Reader Case Study - Investment Order Review Help

[BeginningToBudget]

Life Situation:
IRS filing status - Single
Number & ages of dependents - N/A
Anything else - Single 26-year old female that resides in the Midwest who thought I was doing well but found MMM last week and am now second guessing quite a few life decisions. Wondering if I need to make some changes to existing accounts, specifically after finding/reading the Investment Order post.

Gross Salary/Wages:
Annual Salary: $72,000

Individual amounts of each Pre-tax deductions:
401k - 16% - $482.56/check (4% Employer Match @  120.64/check)
HSA - $125/check (Employer Contribution @ 20.83/check)
Insurance(Health/Dental) - $36/check

Adjusted Gross Income:
$1744 twice a month/$41,856 a year

Taxes:
Federal Tax: $495.45/check
State+Local Tax: $133.55/check
FDIC Tax: confused on this one still

Current monthly expenses:
Mortgage P&I - $651
Mortgage T&I(Escrow) - $220
Mortgage Extra Principal - $200
HOA - $192
Car Loan - $343
Car Extra Principal - $57 (I like even numbers)
Internet – $42
Netflix - $15
Utilities(Gas/Electric/Water) Average - $96
Car Insurance - $50
Home Owners Insurance - $12
Disability Insurance - $26
Crossfit Gym - $145
Roth IRA - $500
Gas - $120 (I have a slight weekend travel/visit family problem & commute 20 minutes)
Groceries - $200
Restaurants/Fast Food - $150 (Started working on this one ~3 mo ago, I’ve improved!)
Transfer to 360 Savings - $100
Misc. – Apparently ~400, obviously need to improve monthly budgeting because unsure of what I’m doing with this money regularly. I think it accounts for my random one-time purchases such as concert tickets, DIY projects, car oil changes, gifts, new gym shoes, CrossFit competitions, donations, etc. Most of which could be cut if necessary and the remainder of it is the checking buffer that slowly builds until I transfer it to savings. But I will work on analyzing this better in the up-coming months.

Assets:
Townhome: $180,000
Car: $14,000 (2016 Honda Civic – Graduation Present to myself not very mustachian)
Roth IRA: $48,000
401(k): $33,500
Capital 360 Savings @1%: $20,000 (This was initially for house down payment now emergency fund)
Robinhood: $1,900 (Penny stock trading that got a little out of hand.. cool platform though)
Fundrise: $1,000 (newest adventure, seemed cool thought I’d try it)
Etrade (Stocks&Funds): $17,500
Bank Checking: $1,500 (This is the account that I work out of everything starts here and gets split up)
Bank Savings: $1,500 (Checking buffer goes here, then when this gets to be a sizable amount I transfer most of it to a different account)

Debts:
House: $125,214, Interest is 4.25% 26 years left
Car Loan: $5,000, Interest is 0.9% 1 year left (Was going to buy outright and dealership convinced pre-MMM me to invest the money rather than buy it outright… not sure that was smart but .9% is really low!)

Specific Question(s): 
1. Planning to immediately open an Ally account and close my Capital 360 Savings. The question is should I keep my full “Emergency Fund” here with the updated 2.2% or only keep a portion for immediate emergencies and either pay down a debt or invest in additional funds/stocks. I’ve never viewed my Etrade account as emergency funds previously, but I think they might be after reading more and more of the blog.

2. Car… I don’t really want to sell my car, bought her with the plan to have this car for 10+ years. But I’m struggling a bit with if I should continue to just pay monthly payments or if I should just pay off the loan now, only have a year left and the interest is so low it seems a bit crazy not to invest the money I would have used to buy it… but I’m no expert

3. Should I continue to pay extra on my mortgage? I could move that surplus to get closer to maxing my 401k which I think is the recommend path from the “Investment Order” post. The 200 a month makes my total payment closer to 50/50 principal/interest, which makes me a little bit happier that it’s not 75/25 or whatever crazy thing it starts at but I had no data to justify that life decision.

4. Where do debts less than 3% over the current treasury note fall in the scheme of things? Once I figure out where my “misc” money is going or my car payment disappears, should that money go to mortgage? Or to investment/taxable accounts? Because my mortgage is less than ~5% so I don’t know if it falls in the before or after taxable account category.

5. Any other enlightening advice is appreciated! Working to expand my understanding and have more rational/thought behind my financial decisions. Thank you so much for your help!

[MonkeyJenga]

2. Makes sense to invest the money rather than pay off such a low rate early.

5. Why a Roth? What's your marginal tax rate?

[MDM]

IRS filing status - Single
...
Restaurants/Fast Food - $150 (Started working on this one ~3 mo ago, we’ve improved!)
Misc. – ... But we will work on analyzing this better in the up-coming months.

BeginningToBudget, welcome to the forum. 

Just checking: based on the "we"s, will filing status change to MFJ soon?

1. Planning to immediately open an Ally account and close my Capital 360 Savings. The question is should I keep my full “Emergency Fund” here with the updated 2.2% or only keep a portion for immediate emergencies and either pay down a debt or invest in additional funds/stocks. I’ve never viewed my Etrade account as emergency funds previously, but I think they might be after reading more and more of the blog.

See Roth IRA as an emergency fund - Bogleheads for some thoughts, but the amount of an e-fund is really a person-by-person choice.

2. Car… I don’t really want to sell my car, bought her with the plan to have this car for 10+ years. But I’m struggling a bit with if I should continue to just pay monthly payments or if I should just pay off the loan now, only have a year left and the interest is so low it seems a bit crazy not to invest the money I would have used to buy it… but I’m no expert

The purchase is water under the bridge at this point, and the rate is very low.  Keeping the car and making only minimum payments is reasonable.

3. Should I continue to pay extra on my mortgage? I could move that surplus to get closer to maxing my 401k which I think is the recommend path from the “Investment Order” post. The 200 a month makes my total payment closer to 50/50 principal/interest, which makes me a little bit happier that it’s not 75/25 or whatever crazy thing it starts at but I had no data to justify that life decision.

When paying a mortgage, you are always paying the loan rate on the unpaid principal.  A 4.25% after-tax (because you probably aren't itemizing) guaranteed return is pretty good, but still less than what you might expect from stock market investments.  There is no correct answer here, except with hindsight.

4. Where do debts less than 3% over the current treasury note fall in the scheme of things? Once I figure out where my “misc” money is going or my car payment disappears, should that money go to mortgage? Or to investment/taxable accounts? Because my mortgage is less than ~5% so I don’t know if it falls in the before or after taxable account category.

See #3. ;)

5. Any other enlightening advice is appreciated! Working to expand my understanding and have more rational/thought behind my financial decisions. Thank you so much for your help!

See tables below that might give you a starting point for filling out a more accurate version of the case study spreadsheet.  You can then use it to project taxes (appears you are over-withholding), determine your marginal tax saving rates for different amounts of contributions, make a simplified estimate of time to FI, etc.

Paycheck frequency:	2X/Month	Annual
Paycheck Items	Earner #1	Earner #2	Annual
Gross Salary/Wages	$3,000	$0	$72,000
Pretax Health/Dental/Vision Ins.	$36	$0	$864
Employer-sponsored HSA	$125	$0	$3,000
FICA base salary/wages	$2,839	$0	$68,136
401(k) / 403(b) / TSP / etc.	$480	$0	$11,520
W-2 Box 1	$2,359	$0	$56,616
Employer Match	$141	$0	$3,380
1040 AGI			$56,616
Other Specific Investment Types	Annual	Annual	Annual
Roth IRA	$6,000	$0	$6,000
Payroll Taxes	2X/Month	Annual	Annual
Social Security	$176	$0	$4,224
Medicare	$41	$0	$988
Income Taxes
Federal tax	$235	2019, S, std.	$5,630
State+local tax	$112	IL state calc'n	$2,690
Total income taxes	$564		$13,532
	Monthly
Income before other expenses	$3,090		$37,084
Monthly Average Expenses		Comments
Mortgage	$651	Input to Item. Ded.	$7,812
HOA	$192		$2,304
Property Tax	$208	Input to Item. Ded.	$2,496
Home/Rent Insurance	$12		$144
Car Insurance	$50		$600
Dining (Lunch/Dinner/Etc.)	$150		$1,800
Electricity	$96		$1,152
Emergency Fund	$15		$180
Fuel/Public Transport	$120		$1,440
Groceries	$200		$2,400
Internet	$42		$504
Life/LTD Insurance	$26		$312
Miscellaneous	$400		$4,800
Sports/Recreation	$145		$1,740
Non-mortgage total	$1,656		$19,872
Loans
Car loan	$343		$4,116
Total Expense	$2,650		$31,800
Total to invest	$440		$5,284
Summary:
"Gross" income	$6,000		$72,000
Income taxes	$1,128		$13,532
After-tax income	$4,872		$58,468
IRA+401k/403b/TSP/457	$1,460	$0	$17,520
HSA	$250	$0	$3,000
Living expenses	$2,379		$28,548
Non-mortgage loans	$343		$4,116
After-tax investable	$440		$5,284

Filing Status	1	1=S, 2=MFJ, 3=HOH
	Adult #1
Age	35
Full-time student?	0	0
AGI	$56,616
Std. Deduct.	$12,200
Act. Deduct.	$12,200
QBI deduct.	$0
Taxable	$44,416
1040 Tax	$5,630
Tax after n-r credit	$5,630
Net Tax	$5,630
Mtg. Int. (approx.)	$5,268	1000000
State tax	$2,690	IL
Prop tax	$2,496
Item. Deduct.	$10,454
Version	V12.07

Loans:	Orig. Prin.	Orig. Length	Curr. Prin.	Yrs left	Rate
Mortgage	$132,334	30	$125,214	27	4.25%
Car loan	$16,165	4	$16,165	4	0.9%

[Watchmaker]

Specific Question(s): 
1. Planning to immediately open an Ally account and close my Capital 360 Savings. The question is should I keep my full “Emergency Fund” here with the updated 2.2% or only keep a portion for immediate emergencies and either pay down a debt or invest in additional funds/stocks. I’ve never viewed my Etrade account as emergency funds previously, but I think they might be after reading more and more of the blog.

2. Car… I don’t really want to sell my car, bought her with the plan to have this car for 10+ years. But I’m struggling a bit with if I should continue to just pay monthly payments or if I should just pay off the loan now, only have a year left and the interest is so low it seems a bit crazy not to invest the money I would have used to buy it… but I’m no expert

3. Should I continue to pay extra on my mortgage? I could move that surplus to get closer to maxing my 401k which I think is the recommend path from the “Investment Order” post. The 200 a month makes my total payment closer to 50/50 principal/interest, which makes me a little bit happier that it’s not 75/25 or whatever crazy thing it starts at but I had no data to justify that life decision.

4. Where do debts less than 3% over the current treasury note fall in the scheme of things? Once I figure out where my “misc” money is going or my car payment disappears, should that money go to mortgage? Or to investment/taxable accounts? Because my mortgage is less than ~5% so I don’t know if it falls in the before or after taxable account category.

5. Any other enlightening advice is appreciated! Working to expand my understanding and have more rational/thought behind my financial decisions. Thank you so much for your help!

1. I personally prefer to have my whole E fund available as cash, and to keep ~6 months of basic living expenses in it. What you suggest is not unreasonable though.

2. I don't think it's quite as non-mustachian as you are thinking. It's not like you bought a gas guzzling giant SUV. The interest is low enough I'd just keep paying it.

3. With that rate, I wouldn't pay any extra on the mortgage. I'd direct the extra to investments. Mortgages are great for providing low risk leverage for young investors, make use of it.

4. Less than 3% I wouldn't pay off early.

5. I think the crossfit is too expensive and I'd find cheaper/free forms of exercise. And I don't like HOAs. I'd also figure out where that $400 misc is going, but otherwise I think you are doing a good job.

You've definitely better organized than I was at 26.

[BeginningToBudget]

5. Why a Roth? What's your marginal tax rate?

MonkeyJenga,

Thanks for the quick response! As for the Roth, I was a naive college student that went to one financial advice lecture. And the take away for me was open a Roth IRA ASAP for retirement. So I opened one and have been maxing it out ever since. Haven't really ever looked into it more than that at this point.

I think my marginal tax rate is 22% but that is just from me googling about marginal tax rates this morning.

[BeginningToBudget]

IRS filing status - Single
...
Restaurants/Fast Food - $150 (Started working on this one ~3 mo ago, we’ve improved!)
Misc. – ... But we will work on analyzing this better in the up-coming months.

BeginningToBudget, welcome to the forum. 

Just checking: based on the "we"s, will filing status change to MFJ soon?

MDM,

Nope, apparently when writing this I was referring to me, myself, and I. I've updated it to be less confusing. Thanks for pointing it out!

Also thank you for the additional links, I will work on updating my spreadsheet. I started one and the tax information got me pretty confused, so I'm going to have to learn more about all of those details.

[MonkeyJenga]

5. Why a Roth? What's your marginal tax rate?

MonkeyJenga,

Thanks for the quick response! As for the Roth, I was a naive college student that went to one financial advice lecture. And the take away for me was open a Roth IRA ASAP for retirement. So I opened one and have been maxing it out ever since. Haven't really ever looked into it more than that at this point.

I think my marginal tax rate is 22% but that is just from me googling about marginal tax rates this morning.

Hey saving it is better than spending it! And it still might make sense to do Roth over a tIRA, depending on whether you plan on retiring early or downshifting to PT or on-off years. Taking the deduction now makes sense for people with future low-earning years, since you can access the money later with no or minimal taxes. A resource comparing tIRA to Roth, with a focus on early retirees: https://www.madfientist.com/traditional-ira-vs-roth-ira/

You're in a great position for someone your age, so FIRE is in reach if you want it! If that's a goal, it makes sense to prioritize tax deductions now. I would try to max your 401k as well - whether Roth or traditional depends on the expected future tax brackets.