Author Topic: Finally debt free but what now?  (Read 2556 times)

Ryanpascarelli

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Finally debt free but what now?
« on: August 10, 2018, 09:12:42 AM »
Hey guys. So Iím 30 years old living 10 miles south of Boston. I was previously married and since divorced. I am now living with my girlfriend and we have been together about a year. I just paid off my car and am debt free for the first time since I was 18. I need some help on what to do next.

I make $42.81 per hour at my job working as a service technician for the gas company. Each year my pay will go up by 2 or 3%. I usually get a bonus in March of 5-6%. I have a company van that i take home. Overtime is available when I want but basically unlimited in the winter. Thereís guys here that make anywhere from $100,000 - $170,000. This year Iím on track to make about $120,000.

Assets

401k- $45,000 (10% plus 6% company match)
Hsa- maxed out but Iíve been using it so thereís not much
Savings- $32,000
Stock- 27 shares of Apple worth $5700
Car- 2015 Subaru Legacy

Liabilities

None

Budget

$1200 goes into shared account to pay rent, utilities and food
$70 cell phone. T-Mobile
$300 for restaurants and Dunkiní Donuts
$300 or so in misc items needed like stuff for the apartment, deodorant, etc.
$13 Netflix
$10 Apple Music

Usually I have about $750 per week with no overtime (which is rare) that I have been saving.

So now that I have no payments and have lowered my expenses quite a bit, I need to know what to do next. I considered moving about $20,000 into a capital one 360 account and just keeping dumping money into that until Iím ready to buy a house. But that could be a long time because the market here is just stupid high. I was also thinking, sell the Apple stock and put that with some of my savings into VTSAX to start investing better. Then I could keep $10,000 in savings and put the rest in capitalone 360.

Anyway, as you can see Iím completely unfocused and all over the place. Please help.


Bracken_Joy

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Re: Finally debt free but what now?
« Reply #1 on: August 10, 2018, 09:29:56 AM »

Raenia

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CalBal

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Re: Finally debt free but what now?
« Reply #3 on: August 10, 2018, 11:00:15 AM »
Congratulations on your debt-free-ness!

Bracken_Joy's advice is solid, check out those resources. On a more personal level, you are making a lot of money now! You have a lot of options. This is what I did when I was working on buying a house in a hot market (in my case, California Bay Area), and you are currently a little above my current salary, so the situation is quite similar:

If you have no short term savings goals and the house is the only medium-to-long term goal right now-

Max out that 401 asap! You should have no problem doing this on your salary. Find out what your current contribution is and figure out how much you can reasonably dump in from each paycheck (and still pay payroll taxes and cash flow living expenses like rent and such!) if you have online access and can change your contributions this is really easy. In fact, I did this a few months ago, and my next paycheck will have my last 401k contribution for 2018. (I did this because I am not sure I am staying in this job. For you I would do it to simplify the rest of the year, and then next year (if you are comfortable in the your job and not planning on leaving), calculate out how much should be taken from each payment to max out that 401k over the course of the year at the very beginning of the year and set it and forget it.) Make sure that your 401k is in a fund that is low expense ratio (as low as you can get with your provider - hopefully you can get an index fund of some sort).

Once the 401k is maxed, open an IRA and max it (you can do this through Vanguard, Fidelity). There is less urgency on that since you can contribute through tax day of the following year, but I would do it asap also (without making the rest of your life tough, of course). You are over the income limit to take a deduction for a traditional IRA, but you can still contribute to a Roth AFAIK if you anticipate your income to be < $118k in 2018. If you think it will be lower than the limit next year too, at the start of the year set up a direct deposit to spread out the contributions over the year. Set it and forget it.

I personally would take 10k of your savings and put it into a Capital One 360 Money Market account - it's up to around 1.75% I think now? 10k is the minimum for the MM acct. This is your savings, don't leave any $ in low or no interest bearing savings accounts. You can do direct transfers and access this money in just a few business days, so there's no need to have a separate savings account. I used Capital One 360 (originally ING Orange) when saving for my house. Next year (or even now) set up a direct deposit for some amount to function as your emergency fund (EF). I used $200/mo, but mostly because I was using it as an EF but whenever lumpy high expenses came up I was just cash flowing them and never really pulled money out (except for my house down payment).

Then open a Vanguard taxable account (or Fidelity I suppose, I use Vanguard), and dump all the rest into something simple like Total Market index fund for the moment - you can get fancier later. > $10k will get you Admiral shares with a super low expense ratio. It's super easy to do, you can do it online. If you consistently have extra money in your checking (or whatever account your paycheck goes into), chose an amount and move it to the Vanguard taxable acct on a regular (monthly? quarterly?) basis. You could auto direct deposit this or do it manually, however you are most comfortable.

HSA you are already maxing, so you've got that covered. Keep doing that.

When I bought, I had the luxury of doing so with my (now-ex) BF, so I only had to come up with half the down payment. Still, that was quite high being the SF Bay Area. I used most of the money in my Capital One 360 account, and pulled a good chunk out of my taxable Vanguard account as well. In my mind, I could have used some Roth IRA funds too (you can withdraw contributions with no penalty), if I had to, but I didn't need to.

The best way (IMO) to meet your goal is to automate all the contributions to these accounts. The money just flows into them without you ever doing anything (once you get it sorted). You become comfortable on your smaller living expenses, and it's just normal. Meanwhile your money is working for you. For me it looked like this (this year):
401k - 20% (~$700 per biweekly paycheck)
Vanguard IRA - $550/mo
Capital One 360 - $200/mo
Vanguard taxable - I didn't automate this but I moved money when I was comfortable with the amount in my checking acct.

Just remember, the money is not locked away, you certainly can get to it under certain circumstances.

Good luck!! You can do it, even in a hot market!! :)

Ryanpascarelli

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Re: Finally debt free but what now?
« Reply #4 on: August 10, 2018, 12:06:28 PM »
Thanks everyone and thank you calbal for the great information. I will definitely be putting more into my 401k. The concern I have there is that I wonít have too much left to put into other categories or to save for a house. I think using the capital one 360 as my savings is a great idea especially because they will give me a $200 bonus for putting in $10,000. However, if I need cash quick it isnít ideal which is why I think leaving some in my credit union savings account might be a good idea. Also, dumping about 20,000 into a low cost index fund sounds like a great idea. I was thinking of trying that new free fidelity account. It does concern me that itís  brand new and thereís like no information about it online yet.

MrThatsDifferent

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Re: Finally debt free but what now?
« Reply #5 on: August 10, 2018, 01:36:14 PM »
Youíre all over the place because you havenít started with the end: whatís your goal, where do you want to end up? If you want to FIRE and see the world, maybe buying a house isnít the best strategy? If youíve found your forever place, maybe it is? Think through where you want to be in 5, 10, 15 and 20 years and then put in plans to make that happen. At least work out the next 10. Once you have that then you can get better advice, such as tackling some expenses and other ways you can maximize your income.

reeshau

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Re: Finally debt free but what now?
« Reply #6 on: August 11, 2018, 01:45:34 AM »
Hsa- maxed out but Iíve been using it so thereís not much

This is not one of your primary issues, but it caught my eye.  A primary advantage of the HSA over an FSA is that you can save and invest the money.  You are on this board, so I assume you have interest, at least, in retiring early?  The HSA is perfectly suited to help you with one of the most onerous problems with that:  health care, pre-medicare.

But you also say you have been spending it, which is unusual for as young as you are.  Do you have a prior injury, or long-term health condition?  Those may be significant considerations for your future plans, that typical advice / articles may not take into account.  Regardless, though, you can afford it now, so think of your HSA as another retirement account, not a spending account.

mozar

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Re: Finally debt free but what now?
« Reply #7 on: August 13, 2018, 02:27:54 PM »
Quote
$300 for restaurants and Dunkiní Donuts

Seriously consider giving up your Dunkin' Donuts habit. Sugar is addictive and you will go through withdrawal but your body will thank you. You are also spending a lot on restaurants and miscellaneous. Don't buy into the idea that because you make a lot of money you deserve it. You are frittering away $600 bucks a month. That's a lot!

Ryanpascarelli

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Re: Finally debt free but what now?
« Reply #8 on: August 14, 2018, 06:39:51 AM »
Quote
$300 for restaurants and Dunkiní Donuts

Seriously consider giving up your Dunkin' Donuts habit. Sugar is addictive and you will go through withdrawal but your body will thank you. You are also spending a lot on restaurants and miscellaneous. Don't buy into the idea that because you make a lot of money you deserve it. You are frittering away $600 bucks a month. That's a lot!


Well, that number is just an estimate. Iím in a new relationship and going out to eat and breweries is something we like to do. My expenses are already so low that it doesnít really bother me to spend some money on going out with my girlfriend. I drink my coffee black as well and yea Iím working on giving up the dunkies. Stopped having sugar like 2 years ago. Iím down 45 pounds in addition to paying off all my debt so Iím feeling pretty good. I just need to figure out whether to do a Roth IRA or traditional and automate my savings and investing.

JanetJackson

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Re: Finally debt free but what now?
« Reply #9 on: August 14, 2018, 10:32:00 AM »
Posting to follow because I don't have a TV to watch dramatic reality TV shows and someone just told someone who is from Boston to stop going to Dunkin' Donuts ::::Covers eyes and peeks through fingers::::

FindingFI

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Re: Finally debt free but what now?
« Reply #10 on: August 15, 2018, 08:57:34 AM »
You may want to consider Ally for your online saving account.  They are paying 1.80% on savings for any balance vs 1.0% for 360 savings or 1.75% for 360 MM over $10k.

Ryanpascarelli

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Re: Finally debt free but what now?
« Reply #11 on: August 16, 2018, 02:18:11 PM »
You may want to consider Ally for your online saving account.  They are paying 1.80% on savings for any balance vs 1.0% for 360 savings or 1.75% for 360 MM over $10k.


I did the 360 account and so Iíll get the $200 bonus. Then Iíll probably transfer everything to ally bank.

ScreamingHeadGuy

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Re: Finally debt free but what now?
« Reply #12 on: August 17, 2018, 05:29:17 AM »
Awesome progress.  Keep on keeping on.

mckaylabaloney

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Re: Finally debt free but what now?
« Reply #13 on: August 17, 2018, 03:11:38 PM »
I just need to figure out whether to do a Roth IRA or traditional and automate my savings and investing.

At your expected income, I don't think you are eligible for a deductible traditional IRA (because you have access to a 401k). Double check that, but if I'm right, then it's a no-brainer -- go for the Roth (depending what your income actually winds up being, and depending on how much of it you contribute to your 401k, you may need to do a backdoor Roth).

CalBal

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Re: Finally debt free but what now?
« Reply #14 on: August 17, 2018, 04:41:30 PM »
I *think* you want to do Roth IRA, not because you have access to a 401k (that doesn't matter I think?) but because the tax deduction for a traditional IRA is phased out between a MAGI of 63k and 73k for filing single. I make maybe 25% less than you do, and my MAGI was just *slightly* too high to take any deduction this last year (which I didn't expect) so I had to recharacterize my traditional IRA contributions for 2017 to Roth IRA. (Well, I didn't *have* to, but there was no benefit keeping it in a traditional.) If your estimated MAGI for 2018 is above 73k just make it simple on yourself and do Roth IRA. The benefit of a Roth IRA is that you will be able to withdraw the principal tax and penalty free at any point down the line (not true for a traditional IRA - the benefit of the traditional is that it will reduce your tax burden today - but only up to a MAGI of 73k). But read up on it.

Ryanpascarelli

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Re: Finally debt free but what now?
« Reply #15 on: August 17, 2018, 09:44:42 PM »
Thank you all very much for the recommendations. I am going to pick the Roth for sure. It makes the most sense.

mckaylabaloney

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Re: Finally debt free but what now?
« Reply #16 on: August 20, 2018, 07:45:32 AM »
I *think* you want to do Roth IRA, not because you have access to a 401k (that doesn't matter I think?) but because the tax deduction for a traditional IRA is phased out between a MAGI of 63k and 73k for filing single.

It's both. If you're covered by a retirement plan at work, then your traditional IRA contributions may or may not be deductible, depending on your income. If you're not covered by a retirement plan at work, then your traditional IRA contributions are fully deductible (unless you're married and your spouse has a work retirement plan). See the IRS guidance here: https://www.irs.gov/retirement-plans/ira-deduction-limits

CalBal

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Re: Finally debt free but what now?
« Reply #17 on: August 20, 2018, 08:05:21 AM »
I *think* you want to do Roth IRA, not because you have access to a 401k (that doesn't matter I think?) but because the tax deduction for a traditional IRA is phased out between a MAGI of 63k and 73k for filing single.

It's both. If you're covered by a retirement plan at work, then your traditional IRA contributions may or may not be deductible, depending on your income. If you're not covered by a retirement plan at work, then your traditional IRA contributions are fully deductible (unless you're married and your spouse has a work retirement plan). See the IRS guidance here: https://www.irs.gov/retirement-plans/ira-deduction-limits

Ah, you are right, my mistake. The limits above are if you are covered by a 401k at work. If one is not available, your contribution is fully deductible!