Do your employers offer any match on 401k contributions?
Dicey reporting for duty. Welcome SB761!
Oh boy, you have the makings of a great Come from Behind Story (cue: Chariots of FIRE soundtrack).
Some quick suggestions, as we're flipping a house at present and we need to get over there soon, before it gets too hot.
- Stop prepaying the mortgage.
- Refi wife's SL asap.
- Chat with your college senior about ways to pay for their final year on their own. You can borrow for college but you cant borrow for retirement. Scholarships, grants, j-o-b, etc. Even if they only pay half of their final year, that's a huge help
- Oof, I was thinking about the gas mileage on the truck as soon as you named it. Do you need it to finish the house? I suspect it's not worth what this repair is going to cost you, but you probanly shouldn't haul DIY crap in your brand-new car.
- Speaking of new cars, I'd advise holding off on selling it for a little bit. There's a lot of low hanging fruit in your budget. PF/MMM/ FIRE is all very new to you. A brand new car is sub-optimal, but you bought a reliable vehicle that vould last you for decades. Not saying to keep it if you get a line on a six year old cream puff Camry or Corolla with low miles, just saying this doesn't need to be the first thing you do. It's equally important for your wife to be on board.* Selling the car right now might be a roadblock to her full participation (for now). You just found this site, you have lots to learn. You can be patient on this front while you master other areas. Do stop making double payments,
- Use your library to get a copy of "Ordinary People, Extraordinary Wealth". It's dated now, but the first chapter is the best explanation of saving/investing vs. prepaying a mortgage I've ever seen, and I've read many PF books. It will take less than an hour and will change your financial trajectory forever.
- Find a cheaper cell plan asap. Ting, Cricket, Republic or the like could slash your bills in half.
Here are two ways to search this forum. Read your brains out. What you want is do-able, and we'll help. I might even tell you a story one of these days (insert wink and nod to @Malkynn here).
https://forum.mrmoneymustache.com/forum-information-faqs/how-to-search-the-forum/
https://forum.mrmoneymustache.com/forum-information-faqs/the-forum-'search'-feature/
I get decent results an even lazier way. I type "MMM Forum + a couple of key words" into Google and usually get a hit. Except journals, which are password protected. Don't be fooled, they're not really protected, but they don't come up in search engines.
If you find someone really resonates with you, click on their name, then "Show Posts". That's how I read all of your posts after Malkynn's bat signal and found you here.
Finally, this is a gold mine:
https://forum.mrmoneymustache.com/forum-information-faqs/frequently-asked-questions/
*Not long after we moved here five years ago, a new neighbor mentioned finding MMM, so we had a couple good chats. I ran into his wife at a community event at about the same time. She complained that he suddenly wanted her to make a ton of changes, without recognizing her existing and not-insignificant frugality. He's a mechanic and they have three kids. Very quickly, their SUV's morphed into a very used (but reasonably clean) Camry and Odyssey. I see one or both of these cars every time I go by their house, hooray! Alas, they are divorced now. Don't be car-wise and divorce foolish. Those frugal used cars ended up being frightfully expensive.
As a follow up to the 401k update. After reading it over I didn't realize how many options that my company offers to the point I don't even know where to begin. There are 43 different choices. Would it be ok if posted the scanned pages as attachments on here, is there a limit and is that frowned upon in these forums? Always want to make sure before posting tons of images.
The enrollment date just passed but we're going to see if there's any way we can still get in or if we have to wait til Jan. 1st of next yr.
Agree completely on better tracking. Mint/YNAB/Every Dollar will show you where your money is really going.
If you maxed your 401ks I believe that should lower your taxable income enough to be able to deduct student loan interest on your taxes.
I recommend you find a way to bring your children into this conversation. From your other post it seems you've been focused on setting them up for a life of opportunity - well imagine the opportunity of learning about 401ks at 20 instead of 40.
Now when you speak of fees are you referring to Fund Operating Expenses which includes Gross% and Net%? If not, then I'll look up the site online and see what I can track down.
Now when you speak of fees are you referring to Fund Operating Expenses which includes Gross% and Net%? If not, then I'll look up the site online and see what I can track down.
Yes, look at the Fund Operating Expenses. That is how much the fund costs to run. The ones with lower expenses will probably be the ones that are similar to index funds and will probably be better over time.
This is the relevant MMM article: https://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/
Now when you speak of fees are you referring to Fund Operating Expenses which includes Gross% and Net%? If not, then I'll look up the site online and see what I can track down.
Yes, look at the Fund Operating Expenses. That is how much the fund costs to run. The ones with lower expenses will probably be the ones that are similar to index funds and will probably be better over time.
This is the relevant MMM article: https://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/
You can google the names of the funds in your list and find out more about them, but from what I can see, I think #10 Columbia Large Cap Index A is most similar to an S&P 500 index fund. Maybe that would be one to start with. It's late in my time zone, so I will stop here. Good luck.
The good news is your AGI is low enough that you and your wife are eligible for a Traditional IRA. The limit for married filing jointly is $101,000 this year. This is actually Modified AGI which adds back in some things like IRA contributions and student loan interest as well as others, but since you didn't mention these I think you're ok with an AGI of ~$96k. If you can contribute to a 401k, that will only help lower your AGI to keep you eligible. But if you can't contribute to your 401k right away, you can still contribute $5500 this year to your IRA for both you and your wife ($11k total). I'd recommend opening an account with Vanguard or Fidelity, though there are others you can use. These two are known for having good low cost fund options and decent customer support. Do this immediately. Start putting in whatever you can each month to both your and your wife's account. Keep in mind this will lower your taxes, so you can adjust them now on your W4 (as you said you already needed to anyway) to account for this and start getting more money immediately. I'd start reading up on investing to feel comfortable with a strategy. Until then, invest in some sort of index fund such as Total US Stock Market, Total World Stock Market, S&P500 fund, Target Date Retirement fund. For now, just get started with an index fund that has a low expense ratio (ie. less than 0.2%). You can fine tune your investment approach as you go and determine your desired asset allocation (stocks/bonds and US/international).
I'd look into refinancing your wife's student loans. 6.5% is pretty high. If you can't get much lower, you could also look into getting a new mortgage on your house and taking cash out to invest it or put towards the 6.5% student loan. You didn't mention how much your house is worth or the terms of your mortgage (15yr or 30yr) and how many years left on the loan, so it's hard to say.
I'd prioritize investing in your IRA/401k before paying down any more debt. After that, I'd consider paying off the 6.5% loan if you can't get the rate down further via refinance or using a new mortgage to pay it off. I wouldn't pay down the mortgage, car loan, or your low interest rate student loans until you have a much heftier retirement account balance.
Your 401k fund choices aren't as good as I'd hoped. Those are still pretty high expenses for index funds, but it's not terrible. For now, I'd start with investing in the Columbia Large Cap Index. This is basically an S&P500 fund. You can consider the Mid and Small Cap funds as well (also with ER of 0.45%), but it'd probably be easiest to stick to one fund at the start and then start reading on investing and decide what allocation you want. The international fund is a bit higher, so I'd maybe put an International Stock Fund such as VGTSX/VTIAX/VXUS in your IRA instead. I'd also prioritize your IRA over 401k since you can get much lower fees in an IRA.
For your XBox Live membership, Microsoft has a program called Microsoft Rewards where you can get points for searching using Bing. You could use this to get a "free" Xbox Live membership though it is a bit of work. It'll take 3+ months to earn enough points for it, assuming you search every day. It may not be worth it to save $90 a year but it's an option. If you're interested, I could sell you a 12 month membership for $30 since that's what the points are worth.
My wife and I were talking and our company doesn't do any matching with our 401k investment and we were wondering if we should even bother investing in the company 401k at all. Would it be wiser to just open an account with Vanguard (Both IRA and 401k) and put our funds into a private 401k? If I'm misunderstanding something please let me know. I ask because then we may not have to wait for a specific enrollment date if I'm understanding everything correctly.
Thanks!
Great job on getting the case study together SB761!
Apologies if I missed it, but I don't see property taxes included in your expenses?
My wife and I were talking and our company doesn't do any matching with our 401k investment and we were wondering if we should even bother investing in the company 401k at all. Would it be wiser to just open an account with Vanguard (Both IRA and 401k) and put our funds into a private 401k? If I'm misunderstanding something please let me know. I ask because then we may not have to wait for a specific enrollment date if I'm understanding everything correctly.
Thanks!
You can only open up your own 401k if you are self-employed. Since you have an employer, this is not an option for you, as far as I understand it. You're stuck with your company's 401k plan. I would first max out your IRA ($11k), then start investing in your 401k whenever you can. If you can't get into your 401k before next year and have more than $11k to invest this year, you can look at a taxable account at Vanguard, or paying down the 6.5% interest student loans.
Does an IRA have the same restrictions tied to the employer? I've been researching it on internet and I've just been finding info on what an IRA is and ads for companies to invest with.
Thanks!!!
If my wife and I can figure this all out and get this dream of retirement going in the right direction I'm going to host a RetireCon and invite everyone on the site :-)
An update to my wife's SL. We're tried to refinance with several difference lenders and none of them would go below 6% so we're stuck with that one. Oh well, at least we tried :-)
Great job on getting the case study together SB761!
Apologies if I missed it, but I don't see property taxes included in your expenses?
We have it setup so property, school, city taxes and insurance are paid through our escrow account. If you'd like the actual number let me know and I'll dig it up for you :-)
Great job on getting the case study together SB761!
Apologies if I missed it, but I don't see property taxes included in your expenses?
We have it setup so property, school, city taxes and insurance are paid through our escrow account. If you'd like the actual number let me know and I'll dig it up for you :-)
Cool. So that's included under your mortgage amount? That looks low. (?)
Having read, learned and accomplished so much in the past 72 hrs my brain is fried...lol taking rest of the night off and pick back up tomorrow. Tomorrows plan is to change phone plans to cut that expense in half, find out about 401k enrollment, set up Mint, set up with Vanguard for IRA and index fund investment, set all bills to autopay with cash back credit cards and looked for used bikes in craigslist. In between that do some more reading and research.
Thanks for the help everyone and look forward to more discussions tomorrow and in the future. Have a great night!!!
Corey
Oops, this didn't post earlier. It's in response to your comment about enroll in in your employer's 401k plzn.
Are you in at all? Changing your percentage of investments can be done any time once you're enrolled. If you're not enrolled, don't sweat it. Six months will fly, and there are other steps you can take to improve your situation until then.
Typically, enrollments are done in October, so even less time to wait
About those student loans, i believe you said you've paid some things off recently, which might make you more desirable now. Try again. Who did you try besides, presumably Earnest and So-Fi?
I am very much in favor of refinancing the house to kill the SLs and jumpstart your retirement saving, but it doesn't have to be the first or even fifth thing you do. You've made tremendous progress in a nanosecond. This is something to learn more about once you've put some other fires out.
The fees listed on your 401k plan funds are pretty high. Given your (current) income constraints with your wife's SL repayment, I'd just open a Traditional IRA with Vanguard/Schwab/Fidelity for you and your wife and sock away whatever you can spare and not even worry about participating in a 401k that doesn't offer a match (right now). Once you get your wife's SL paid down further and have used up the $5.5k/year contribution limits per person, then start socking away money in the 401k. You can open an IRA with the providers I mentioned for minimal cost, and I believe that both Schwab and Fidelity let you buy ETFs without transaction fees. I'd suggest either a target date mutual fund or a 60-40 total market/bond etf mix.
We are not in at all and never have been. Wasn't an option financially til this weekend now that we've caught up on so many bills.
{snip}
I plan to make a little money on the side and invest it into a non-tax exempt index fund.
{snip}
I plan to make a little money on the side and invest it into a non-tax exempt index fund.
Just to be clear, by the bold you mean you're investing in a taxable brokerage account, and in that account you're investing in an index fund? Either way of referring to it is fine of course, but "taxable" is the more common.
Enjoy the holiday and have a cold one on future-you, you deserve it :)
I didn't really follow your math there, what return are you using for your investments in those calculations. I don't think there is any way investing in a 401k would lengthen your time to FI vs paying <4% interest debt.
I didn't really follow your math there, what return are you using for your investments in those calculations. I don't think there is any way investing in a 401k would lengthen your time to FI vs paying <4% interest debt.
5% with a 4% withdrawal according to the retirement calculator. I only figured 401k would because that would be more I was investing for retirement when I'm eligible to use it at 65 instead of into a private account where I can use it sooner. Sorry if what I'm saying doesn't make sense. Wife and I are enjoying our last bottle of wine for a while...LoL
I guess I'm assuming based on what I've read so far and math I've seen on other sites. Is it more or less? I know I'm playing major catch up here so bear with me...sorry.
I've read the links ppl have posted me thus far and the MMM blog itself mainly so far while waiting for those books to arrive Thursday.
This article is one of the causes of all my aggrivation: https://www.mrmoneymustache.com/2011/09/17/the-race-to-retirement-revisited/In this case, I believe "savings" just means money that is not spent on expenses. In this case, it's the money that is invested at 5%.
What is he referring to with savings? Bank, investing, under the pillow? Then there's the investment gains. They save 46k and gain 1150. From the 46k? Because if it's a 5% gain then it should be more like 2300. Where did that number come from? And it just escalates from there. Is there an early article I missed that explains all that? I've been to several other sites hoping they show it but it's the same. Also, no mention of 401k just whoop you're retired, enjoy.
If you read the comments (just scroll down!), all of the math is explained in that article! https://www.mrmoneymustache.com/2011/09/17/the-race-to-retirement-revisited/
Just start! Figure out how much you need tossed per week/pay/month to a Vanguard IRA for you both to hit $5,500 each by the end of the year (or even end of March 2019 as you can contribute through tax filing!)! You are suffering from analysis paralysis! :)
Have you read JL Collins' Simple Path to Wealth? It's a fabulous book to help you understand how this all works!
Ok, so I am totally NOT the spreadsheet person, so I can’t answer your specific questions. But a couple of things jump out at me:
1. Your write-up makes it look like you are subtracting the same amount of taxes in both cases. That is not accurate and will eradicate a chunk of the benefit from using tax-sheltered accounts. If you want an accurate analysis, figure out the difference in taxes, and then assume you will use those tax savings toward additional investments or debt pay-down.
2. It sounds like you are not considering any 401(k) or IRA contributions as available early retirement assets, because you think you cannot access them until you are 65 - am I reading that right? If that is the case, then yes, your analysis will always show that debt paydown or taxable accounts are better! If I am reading that right, then you need to fix that in your analysis, because there are many ways that you can access that money before 65. The good news is that you have plenty of time to learn the details of all of those options and to figure out what is best for you. Just don’t let your fears on that point keep you from taking full advantage of your tax-sheltered accounts while you figure it out!
Also, I am not sure what you meant by your decision to open a 401(k) now - I thought you said you weren’t eligible because you missed the semi-annual enrollment period? You can’t open a 401(k) on your own, unless you run your own business. Did you mean opening an IRA?
That's a good plan itself. Take it slow. One thing at a time. Just pick one thing, do that, then come back later for the next thing.
This thread will be here whenever you need it.
I'd probably shoot for the annual max in the 401k just for the tax savings. Then I'd do a Roth, then taxable.
Not sure if that's the suggested order, but we don't qualify for an HSA, so I don't remember where it fits in. I don't think you qualify either. If you csn get an FSA, that's a decent option, too.
I do see one common misconception at play going on. You see tax brackets a little incorrectly. Basically, it seems you think if you get your gross income down you'll be in another tax bracket, and that's a big savings. The misunderstanding is we actually have something called a "marginal tax brackets". So if you're above $75,900, ONLY the earnings ABOVE that line will be taxed at the higher rate, NOT your entire income. Here's an article that explains it better than I can: https://www.thesimpledollar.com/dont-fear-the-higher-tax-bracket-or-why-a-reader-needs-more-cowbell/ (https://www.thesimpledollar.com/dont-fear-the-higher-tax-bracket-or-why-a-reader-needs-more-cowbell/)
Your action plan isn't wrong, to be clear, just that there isn't some magic number you need to get below. Get as much as you can in tax advantaged accounts, yes, but don't worry that there's a big cliff that will hit you with a lot more taxes all of a sudden =)
I do see one common misconception at play going on. You see tax brackets a little incorrectly. Basically, it seems you think if you get your gross income down you'll be in another tax bracket, and that's a big savings. The misunderstanding is we actually have something called a "marginal tax brackets". So if you're above $75,900, ONLY the earnings ABOVE that line will be taxed at the higher rate, NOT your entire income. Here's an article that explains it better than I can: https://www.thesimpledollar.com/dont-fear-the-higher-tax-bracket-or-why-a-reader-needs-more-cowbell/ (https://www.thesimpledollar.com/dont-fear-the-higher-tax-bracket-or-why-a-reader-needs-more-cowbell/)
Your action plan isn't wrong, to be clear, just that there isn't some magic number you need to get below. Get as much as you can in tax advantaged accounts, yes, but don't worry that there's a big cliff that will hit you with a lot more taxes all of a sudden =)
Holy #$@%!!! That helped immensely!!! Thank you soooooo much :-)
I do see one common misconception at play going on. You see tax brackets a little incorrectly. Basically, it seems you think if you get your gross income down you'll be in another tax bracket, and that's a big savings. The misunderstanding is we actually have something called a "marginal tax brackets". So if you're above $75,900, ONLY the earnings ABOVE that line will be taxed at the higher rate, NOT your entire income. Here's an article that explains it better than I can: https://www.thesimpledollar.com/dont-fear-the-higher-tax-bracket-or-why-a-reader-needs-more-cowbell/ (https://www.thesimpledollar.com/dont-fear-the-higher-tax-bracket-or-why-a-reader-needs-more-cowbell/)
Your action plan isn't wrong, to be clear, just that there isn't some magic number you need to get below. Get as much as you can in tax advantaged accounts, yes, but don't worry that there's a big cliff that will hit you with a lot more taxes all of a sudden =)
Holy #$@%!!! That helped immensely!!! Thank you soooooo much :-)
Of course! Glad it helped. I look for this one because that's a misconception I had, and I fancied myself pretty well educated on all this (business minor, econ and accounting classes in college, all that jazz). It's SO incredibly common to misunderstand, but has important implications.
I do see one common misconception at play going on. You see tax brackets a little incorrectly. Basically, it seems you think if you get your gross income down you'll be in another tax bracket, and that's a big savings. The misunderstanding is we actually have something called a "marginal tax brackets". So if you're above $75,900, ONLY the earnings ABOVE that line will be taxed at the higher rate, NOT your entire income. Here's an article that explains it better than I can: https://www.thesimpledollar.com/dont-fear-the-higher-tax-bracket-or-why-a-reader-needs-more-cowbell/ (https://www.thesimpledollar.com/dont-fear-the-higher-tax-bracket-or-why-a-reader-needs-more-cowbell/)
Your action plan isn't wrong, to be clear, just that there isn't some magic number you need to get below. Get as much as you can in tax advantaged accounts, yes, but don't worry that there's a big cliff that will hit you with a lot more taxes all of a sudden =)
Holy #$@%!!! That helped immensely!!! Thank you soooooo much :-)
Of course! Glad it helped. I look for this one because that's a misconception I had, and I fancied myself pretty well educated on all this (business minor, econ and accounting classes in college, all that jazz). It's SO incredibly common to misunderstand, but has important implications.
I have to ask just to make sure I'm understanding it correctly still :-)
So basically according to our combined income of $96,111 that $21,911 is being taxed in the 28% bracket? If so, then by investing in my 401k and at least one tIRA, which combined equals $24,000, I would no longer be taxed in that 28% bracket for that money because it's in those taxed deferred accounts? And because of this I would get more back in my taxes even though my weekly take home is lower?
So after reading and discussion we're going to max out my 401k for at least 10 yrs. Will discuss more as time passes or if someone gives me some reason not to :-) Now to the next step in Investment Order:
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
- They only interest rate we have above 5% is my wife's SL which is over 6%. We have applied for several refi's with no luck so far. I also looked up what a HELOC is and we don't have enough equity in our house to use it. Our house is only worth $55,000 after all the repairs and upgrades I've done. We currently owe $45,000 on the house. We live in Gloversville, NY which is a depressed slum after the factories either shutdown or left. The house is worth more according to the appraiser but we won't get it because of the location and state of the economy around us which has us thinking about renting it instead of selling. I really don't want to be a landlord... Eventually I want to move back into the country. Worry about that later down the line.
- After all that rambling I still plan to try and get her SL refi'd, in the meantime would we be better served paying it down if we are unable to?
- Lastly, my wife will not give up the car. Not at this point she said, come back to the idea in a couple years she said. So for now it's not going anywhere... At least the interest rate is low. I'll ask about what to do after a couple years if I'm unable to convince her :-)
So after reading and discussion we're going to max out my 401k for at least 10 yrs. Will discuss more as time passes or if someone gives me some reason not to :-) Now to the next step in Investment Order:
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
- They only interest rate we have above 5% is my wife's SL which is over 6%. We have applied for several refi's with no luck so far. I also looked up what a HELOC is and we don't have enough equity in our house to use it. Our house is only worth $55,000 after all the repairs and upgrades I've done. We currently owe $45,000 on the house. We live in Gloversville, NY which is a depressed slum after the factories either shutdown or left. The house is worth more according to the appraiser but we won't get it because of the location and state of the economy around us which has us thinking about renting it instead of selling. I really don't want to be a landlord... Eventually I want to move back into the country. Worry about that later down the line.
- After all that rambling I still plan to try and get her SL refi'd, in the meantime would we be better served paying it down if we are unable to?
- Lastly, my wife will not give up the car. Not at this point she said, come back to the idea in a couple years she said. So for now it's not going anywhere... At least the interest rate is low. I'll ask about what to do after a couple years if I'm unable to convince her :-)
Awesome work and movement =) Don't fuss about the car- a harmonious marriage is worth more than the damn car, and it sounds like your wife is thrifty and on board otherwise. 100% not a hill worth dying on. You're not so on-fire-panic-doom financial mode that it's the deciding factor in being able to retire, you know? So I agree, no point making it a battle, revisit in a few years when you can see all your efforts paying off.
At 6%, I would probably work on paying down her student loans. The 10 year treasury note yield is currently 2.83% https://www.cnbc.com/quotes/?symbol=US10Y (https://www.cnbc.com/quotes/?symbol=US10Y), so that step would be pay off anything 7.83% or above. But paying off anything in that 4-7% interest rate range kinda depends on your risk tolerance, etc. It's a case that could be argued either way. I think it would feel like a tangible win to keep you guys invested and keep you from feeling "rich" when you see retirement accounts add up, while not being so low that it's a mathematical loss relative to investing. So overall I'd say: do some reading and go with your gut, but personally I would lean pay her SLs off at 6%.
Definitely get going on 401k and tIRAs. The momentum and tax savings on those will be life changing once they start compounding. You're going to be amazed. (Sincerely, someone who had $0 networth 3 years ago, and now has broken $200k).
Definitely get going on 401k and tIRAs. The momentum and tax savings on those will be life changing once they start compounding. You're going to be amazed. (Sincerely, someone who had $0 networth 3 years ago, and now has broken $200k). <-- KICK ASS!!!
Thanks =) Just wanted to try and be encouraging- this shit really works! It can take a couple years to start really seeing it though. It takes a lot of hard work and faith/stubbornness/something to get through the "hard middle" when stuff is more on autopilot. Totally worth it though.Definitely get going on 401k and tIRAs. The momentum and tax savings on those will be life changing once they start compounding. You're going to be amazed. (Sincerely, someone who had $0 networth 3 years ago, and now has broken $200k). <-- KICK ASS!!!
So yeah after reading the REPAYE article we're definitely going to pay her loan down but the question now is should we still max out both my 401k and tIRA while paying it down? I was leaning toward just the 401k and after its paid start up the tIRA. Although I just did the numbers and it would only save me a couple months if I didn't invest in the tIRA, and now understanding how tax brackets work along with how it'll reduce our SL REPAYE payments, so I think we'll go with capping both and get working on her SL.
Side note, we're going invest the minimum allowed to start a taxable account so we can get that ball rolling as well and leave it alone while we pay down her SL. At least we'll have some money in it working for us in the mean time.
This sound like a good plan to go with for reaching our FI goal? I don't think there's much left option wise.
@Bracken_Joy - Thanks again for the link. Helped a lot and learned a lot. Pretty sure we have our plan set and just need to finalize our budget this weekend to determine how long it'll take to pay it off.
Fear not as we just received our new books today so I'll be back with more questions and curiosities 😎. Plus, I agree on the investing so the hard part will be deciding on a SL payment to investment ratio. Any links or guides on that?
Honestly, as frustrating as it's been it was a nice change to finally be challenged by lack knowledge requiring research and education vs lack of motivation from people wanting instant fix in pill form instead of a little hard work for their laziness over many years...LoL
I really enjoy the learning, it's always fun learning new things!
I'm going to be blunt. You need to start saving now. Compound interest is the key to success. Your money making money while you don't lift a finger is the name of the game. Do not wait another minute to start saving for your retirement. Eventually, as your investments start to grow, you may find yourself in a position to pay off the SL's in one go.
Do not prioritize SL's at the expense of retirement saving.
Also, just keep paying on the SL's until they're gone. I kinda have a problem with these forgiveness programs. You presumably took these loans voluntarily and benefitted financially from the education you received. Why should anyone subsidize your choices? (Sorry, it sounds harsher in writing than I intend to be.) There is a pride that comes from doing the hard thing. There is time and room in the budget to accomplish both goals*.
* I put myself through junior college, and graduated in 1979 with no debt. I do not know shit about modern day student loans or advanced degrees, so my advice and opinions could well be worthless. Make no mistake, what I know about how to get to FIRE is a LOT, and I'm happy to help. Everything I know about SL's is secondhand stuff that I learned here. Oh, and a friend of mine worked for Earnest for a while. Not a fun experience.
A thought to consider is gradually increasing your investment % as you adjust to your new budget. As the last thing you want to do is overextend with so much to investments it's hard to pay bills! It is still a new mindset/habit and will take time to reset your thinking.
Or you could start both investment/SL payment at a realistic, curent budget-based 50/50 and as you trim your budget increase the investment % to the max. Definitely start the IRA as you can do that thru Vanguard easily and fees are so low.
Really great job!
A thought to consider is gradually increasing your investment % as you adjust to your new budget. As the last thing you want to do is overextend with so much to investments it's hard to pay bills! It is still a new mindset/habit and will take time to reset your thinking.
Or you could start both investment/SL payment at a realistic, curent budget-based 50/50 and as you trim your budget increase the investment % to the max. Definitely start the IRA as you can do that thru Vanguard easily and fees are so low.
Really great job!
Thanks, we were going to take this month to get the 401K and tIRA going first, get our Taxable Account setup with Vanguard as well and investing the minimum required of $3000 out of saving and build that back up before we invest more. Once that is back to where we're comfortable and the budget is set we're off to the races. Our plan currently is to put the money into our investment account at the end of each month that way IF there are any emergencies we have that month of savings to cover it. We're setting all our bills and loans to autopay through a cash back credit card to make them easy to track and prevent forgetting to pay them. Pay the credit card off each month and invest the rest if there are no emergencies. Any cash back we get will also be reinvested as well. My wife is 100% on board and excited, especially since she gets to keep the car...LMFAO Small price to pay for a Happy Wife Happy Life scenario I figure :-) Picking up a couple bikes this weekend as well since work is literally a couple miles down the road and there's a bike trail that brings us out about a 1/4 mil from work by our house. We'll figure out travel when winter comes. LOVE Northeast Winters.../sigh
A thought to consider is gradually increasing your investment % as you adjust to your new budget. As the last thing you want to do is overextend with so much to investments it's hard to pay bills! It is still a new mindset/habit and will take time to reset your thinking.
Or you could start both investment/SL payment at a realistic, curent budget-based 50/50 and as you trim your budget increase the investment % to the max. Definitely start the IRA as you can do that thru Vanguard easily and fees are so low.
Really great job!
Thanks, we were going to take this month to get the 401K and tIRA going first, get our Taxable Account setup with Vanguard as well and investing the minimum required of $3000 out of saving and build that back up before we invest more. Once that is back to where we're comfortable and the budget is set we're off to the races. Our plan currently is to put the money into our investment account at the end of each month that way IF there are any emergencies we have that month of savings to cover it. We're setting all our bills and loans to autopay through a cash back credit card to make them easy to track and prevent forgetting to pay them. Pay the credit card off each month and invest the rest if there are no emergencies. Any cash back we get will also be reinvested as well. My wife is 100% on board and excited, especially since she gets to keep the car...LMFAO Small price to pay for a Happy Wife Happy Life scenario I figure :-) Picking up a couple bikes this weekend as well since work is literally a couple miles down the road and there's a bike trail that brings us out about a 1/4 mil from work by our house. We'll figure out travel when winter comes. LOVE Northeast Winters.../sigh
Great job about the bikes @Silverback761! You are very lucky to live so close to work. It sounds like it would be walkable even in winter. I lived for 20 years in the snowbelt of upstate NY, and one investment that paid off was my Neos overshoes. They are lightweight, waterproof overshoes with built in gaiters -- I have the knee-high version. They wear like iron. Kept my feet warm and dry even in that deep wet snow that you know so well. :)
A thought to consider is gradually increasing your investment % as you adjust to your new budget. As the last thing you want to do is overextend with so much to investments it's hard to pay bills! It is still a new mindset/habit and will take time to reset your thinking.
Or you could start both investment/SL payment at a realistic, curent budget-based 50/50 and as you trim your budget increase the investment % to the max. Definitely start the IRA as you can do that thru Vanguard easily and fees are so low.
Really great job!
Thanks, we were going to take this month to get the 401K and tIRA going first, get our Taxable Account setup with Vanguard as well and investing the minimum required of $3000 out of saving and build that back up before we invest more. Once that is back to where we're comfortable and the budget is set we're off to the races. Our plan currently is to put the money into our investment account at the end of each month that way IF there are any emergencies we have that month of savings to cover it. We're setting all our bills and loans to autopay through a cash back credit card to make them easy to track and prevent forgetting to pay them. Pay the credit card off each month and invest the rest if there are no emergencies. Any cash back we get will also be reinvested as well. My wife is 100% on board and excited, especially since she gets to keep the car...LMFAO Small price to pay for a Happy Wife Happy Life scenario I figure :-) Picking up a couple bikes this weekend as well since work is literally a couple miles down the road and there's a bike trail that brings us out about a 1/4 mil from work by our house. We'll figure out travel when winter comes. LOVE Northeast Winters.../sigh
Great job about the bikes @Silverback761! You are very lucky to live so close to work. It sounds like it would be walkable even in winter. I lived for 20 years in the snowbelt of upstate NY, and one investment that paid off was my Neos overshoes. They are lightweight, waterproof overshoes with built in gaiters -- I have the knee-high version. They wear like iron. Kept my feet warm and dry even in that deep wet snow that you know so well. :)
I'll have to check out those Neo Overshoes. They might be handy for my wife! Usually I just huff it in my all weather, all resistant, steel toes, blah blah blah, Wolverines...LoL Lifetime warranty so I trade them every year for a new pair because it's all work related dmg so they're free :-) The walk is a couple miles so it'll depend on weather and how cold it is. My wife is not a Snow Bunny...LoL I on the other hand am a Polar Bear :-) 10 degrees outside and I'm out just in shorts loving it...hehehe That's BRISK BABY!!!
I found an article explaining how 401k withdraw works and FI. Hopefully I have it correct so let's see. By investing in both of our 401k and IRA's we lower our marginal tax bracket. Get more back in refund or paycheck to reinvest You can withdrawal with very little penalty if you FI and don't work but withdraw from it. Is that correct? If I setup an Roth IRA eventually we can do the 5 yr rollover plan and withdraw without any fees or penalties. Correct?
So basically my wife and I should BOTH max our 401k and IRA, then determine our budget and after that invest in a taxable account? Have I figured it out finally?
I found an article explaining how 401k withdraw works and FI. Hopefully I have it correct so let's see. By investing in both of our 401k and IRA's we lower our marginal tax bracket. Get more back in refund or paycheck to reinvest You can withdrawal with very little penalty if you FI and don't work but withdraw from it. Is that correct? If I setup an Roth IRA eventually we can do the 5 yr rollover plan and withdraw without any fees or penalties. Correct?
So basically my wife and I should BOTH max our 401k and IRA, then determine our budget and after that invest in a taxable account? Have I figured it out finally?
The "how" is a tiny bit off, but the "why" and "what" look spot on to me! =) You shouldn't have to pay a penalty at all, and anyway a lot of places will require you move your 401k off their plan when you quit working for them- at that point it's common to convert it to an IRA (step 3 on this: https://www.cbsnews.com/news/best-401k-moves-when-you-leave-a-job/ (https://www.cbsnews.com/news/best-401k-moves-when-you-leave-a-job/) explains it pretty well I think). So what you're looking at is called "drawdown methods" and it gets a little complicated, but you don't have to worry about that part until later. (Plus, tax codes may change from now til then anyway!) But yes exactly, that's why we're encouraging you to do the tax-advantaged accounts BEFORE a taxable account.
Have you seen this thread yet? https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/ (https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/)
I found an article explaining how 401k withdraw works and FI. Hopefully I have it correct so let's see. By investing in both of our 401k and IRA's we lower our marginal tax bracket. Get more back in refund or paycheck to reinvest You can withdrawal with very little penalty if you FI and don't work but withdraw from it. Is that correct? If I setup an Roth IRA eventually we can do the 5 yr rollover plan and withdraw without any fees or penalties. Correct?
So basically my wife and I should BOTH max our 401k and IRA, then determine our budget and after that invest in a taxable account? Have I figured it out finally?
The "how" is a tiny bit off, but the "why" and "what" look spot on to me! =) You shouldn't have to pay a penalty at all, and anyway a lot of places will require you move your 401k off their plan when you quit working for them- at that point it's common to convert it to an IRA (step 3 on this: https://www.cbsnews.com/news/best-401k-moves-when-you-leave-a-job/ (https://www.cbsnews.com/news/best-401k-moves-when-you-leave-a-job/) explains it pretty well I think). So what you're looking at is called "drawdown methods" and it gets a little complicated, but you don't have to worry about that part until later. (Plus, tax codes may change from now til then anyway!) But yes exactly, that's why we're encouraging you to do the tax-advantaged accounts BEFORE a taxable account.
Have you seen this thread yet? https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/ (https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/)
Nope, but I'm going to now :-) And thank you for clarifying that for me. It is so liberating to finally be getting a grasp on all of this!!! I also started reading "The Simple Path to Wealth" and am enjoying it immensely.
I punched in the numbers in a compound interest calculator figuring standard 7% and HOLY SCHNIKES!!! Just in 10 years from both our 401K and IRA being maxed we are just a hair under our current expenses at a 4% standard withdrawal. Just for S&G's I did $10,000 yearly invest in a taxable account leaving us $38,000 for yearly expenses and if it's correct still a 7% interest and a 4% withdrawal (i know there's taxes) and all 3 combined are quite a few dollars above our required expenses after 10 years. If I actually did that correctly...that is absolutely staggering!!!
That doesn't even include what we plan to invest with my wife re-opening her old online business selling sewing, crochet and stitching patterns and me doing antique flipping. All this assuming I can do the math correctly...LoL
I found an article explaining how 401k withdraw works and FI. Hopefully I have it correct so let's see. By investing in both of our 401k and IRA's we lower our marginal tax bracket. Get more back in refund or paycheck to reinvest You can withdrawal with very little penalty if you FI and don't work but withdraw from it. Is that correct? If I setup an Roth IRA eventually we can do the 5 yr rollover plan and withdraw without any fees or penalties. Correct?
So basically my wife and I should BOTH max our 401k and IRA, then determine our budget and after that invest in a taxable account? Have I figured it out finally?
The "how" is a tiny bit off, but the "why" and "what" look spot on to me! =) You shouldn't have to pay a penalty at all, and anyway a lot of places will require you move your 401k off their plan when you quit working for them- at that point it's common to convert it to an IRA (step 3 on this: https://www.cbsnews.com/news/best-401k-moves-when-you-leave-a-job/ (https://www.cbsnews.com/news/best-401k-moves-when-you-leave-a-job/) explains it pretty well I think). So what you're looking at is called "drawdown methods" and it gets a little complicated, but you don't have to worry about that part until later. (Plus, tax codes may change from now til then anyway!) But yes exactly, that's why we're encouraging you to do the tax-advantaged accounts BEFORE a taxable account.
Have you seen this thread yet? https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/ (https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/)
Nope, but I'm going to now :-) And thank you for clarifying that for me. It is so liberating to finally be getting a grasp on all of this!!! I also started reading "The Simple Path to Wealth" and am enjoying it immensely.
I punched in the numbers in a compound interest calculator figuring standard 7% and HOLY SCHNIKES!!! Just in 10 years from both our 401K and IRA being maxed we are just a hair under our current expenses at a 4% standard withdrawal. Just for S&G's I did $10,000 yearly invest in a taxable account leaving us $38,000 for yearly expenses and if it's correct still a 7% interest and a 4% withdrawal (i know there's taxes) and all 3 combined are quite a few dollars above our required expenses after 10 years. If I actually did that correctly...that is absolutely staggering!!!
That doesn't even include what we plan to invest with my wife re-opening her old online business selling sewing, crochet and stitching patterns and me doing antique flipping. All this assuming I can do the math correctly...LoL
Compound interest is one of the strongest forces in the universe =P And with debt, it's working against you. Flip that on it's head and it feels like a miracle. You see the potential now, and are really GETTING the how and why. You'll kill it =) Especially since you haven't inflated your life that much since the "tight times", you won't feel the pinch of reduction the same way most people do. Still, be sure your changes are sustainable and you don't burn out. It's a big risk, like with dieting.
So our budget is set, both our 401k's are up and running, and tIRA's are setup also (just waiting for funds to clear from bank). I'm holding off on starting the taxable account until the funds clear through Vanguard for our IRA's and we have auto withdrawal setup. I have no idea what to invest in for that so I posted on the investor's forum to see what they suggest.
I'm actually really nervous about the taxable account because I have no bloody clue what I'm looking for with that. The ones I've seen most ppl suggest is the VSTMX ($3,000 min) and the VSTAX ($10,000 min). Figure I'd start with the VSTMX and after we get over the min. limit of the other switch to it. No idea...LoL I'm just grasping at straws on this. I'll just wait and see what is suggested.
Still exciting that we're on the train rolling towards FI!!! :-)
I'm actually really nervous about the taxable account because I have no bloody clue what I'm looking for with that. The ones I've seen most ppl suggest is the VSTMX ($3,000 min) and the VSTAX ($10,000 min). Figure I'd start with the VSTMX and after we get over the min. limit of the other switch to it. No idea...LoL I'm just grasping at straws on this. I'll just wait and see what is suggested.
I wish there was some other way I could express my gratitude but this truly has been an eye opening and life changing experience for both my wife and I. We are truly grateful to you and everyone that has taken the time and patience to help me figure this out, and in such a short amount of time. I know there's still a lot to learn but not that the trains rolling we don't have to rush and can really take it all in. We truly are grateful.
I wish there was some other way I could express my gratitude but this truly has been an eye opening and life changing experience for both my wife and I. We are truly grateful to you and everyone that has taken the time and patience to help me figure this out, and in such a short amount of time. I know there's still a lot to learn but not that the trains rolling we don't have to rush and can really take it all in. We truly are grateful.
Expressing gratitude is difficult, because the words just can't bear the weight of the meaning sometimes. But the best way I have found to put the gratitude into action is to help others in the way that I was helped--and in situations where I have been the give-ER, it is so wonderful to see the give-EE turn around and help someone else in the same way; the words "thank you" are important, but when I see similar kindness being expressed, I know that the gift has TRULY been received. :)
Regarding allowances and W-4 adjustments: try using a paycheck calculator (one I use often is here (https://www.paycheckcity.com/calculator/salary/)) and play with various scenarios to see how it would affect your take-home and other factors. You might also find a good tax planning spreadsheet helpful; I made myself a homegrown one and used it for years, and then discovered that I had been FAR outclassed by the one here (https://sites.google.com/site/excel1040/home/2018-tax-planner-new-tax-law)--and it's FREE! :) That will let you plug in numbers in an experimental fashion, and allow you to see what the impact of your choices will be.
You're doing GREAT--keep it up! :)
That's a good plan itself. Take it slow. One thing at a time. Just pick one thing, do that, then come back later for the next thing.
This thread will be here whenever you need it.
I'm going to do just that :-) I'm going to follow the order of investment plan and just go through it each step so here we go:
0. Establish an emergency fund to your satisfaction
- We have been doing that for quite some time and currently have enough to tide us over should we EVER both lose our jobs at the same time again for at least 3 months. We will continue to add a little to it with some of the extra funds we make on the side to cover ourselves. We're going to see what kind of savings accounts that accrue interesting our bank offers, to help it along, if that's possible. We're in a State Employees Federal Credit Union as my Father and Brother are state employees.
1. Contribute to your 401k up to any company match - Our company has no match...
- This is pretty much where my confusion and frustration begin so I'm glad it's the next step... I setup our 401k literally 10 min. before posting this reply. I currently have it setup at 6% weekly contribution. Based on my information provided would I be better served only putting in a small percentage (if so any suggestions?) or maxing it out at $18,500?
- As a side note, I currently have my 401k investments setup at roughly 33% split between Columbia Small, Mid and Large Index A to help diversify it. Those are by far the lowest in terms of fees (0.45% for all 3) and cover the stock market as recommended.
- Having a slightly better understanding of tax brackets after some reading, I think i understand why maxing tIRA x2 (Wife and I) is better and not 401K but still invest enough in the 401K to bring us down to next tax bracket when filing as Married Jointly. So if I'm correct, I would want to bring our gross income from $96,111 currently to under $77,401 for the tax break? If so, then I would really only want to invest a little over $7700 to make up the difference with the tIRA x2 and stop there as the fees in my 401k are poor in comparison to tIRA's.
Is this basically what everyone has been talking about in regards to taking advantage of taxed differed investing?
I see from the whole thread here that you're taking in a lot at once. Good for you.
And don't fret; you don't need to learn all this at once, or really, all of it at all. You can take a path many others have already tread and be well on your way without optimizing every specific item.
First, on something you've been asking about: your car is expensive relative to your income (paging @Ben Kurtz for the full breakdown on that, as he's always on point re: cars). One car alone is 20% of your take-home income. You can substantially improve that. Cars are sinkholes of cash, since the more you buy, the more they cost to insure, and the more they depreciate/lose value. The cheaper/more reliable you can get, the better.
On that point, you can start thinking now about the next vehicle and saving a little for it so that you don't end up right back at the finances department taking some crappy deal because you're utilizing a lot of credit and interest rates are currently on the rise (we're on track for four increases this year). You can put a little per month aside now, then use that to buy and only buy what you can afford. Americans waste more money on cars than probably anything else.
With that said, on to your questions/comments. Good going on the emergency fund! We like having a good bit on hand as a buffer for hard times or emergencies, but that's something where reasonable people differ, and your amount sounds reasonable. It's easier to have less on hand if you have more than one job (less risk/loss from job loss), more flex in expenses, and so on.
Now, for your big question: debt pay-off versus investing. There's no simple or correct answer in your situation. Realize, too, that money is psychological. I highly recommend the Dave Ramsey course for that reason - he nails that part well. That's why, for instance, many folks (including me) recommend paying off the smallest debt first in most cases: to see the reward and encourage faster debt pay down. It works.
In your case, I would strongly prioritize debt before much 401k/investing, though I would - for all the reasons you want to - invest a little already. You have about $75k coming in, but you still have $100k in student loans, $45k in a mortgage, $26k in car debt, for an amount north of $150k of debt (= > 2x income).
You may well qualify for the mortgage-interest deduction the more you pay down on interest. Also, read the IRS rules, since you could count capitalized interest towards that, too, at least when I did it. (YMMV; I'm not a tax guy.) So there's all the more incentive to pay those down now.
You get a guaranteed 6.5% return on every penny you pay on that one bad student loan. I'd pay that thing off first, and fast. Then you'll really feel the progress. That's almost as good as the historical stock market return, and as many have pointed out, we're at all-time-high valuations, so, while I don't recommend market timing, I also am not naive enough to think that every dollar put in today will receive a high return over the next decade or so.
Paying off those debts will bring you much greater stability, and you're guaranteed to lose 6.5% per year on the big one, not counting the compounding on the others.
I would play with some compound interest calculators, or see the free debt spreadsheet I used and link to here (http://financeswithpurpose.com/9-vital-ways-repay-200000-student-loans/) (I think) to see just how much you'll have to pay before you have those debts paid off. You can tailor it to your specific debts and payments, and it does all the math for you - so that you can count the cost of your decisions.
Don't let it get you down, get motivated, and come out swinging. You've got lots of upwards opportunity.
In your situation, there's no way I would max my tax-deferred accounts because you get a tax write-off on the student-loan interest now (though not quite as valuable) plus you'll have to repay those debts no matter what.
What I would do is invest a little so you can see it working for you and get used to automating it. And, more importantly, I would - and others, including @Dicey have pointed out - see about a refi on your home. If you can get a mortgage rate of 4.5% right now (hurry b/c rates are going up), you could save 2% on that big bad loan. So, by paying no extra money today, you might be able to wipe out up to $1k/more of interest per year. That's one easy way to maximize.
But again, YMMV - see your terms, conditions, and situation; we don't know enough to tell you whether it's absolutely a good idea. Finally, I second everything @Laura33 said - she's always on point.
Peachtea is spot on here. Dave Ramsey, as recommended, leans way harder anti-debt, even when the math makes no sense to do so. I would really, really recommend you not heavily pursue debt paydown since you have a late start. Don't let fear about investing keep you from doing so, it's vital. You have not looked foolish at any point in all this. It's clear you're here to learn, and you are doing so quickly compared to many people. Don't worry about looking silly with questions or anything, please. I really worry about the decision to step back from investing and go the emotionally safe route of low interest debt paydown.
Peachtea is spot on here. Dave Ramsey, as recommended, leans way harder anti-debt, even when the math makes no sense to do so. I would really, really recommend you not heavily pursue debt paydown since you have a late start. Don't let fear about investing keep you from doing so, it's vital. You have not looked foolish at any point in all this. It's clear you're here to learn, and you are doing so quickly compared to many people. Don't worry about looking silly with questions or anything, please. I really worry about the decision to step back from investing and go the emotionally safe route of low interest debt paydown.
I'm nervous but my wife is terrified about something happening and all our money is tied up in investments. She also hasn't been on her learning any of this with me. I can't blame her though between losing the house, losing our jobs, maxing credit cards to survive during that, etc. To finally only have those major ones left to pay off and knowing we could finally do so in a reasonable time is hard to walk away from.
Right now we have our 401ks set at 10% for both of us. Mine is setup for 15% small, 5% mid and 80% large. Hers is setup for 100% large with Columbia. As for our IRA's I'm the only one to open one so far and I have $1000 sitting the account in what looks like VFMXX which I think they put you in automatically when you make an account with an IRA. After that I'm at a loss as to what to do next.
I can understand the person you mentioned saying pay off debt because that in and of itself can feel like FI because you owe nobody anything other than your monthly bills. For me especially that's HUGE because I hate owning anyone anything be it favors or debt.
I don't need convincing to do either way. I'm on board for all of this but I need to learn more. My wife needs the convincing and understanding now and that's going to be a slow process. She's smart as a whip but hesitant about money after all we've been through. She'll pick all this up 10x faster than I did.
As a follow up, we have talked to the bank about refinancing the house and a HELOC and we don't have enough equity nor is the house worth enough they said because we live in a slum pretty much. Gloversville is ranked like the 8th most depressed city in the entire US. It's really sad... I'm just glad we got lucky and ended up with really good neighbors. So that leaves us with either paying it down / off now or later. The other loans I have no problem sitting on because the interest is so low.
As a follow up, we have talked to the bank about refinancing the house and a HELOC and we don't have enough equity nor is the house worth enough they said because we live in a slum pretty much. Gloversville is ranked like the 8th most depressed city in the entire US. It's really sad... I'm just glad we got lucky and ended up with really good neighbors. So that leaves us with either paying it down / off now or later. The other loans I have no problem sitting on because the interest is so low.
3.75% is a low interest rate. I don't see any reason whatsoever to pay that down more aggressively. Am I missing something with your considerations there?
*Yes, the loans are deductible -- you get up to $2500/yr in interest deductions. But, (a) that is an incentive not to pay them off, because you lose the deductions as your interest paid drops below that threshold, and (b) it is largely meaningless, because you're going to take the $24K standard deduction anyway.
@Laura33 So still max out 401k even though the fees are bad and our company doesn't match? Is my SL worth paying down as well with the low interest rate or just hers?
My wife is past her fears it's just deciding the financial plan now in terms of how to invest. Our budget is all set.
Thanks for the great advice. What you suggested about 401k and needing money for some reason didn't click until that post...lol. Information finally starting to all process.
*Yes, the loans are deductible -- you get up to $2500/yr in interest deductions. But, (a) that is an incentive not to pay them off, because you lose the deductions as your interest paid drops below that threshold, and (b) it is largely meaningless, because you're going to take the $24K standard deduction anyway.
The student loan interest can be deducted even if you take the standard deduction.
Well my wife has been reading "The Boglehead Guide to Investing"....Excellent reading choice!
| Paycheck frequency: | Annual | Annual | |
| Paycheck Items | Earner #1 | Earner #2 | Annual |
Gross Salary/Wages | $50,000 | $44,611 | $94,611 |
| 401(k) / 403(b) / TSP / etc. | $18,500 | $0 | $18,500 |
W-2 Box 1 | $31,500 | $44,611 | $76,111 |
| Non-paycheck income | Annual | Annual | Annual |
| Schedule C net profit | $1,500 | $0 | $1,500 |
1040 Total Income | $33,000 | $44,611 | $77,611 |
| Subtractions for AGI | Annual | Annual | Annual |
| Deductible SE tax | $106 | ||
| Traditional IRA | $5,500 | $5,500 | $11,000 |
| SL int. (approx.) | $2,500 | ||
1040 AGI | $64,005 | ||
| Payroll Taxes | Annual | Annual | Annual |
| Social Security | $3,100 | $2,766 | $5,866 |
| Medicare | $725 | $647 | $1,372 |
| Income Taxes | |||
| Federal tax | $3,884 | 2018, MFJ, std., 1 dep | $3,884 |
| State+local tax | $2,407 | NY state calc'n | $2,407 |
| Self-employment Tax | $212 | 0 | $212 |
| Total income taxes | $13,740 | $13,740 | |
| Monthly | |||
| Income before other expenses | $4,406 | $52,871 | |
| Monthly Average Expenses | Comments | ||
| Mortgage | $503 | Input to Item. Ded. | $6,032 |
| Property Tax | $200 | Input to Item. Ded. | $2,400 |
| Home/Rent Insurance | $53 | $635 | |
| Car Insurance | $182 | $2,180 | |
| Dentist | $57 | Input to Item. Ded. | $680 |
| Electricity | $216 | $2,594 | |
| Entertainment | $17 | $209 | |
| Groceries | $455 | $5,460 | |
| Internet | $65 | $780 | |
| Medical (Doctor, Hospital, etc.) | $76 | Input to Item. Ded. | $910 |
| Miscellaneous | $833 | $10,000 | |
| Phone (cell) | $100 | $1,200 | |
| Water/Sewer | $20 | $240 | |
Non-mortgage total | $2,274 | $27,289 | |
| Loans | |||
| Student Loan | $617 | $7,406 | |
| Student Loan | $457 | $5,481 | |
| Car | $433 | $5,191 | |
Total Expense | $4,283 | $51,398 | |
| Total to invest | $123 | $1,473 | |
| Summary: | |||
| "Gross" income | $8,009 | $96,111 | |
| Income taxes | $1,145 | $13,740 | |
| After-tax income | $6,864 | $82,371 | |
| IRA+401k/403b/TSP/457 | $2,000 | $458 | $29,500 |
| Living expenses | $2,777 | $33,320 | |
| Non-mortgage loans | $1,506 | $18,078 | |
| After-tax investable | $123 | $1,473 | |
| Time to FI?: | |||
| Guess at time to FI | 13.3 | years | |
| Safe Withdrawal Rate | 4.00% | percent | |
| Real return on tax-deferred investments | 5.00% | percent | |
| Real, after tax, return on taxable investments | 4.25% | percent | |
| Current Savings | |||
| Projected Savings at Retirement | |||
| Taxable | $146,677 | ||
| Tax-deferred (e.g. trad. IRA/401k) | $538,895 | ||
| Total projected stash | $685,572 | ||
| Projected Expenses in Retirement | |||
| Non-loan, non-work expenses | $27,289 | ||
| Annual non-tax retirement expense | $27,289 | ||
| Income taxes | $134 | ||
| Total | $27,423 | ||
| Stash needed for retirement @4.0% SWR | $685,572 | ||
| Perfect plan! |
| Filing Status | 2 | 1=S, 2=MFJ, 3=HOH | |
| # Dependents | 1 | ||
| # Children for EIC | 1 | ||
| Adult #1 | Adult #2 | ||
| Age | 40 | 48 | |
| Full-time student? | 0 | 0 | |
| AGI | $64,005 | ||
| Std. Deduct. | $24,000 | ||
| Act. Deduct. | $24,000 | ||
| Pass-thru deduct. | $300 | ||
| Taxable | $39,705 | ||
| 1040 Tax | $4,384 | ||
| Non-refund. CTC | $500 | ||
| Tax after n-r credit | $3,884 | ||
| Net Tax | $3,884 | ||
| Mtg. Int. (approx.) | $1,692 | 1000000 | |
| State tax | $2,407 | NY | |
| Prop tax | $2,400 | ||
| Item. Deduct. | $6,499 | ||
| Version | V11.13 |
| Loans: | Orig. Prin. | Orig. Length | Curr. Prin. | Yrs left | Rate |
| Mortgage | $45,581 | 8.9 | $45,581 | 9 | 3.75% |
| Student Loan | $54,352 | 10 | $54,352 | 10 | 6.5% |
| Student Loan | $45,914 | 10 | $45,914 | 10 | 3.625% |
| Car | $25,920 | 5.25 | $25,920 | 5.25 | 1.9% |