The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: 3_Antibodies on July 25, 2013, 12:11:33 AM
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I'm 24 and have been working full-time for a year. My gross annual income is $53k. In the past 8 months that I have been consciously budgeting I have paid off my student loans (I only had $5.5k) and have been working on building an emergency fund (currently ~$7500). I have been contributing 6% into my 403b and my company matches 2% (vested 100% already) plus another 2.5% quarterly which will be fully vested if I stay 3 years (not sure yet if I will, depends on SO's plans). I have no other debt, though my car may need to be replaced soon. I currently save about $1315/month plus the two months a year with three pay days the third paycheck goes 100% in savings as well (total savings ~$18,500/year).
I feel like I am off to a good start, but now that I'm debt-free and have a healthy (but not sure if it is complete) emergency fund, I want to check in and determine what the best steps are.
Emergency fund: When I started, I was aiming for 8 months of expenses which is $11,400. Now I'm not sure that I want or need all of that sitting in a savings account earning hardly anything. Thoughts on how much I should keep in savings, and where I should put the rest so that it is somewhat accessible, but still working for me?
Roth IRA: I plan to start this and max it out yearly.
Saving for a down payment for a house: I'm not sure what our timeline will be for buying a house, but I definitely want to start saving for a downpayment, and I could have a decent amount saved in 3-5 years. Where should I keep this money?
On a side-note: SO is currently in grad school and will be for 1 more year. He has no debt and pays his share of monthly expenses but is able to save very little. In a year he will be working full-time, but will likely not be making as much as me. This financial plan is mainly for me; we'll figure out his situation when he has more income to work with.
Thoughts and guidance please! :)
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Sounds like you are already off to a good start
-Fully fund your Roth for 2013 and then keep at it.
-Look at some of the threads on emergency funds and decide if you may already have too much (*in cash). Even $5000 is good taxable account seed money.
. . .. you didn't post your expenses, which is probably why people aren't biting. It's hard to give advice when just the high lights are given. Some ideas
-If you have good investment options (expense ratios, etc.) in your 403b, up the contribution
-Start a taxable investment account
-Cut fixed and variable expenses, send the extra money to investments
-Watch it grow
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+1 on being so financially mature @24! Good on doing the 403b. I agree with smalllife that you should max it out, assuming the funds, yearly charges, and expense ratios are decent. If you post that information, you will get opinions there too.
Emergencies do happen so IMO keep saving up to your goal of 8 months expenses.
If your vehicle will need to be updated, save ahead for it; then, when it is time, you pay cash. I would do this ahead of your Roth because car expenses can be a big downer financially. I know you are Jonesing to invest; that is good, but you need to batten down the household more before entering the financial world more. Besides, you will have a fully funded 403b!
Are you experiencing household budget and fun expenses creep now that you are working and making good money? Since your SO is still in the student life, pretend you both are and keep your expenses low. When he gets a job, try living on his income. Hell, just keep your expenses low and be like MMM.
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- Max out Roth
- Lower your tax bill by contributing more to 403b. You can save thousands per year: http://www.paycheckcity.com/coadp2/403bcalculator.asp
- Save for house down payment
Balance these based on your house purchasing timeline.
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You are off to a great start! If you want to learn more about investing, I recommend Andrew Tobias's The Only Investment Guide You'll Ever Need That will help you decide where to put your house downpayment savings (and, I recommend that you anticipate buying your next car out of those savings too if your car will need replacement in the next 5 years).
I like putting my E Fund into my Roth because I can withdraw principal without penalty and it keeps it out of reach enough that I would never count on it to use towards non-emergency spending. Although you don't have a withdrawal penalty, you do lose your opportunity to make a contribution that year. (e.g., if you contribute in 2013 and 2014, and withdraw those principal amounts in 2015, you can never put the money back in a s your 2013 and 2014 contribution). Because you will also have your actual savings somewhat accessible, and that looks like it would be significant, I would put your E Fund into a Roth.
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I think it really sounds like you are off to a great start. Have you looked into maybe starting some side jobs for extra money? It's a great idea if you have free time!
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. . .. you didn't post your expenses, which is probably why people aren't biting. It's hard to give advice when just the high lights are given. Some ideas
Alright, here are my expenses as budgeted currently:
Net monthly income (2 regular paychecks, no night shifts or OT)=$2750
Rent=$480 (just moved- we are house sitting for a professor for a year- all utilities included)
Car insurance=~$65
TV=$50 (I budget $50 in my spread sheet but it is actually closer to $20. After going 1 year without any cable, we stupidly got into a 2 year contract with a satellite company when I started working. We hardly use it and have it down to the cheapest package, but we will cut it in a year when the contract is up)
Food=$140
Gas=$250 (this is the killer, when we moved into this lovely house for such cheap rent it made my commute go from 7.5 miles to 30 miles. We have only been here just under a month so this figure is a generous estimate. For this month it looks like I will only hit ~$180)
Emergency=$250 (this is my catch-all category... lately with car trouble and moving expenses, I have been going over...)
Fun=$200 (includes eating out, etc. I hardly ever max this out)
Savings=$1315
ETA: You will notice I do not budget for a phone. I currently have a dumb phone that is still on my parents' plan. This will change soon and I will be looking into very cheap options.
I think it really sounds like you are off to a great start. Have you looked into maybe starting some side jobs for extra money? It's a great idea if you have free time!
Thanks, that's good to hear! I have started looking into it. I work in healthcare, 2nd shift 5 days a week. I'm trying to figure out the logistics of adding a per diem job at another hospital. Because of our schedule differences, I don't get much time with my SO so I'm really not digging the idea of routinely giving up my 2 days off a week. I should also add that while house sitting, we are caring for the professor's dog and HUGE lawn at a discount of $200/month rent.... this takes time and I guess is sort of a side job. I do cover night shifts and get OT when it is offered at work to increase my salary. This isn't terribly often, though.
You are off to a great start! If you want to learn more about investing, I recommend Andrew Tobias's The Only Investment Guide You'll Ever Need That will help you decide where to put your house downpayment savings (and, I recommend that you anticipate buying your next car out of those savings too if your car will need replacement in the next 5 years).
I like putting my E Fund into my Roth because I can withdraw principal without penalty and it keeps it out of reach enough that I would never count on it to use towards non-emergency spending. Although you don't have a withdrawal penalty, you do lose your opportunity to make a contribution that year. (e.g., if you contribute in 2013 and 2014, and withdraw those principal amounts in 2015, you can never put the money back in a s your 2013 and 2014 contribution). Because you will also have your actual savings somewhat accessible, and that looks like it would be significant, I would put your E Fund into a Roth.
Thanks for the suggestions and book recommendation, I will definitely look into that! The book that I read 8 months ago that got me started budgeting and saving was Suze Orman's The Money Class. It was a good starting point, but I find myself wanting to learn more.
- Max out Roth
- Lower your tax bill by contributing more to 403b. You can save thousands per year: http://www.paycheckcity.com/coadp2/403bcalculator.asp
- Save for house down payment
Balance these based on your house purchasing timeline.
+1 on being so financially mature @24! Good on doing the 403b. I agree with smalllife that you should max it out, assuming the funds, yearly charges, and expense ratios are decent. If you post that information, you will get opinions there too
I should note that I am actually contributing to my 403b as roth right now. Should I not be?
Also, should I really focus on contributing so much beyond my match to the point of not being able to invest in other ways? If I max out my 403b ($17500) that eats up almost all of my annual savings and I can't touch it for 40 years...
Emergencies do happen so IMO keep saving up to your goal of 8 months expenses.
If your vehicle will need to be updated, save ahead for it; then, when it is time, you pay cash. I would do this ahead of your Roth because car expenses can be a big downer financially. I know you are Jonesing to invest; that is good, but you need to batten down the household more before entering the financial world more. Besides, you will have a fully funded 403b!
Are you experiencing household budget and fun expenses creep now that you are working and making good money? Since your SO is still in the student life, pretend you both are and keep your expenses low. When he gets a job, try living on his income. Hell, just keep your expenses low and be like MMM.
Thanks for the advice, I think I will work toward the full 8 months in cash savings especially since a new-to-me car is on the horizon.
For a couple of months after I started working, I did experience fun expenses creep. I bought a new TV, we locked into a 2 year satellite contract, etc. Luckily after only a few months I wizened up. I personally get much more joy and exhilaration out of saving. SO and I split most mutual expenses 60% me, 40% him. I do most of the shopping and spending so I really do try to keep costs low because he doesn't have much money to work with. This is good because it in turn keeps me from spending too much on a whim just because I can.
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Do you have a Roth 403b? (Some here have Roth 401k s.) So, if you do I would max the 403b then as you will only be paying your current 15% marginal tax rate. Like Stan says, you can take money out of a Roth 403b so if the plan choices are good and cheap, fill it.
I also like the Tobias book; it's a good overview of finances.
Your budget, I think, is good, especially the rent. Yes, you do have side jobs. Since you are in a university setting and if you want to, is there a way to beef up your healthcare credentials too? IMO that would be more productive than working more.
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Do you have a Roth 403b? (Some here have Roth 401k s.) So, if you do I would max the 403b then as you will only be paying your current 15% marginal tax rate. Like Stan says, you can take money out of a Roth 403b so if the plan choices are good and cheap, fill it.
I also like the Tobias book; it's a good overview of finances.
Your budget, I think, is good, especially the rent. Yes, you do have side jobs. Since you are in a university setting and if you want to, is there a way to beef up your healthcare credentials too? IMO that would be more productive than working more.
Yes it is a Roth 403b. I guess I'm confused about the Roth 403b. I know that at any time I can remove the principle amount from a Roth IRA without penalty. I was under the impression that this was not true for a Roth 403b. I have read some conflicting things about this on this forum, and now I'm more confused than before. If I can't remove principle from the Roth 403b early without penalty, I would rather not max it out considering that is the vast majority of money I have available to save in a given year.
Unfortunately, my particular area of healthcare does not have much of a career ladder...maybe 2 rungs above me. To climb that I need more experience, then a specialty certificate or masters in management. I recently considered pursuing a masters to become something else in healthcare with a higher salary. But it also came with a big price tag: $90k in student loans and I would not have been allowed to work during the 27 month program.
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Unfortunately, my particular area of healthcare does not have much of a career ladder...maybe 2 rungs above me. To climb that I need more experience, then a specialty certificate or masters in management. I recently considered pursuing a masters to become something else in healthcare with a higher salary. But it also came with a big price tag: $90k in student loans and I would not have been allowed to work during the 27 month program.
You are wise to be considering your career's future at your current workplace. Keep looking into further education / skills that you could achieve without such a big price tag (or crunch the numbers to come to a realistic conclusion about whether that price tag is worth it -- it might be; is it a PA program?). If you haven't already read Lean In, I highly recommend it -- especially at such a young age! Do whatever you have to do to get to a good place career-wise before kids (if you would like to have kids), it is so much harder to do it after the first child arrives.