
« Reply #45 on: August 18, 2017, 03:14:34 PM »
So here are my current thoughts:

--Maxing out 401k 6% with 5% match, 4825.79$ already in, 100% vested after two years
--It's not looking like I qualify for an HSA
--By my calculations my pretax income will sit at or exceed 61k which makes the IRA more complicated at this time

Thoughts? Action plan?

On a side note, I got paid today and haven't bought anything all week.. so that was different

Bracken_Joy

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Re: 26 Year old, $30k debt roasting
« Reply #46 on: August 18, 2017, 03:48:21 PM »
So here are my current thoughts:

--Maxing out 401k 6% with 5% match, 4825.79$ already in, 100% vested after two years
--It's not looking like I qualify for an HSA
--By my calculations my pretax income will sit at or exceed 61k which makes the IRA more complicated at this time

Thoughts? Action plan?

On a side note, I got paid today and haven't bought anything all week.. so that was different

Do more reading and see if you think, given your expectations of your life, if tIRA or rothIRA is a better choice for you. Roth is certainly easier when you're in the phaseout, although not always the best option. At the very least, start setting aside the money for this. Build up your $5500 and figure out your plan =) Have you heard of an "investing policy statement"? Time to write one! This will help you answer some of your own questions. https://www.bogleheads.org/wiki/Investment_policy_statement

An important thing too to start figuring out is, once you have money in your IRA bucket, what will you invest it in? (Hint: around these parts, we heartily advocate total market index funds like VTSAX).
My journal: Hiding in the Ferns
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HildaCorners

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Re: 26 Year old, $30k debt roasting
« Reply #47 on: August 19, 2017, 04:18:14 PM »
Hi!

My head is spinning with all the talk about HSA, IRA, ... and I'm more than old enough to be your parent and have an MBA in finance!

I think you need to start at the beginning:
Track your expenses

Sign up with Mint or do a trial subscription at You Need a Budget. For the next few months, track all your spending then analyze. Don't try to cut anything until you have a good idea where you stand.

"But my debt emergency!!!" I hate debt too ... yours isn't a dire emergency; you are comfortably paying it down faster than expected. You can take a few months to examine your financial life before making any drastic changes.

Meanwhile, pick a couple of beginner-level finance books/websites/videos and start learning. Ramit Sethi isn't bad, if you ignore his attitude about spending (anti-mustache). His information about automatic bill payment, beginner level investing, types of retirement accounts ... excellent.

Oh, one action item ditch your current bank account and find a bank/credit union that won't look to rob you blind at any excuse.
Been there, done that

Peony

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Re: 26 Year old, $30k debt roasting
« Reply #48 on: August 19, 2017, 05:54:21 PM »
Roth might be a good idea for you because you can withdraw your contributions (not any earnings on them, though) without penalty if you need to. Sorry if I'm repeating anyone; I'm too fried right now to read back through the thread. Why does $61K income make things complicated? Pretty sure you can just open an IRA with Vanguard and plop your money in, as long as you don't exceed the $5,500 annual limit for people your age.

Bracken_Joy

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Re: 26 Year old, $30k debt roasting
« Reply #49 on: August 19, 2017, 05:57:55 PM »
Roth might be a good idea for you because you can withdraw your contributions (not any earnings on them, though) without penalty if you need to. Sorry if I'm repeating anyone; I'm too fried right now to read back through the thread. Why does $61K income make things complicated? Pretty sure you can just open an IRA with Vanguard and plop your money in, as long as you don't exceed the $5,500 annual limit for people your age.

Only complicated in that he's in the phaseout for the traditional IRA potentially. So he can't just plop $5500 into a tIRA right now and get the full deduction- this means tax wise, ideally, he would do some in tIRA and some in a roth IRA. But that involves knowing your tax particulars. So the means waiting, or recharacterizing. Just a little more complicated than a clear cut, one way or the other type income number.

I'm curious if Wallace can contribute enough to his 401k this year though to get the full traditional deduction =) That would probably be best case scenario!
My journal: Hiding in the Ferns
Like babies? Have kids? Want to chat about Babies and Pregnancy/Infertility? Group Journal Here.