Author Topic: 26 y.o. total zero in financial matters seeking advice  (Read 7040 times)

gutts

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26 y.o. total zero in financial matters seeking advice
« on: October 05, 2017, 05:06:41 AM »
Hello Mustachians,

First and foremost, I apologize for my rusty English, I moved to the country (USA) just slightly more than 2 years ago. With that being said I have zero (or close to) understanding of how to make money work for me here. In the place where I am originally from, you are never mistaken if you dump cash into real estate lol. Here the things appear to be more tricky.
So, during the 2 past years in the new country I've done plenty of stupid things. Well, I actually only one stupid thing: I fell a victim of consumerism. Everything else - just consequences.
I've been wasting money on sh*t: new phone, tablet, cool TV, a car, guns, eating out trying all those fancy cuisines from all over the world etc.

Then, one day, a couple of months ago I asked myself a question. If I had a steady influx of cash from somewhere, would I go to that damn 8to5 work, 5 days a week until I become old or die? Do I really like what I am doing? The answer was NO. Then why the hell am I spending a HUGE CHUNK of my life  having to do what I wouldn't really want to do just to get money and waste it on cool sh*t because it is cool, it is considered to be cool, THE AD SAYS SO, DON'T YA BELIEVE? I've been so foolish... Alright, I didn't expect to generate that shit pile of words lol it just came out...
So, what I have:

1. Male, single, 26 y.o. living in Chicago. My English is so freaking bad that when I open my mouth and let it out native girls look at me as if I were a talking monkey. So all of my plans will be based around the fact that I am gonna remain single for the rest of my life. I am expecting to become a US Citizen in 2,5 years. I also have Russian citizenship if that matters.
2. Engineering job, 100K gross salary

=====WARNING: SHOCK CONTENT AFTER THIS LINE, MY FINANCIAL EDUCATION IS WORSE THAN ONE COULD IMAGINE EVER====

3. 401K? Well, I don't even have an account. I know my current employer matches contributions. Need to talk to HR to learn the details. When I started doing my research and b4 I found this website and forum I thought that I didn't need it. After reading some topics I realized probably it is a good idea to start maxing it out.

4. 3500 savings, a brand-new Vanguards accounts with 10 dollars in it (lol)

5. Good health, no debts

6. Recent monthly expenses after I decided to go frugal, all taxes and fees are included:
-Rent+internet+parking 860$ - I pay it as one bill, so I make 1 bullet here.
-Electricity - 40$
-T-Mobile 1 Line  - 67$ (Unlimited talks + 6G of traffic, I guess I could save some money here)
-Car Insurance - 80$ (cannot go cheaper, I already tried, I am new to the country, my DL is also new...)
-Gas - 120-150$ (I have a car which gives me 25-30MPG and my commute is only 8 miles one way but I like doing road trips on weekends and vacations)
-Food - 150$ (I eat for free at work, so I keep only protein powder, water, diet soda and cliff bars at home, however I may spend money on fast food when traveling)
-Gym membership 30$
-Miscellaneous expenses - 150

Which makes it around 1500$
Take home: 5600$

What have been done so far:

1. Car loan fully paid off. Just got the title a week ago. I don't need to pay interest anymore and I don't have to pay for premium insurance (Actually, the new plan is 80$/mo vs 220$/mo before). Gonna keep the car until it falls apart, I guess I am good for many years here.
2. Moved to a cheaper rental apartment (Used to pay 1200 for rent+parking spot + internet).
3. Stopped wasting money on crap.

TO-DO List:
-Find a job with better salary (in progress, doing my best here honestly)
-Acquire some new skills which potentially might bring me some more money(I have a couple of ideas and I am working on them but I definitely need to dedicate more time)
-Learn more about financial market and investments
-Start contributing to 401K

What do I want:
-Retire in 10 years or less, stop being a 8-5 5/7 slave, buy a home in a place with lower taxes and cost of living (Wyoming seems to be pretty appealing to me) and a fuel efficient car and travel across USA, Canada and South America. If I had a paid-off home and 1500-2000$ of passive income per month I believe I would be able to accomplish this goal.

How:
a) 401K (I want to start with Fidelity)
b) By the formula: Take home salary - Monthly expenses = investments
c) Not sure if I need to buy any property, definitely not in IL as the taxes are crazy, however I might be mistaken here and a good investment will bring revenue. The problem is that I have no idea how to make that good investment. I need to do more research on it.

So, the questions:

1. Is it doable?

2. Should I start maxing out 401K ASAP and why? Now I know that I need 401K but should I really be maxing it out?

Pros:
-Less taxes
-Free money from employer match
-Will likely grow over years
Cons:
-I won't be able to tap into it until 59.5

So, I see 401K as a
1) Tool to possibly lower my tax burden
2) Fund of last resort (well, I guess with good matches from employers it can still be pretty profitable to break bank and pay 10% penalty and taxes). I've also read that it can be tapped into without penalties for buying/making a downpayment for a first home (not sure if the source of information was reliable or I interpreted it correctly)

3. I know 0 knowledge here, so I'll start with putting money into index funds. What do I choose, VTSMX or VTSAX?
Roughly, I could invest into VTSMX every month or in VTSAX every 3 months. VTSAX has lower expense ratio.

4. Are there any good books about generating revenue from rental properties? Stock markets? There are tons of them, I don't know where to start. Any good learning materials for a total zero?

Thank you for reading this and I promise to post here about my progress =)




CindyBS

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #1 on: October 05, 2017, 05:26:14 AM »
You are 26 years old and debt free.  That in itself makes you way ahead of the game with most 26 year olds, and you've already tracked some expenses.  Your food budget is fantastic, you could probably trim the phone costs. 

I think you are not in that bad of shape for someone starting out. 

Looks like you have no emergency savings account.  I would recommend starting one of those. 

Also, I'm not clear if you are talking about maxing out your 401(k) as in contributing at least the company match - if so - definitely do that b/c every month you don't you are just leaving free money behind.  There is also another way of maxing out your 401(k), which is contributing to the cap allowed under the law, which is $18,000 per year.  I would recommend against that until you have things like an emergency account set up. 

If it is any consolation, your written English is very good and I could not tell you are not a native speaker.  Perhaps take some classes or online tutorials to help with the spoken end of it?   Also, it is considered rude to correct someone's English, so native speakers don't point out mistakes - especially if they know what you mean.  But a trusted friend who is willing to point out every mistake may be helpful in perfecting your English - you will get a ton of corrections at first, but it will probably help a lot.

zinnie

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #2 on: October 05, 2017, 06:42:44 AM »
Check with your company about what options you have for the 401k, and max out if you can. It is generally a good idea to invest in a 401k before anything else to reduce your tax burden. Besides that, I think you are in pretty good shape! Get the toy-buying under control and keep your expenses low, and you can start accumulating fast.

As far as books I liked William Bernstein, The Investor's Manifesto. Or just hang out on the Bogleheads forum to get all the investing info you need.

If you have anything left over after maxing the 401k, you could open a Vanguard taxable account. VTSAX requires a $10,000 minimum investment, VTSMX only requires a $3,000 investment, but they are basically the same fund.  They will automatically switch you from one to the other when you meet the threshold. In my taxable, I hold VTSAX, VBIRX, and VGTSX at my preferred asset allocation. Check the Bernstein book or the Bogleheads forum for some ideas of what allocation might be right for you.

I know nothing about real estate, but before even thinking about it I would make sure you really understand the local market and risks, and that the job of being a landlord is right for you.

Good luck! Just thinking about this at 26 puts you in a really, really good place.

Raenia

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #3 on: October 05, 2017, 06:52:10 AM »
Welcome, and congrats on getting started on the journey so early in life!  That will be your biggest asset going forward.

How:
a) 401K (I want to start with Fidelity)
b) By the formula: Take home salary - Monthly expenses = investments
c) Not sure if I need to buy any property, definitely not in IL as the taxes are crazy, however I might be mistaken here and a good investment will bring revenue. The problem is that I have no idea how to make that good investment. I need to do more research on it.

You don't get to choose your 401k provider, you have to go through whatever 401k plan your employer provides.  That said, you definitely want to set that up and start contributing.  At a very minimum, you want to contribute enough to get the full employer match, as that is free money left on the table currently.  Given your high income and reasonable expenses, I think you should contribute all the way up to the federal limit, which is $18000/yr.

You will benefit from reading through the Investment Order thread, which gives the rationale for each step in the process with links for further reading.

You definitely don't HAVE to buy property.  As in most areas, if you get a good deal it can be a good return, but you need to really know what you are looking for and how to run a rental.  I recommend you focus on investment strategies for now and worry about real estate once you feel secure.

Quote
So, the questions:

1. Is it doable?
Definitely!

Quote
2. Should I start maxing out 401K ASAP and why? Now I know that I need 401K but should I really be maxing it out?
Yes, according to the Investment Order above.  If you have the extra income to spare, you should max the 401k.

Quote
6. Recent monthly expenses after I decided to go frugal, all taxes and fees are included:
-Rent+internet+parking 860$ - I pay it as one bill, so I make 1 bullet here.
-Electricity - 40$
-T-Mobile 1 Line  - 67$ (Unlimited talks + 6G of traffic, I guess I could save some money here)
-Car Insurance - 80$ (cannot go cheaper, I already tried, I am new to the country, my DL is also new...)
-Gas - 120-150$ (I have a car which gives me 25-30MPG and my commute is only 8 miles one way but I like doing road trips on weekends and vacations)
-Food - 150$ (I eat for free at work, so I keep only protein powder, water, diet soda and cliff bars at home, however I may spend money on fast food when traveling)
-Gym membership 30$
-Miscellaneous expenses - 150

Which makes it around 1500$
Take home: 5600$
You said taxes included, but I don't see a line item for taxes in your budget.  Your expenses aren't bad at all, though I would consider breaking down "Misc" further so you know exactly where it is going.  Clothes?  Entertainment? Alcohol?  Gifts?

Quote
Cons:
-I won't be able to tap into it until 59.5
Take a look at this thread for how to withdraw from a 401k before 59.5.

Quote
So, I see 401K as a
1) Tool to possibly lower my tax burden
2) Fund of last resort (well, I guess with good matches from employers it can still be pretty profitable to break bank and pay 10% penalty and taxes). I've also read that it can be tapped into without penalties for buying/making a downpayment for a first home (not sure if the source of information was reliable or I interpreted it correctly)
You're saving (5600-1500)*12=49200/yr.  Even with maxing your 401k and IRA (your income is too high to qualify for a deductible tIRA, but you can use a ROTH), you will still have 49200-18000-5500=25700/yr to invest post tax.  That should be more than enough to build up an emergency fund, save for a downpayment, invest in a taxable Vanguard account, or whatever other goals you have in the short-medium term.

Quote
3. I know 0 knowledge here, so I'll start with putting money into index funds. What do I choose, VTSMX or VTSAX?
Roughly, I could invest into VTSMX every month or in VTSAX every 3 months. VTSAX has lower expense ratio.
Start with VTSMX, then once you hit 10k, it will give you the option to upgrade to admiral shares with the lower expense ratio.  Any further contributions can go to VTSAX.  (Each deposit doesn't have to be 10k, just your total money in the fund has to meet the minimum.  Once you've hit the minimum, you can make additional purchases for smaller amounts.)

Quote
Thank you for reading this and I promise to post here about my progress =)
Good luck!

plog

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #4 on: October 05, 2017, 07:28:24 AM »
Quote
My English is so freaking bad that when I open my mouth and let it out native girls look at me as if I were a talking monkey. So all of my plans will be based around the fact that I am gonna remain single for the rest of my life.

I think that attitude is more harmful than any language issues. 

You don't say where you are from, but it doesn't really matter because:

1.  America truly is a melting pot--that means you can find people from your native land and socialize with them.  Especially in Chicago.

2.  There has to be English classes you can take--which will be filled with foreign girls not from your native land with whom you can ask out to practice English with.

3. A ton of American girls are suckers for a foreign accent. 

4. A ton of American girls looking to get back at their xenophobic/racist fathers. 

So in conclusion you being single is in your head, but not your mouth.  Get out there and have fun.

ketchup

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #5 on: October 05, 2017, 09:32:31 AM »
Quote
My English is so freaking bad that when I open my mouth and let it out native girls look at me as if I were a talking monkey. So all of my plans will be based around the fact that I am gonna remain single for the rest of my life.

I think that attitude is more harmful than any language issues. 

You don't say where you are from, but it doesn't really matter because:

1.  America truly is a melting pot--that means you can find people from your native land and socialize with them.  Especially in Chicago.

2.  There has to be English classes you can take--which will be filled with foreign girls not from your native land with whom you can ask out to practice English with.

3. A ton of American girls are suckers for a foreign accent. 

4. A ton of American girls looking to get back at their xenophobic/racist fathers. 

So in conclusion you being single is in your head, but not your mouth.  Get out there and have fun.
+1 to all of this.  Plenty of people can make their accent be their thing too, look at Arnold Schwarzenegger.  His Austrian accent has become part of his identity, to the point where he has made a considerable effort to maintain it (at least publicly) and not "improve" it.

jamesbond007

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #6 on: October 05, 2017, 03:13:17 PM »
1. Your English is actually very good.
2. You are already way ahead of many 26 yr olds in this country.
3. The fact that you realized that you are spending too much at this age means that you are on the right track.
4. Nothing really scary looking at your expenses. They look totally normal.
5. Phone: How much data do you really use? If you use 1G or less, look to moving to Project Fi to save money on phone bill.
6. Do you have budgets that you track your spending against? If not, make a budget. Use tools like www.mint.com (It's free. It's awesome). Login everyday. Make it a habit to micro manage your money.
7. Establish a healthy monthly spending baseline. This take a bit of trial and error. But start somewhere. Let's say $2500 a month including every little expense.
8. Stick to the above spending for at least a year or two. Of course, adjust slightly as you see fit.
9. Start by saving up emergency fund (Ideally, say, 6 months worth of spending or however long you feel comfortable with) (approx. 6 time 2500 = $15,000)
10. Max out your 401K. There is no excuse.
11. Take the remaining money (after expenses and emergency fund saving) and dump it into an index fund at vanguard.
12. Rinse and repeat.
13. Have fun.

robartsd

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #7 on: October 05, 2017, 04:23:13 PM »
I wish I was doing as well as you are when I was 26! You already make good money. If you enjoy your work, I wouldn't focus much on earning more (of course do continue to improve your skills to keep good options open).

I'd set 401k to max right away. I'd accumualte any additional savings for the next few months in a savings account to use as an emergency fund. Before filing your 2017 income tax, I'd open an IRA and fill the 2017 $5500 contribution limit.

I agree, don't let girls who don't like your accent get you down.

Sun Hat

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #8 on: October 05, 2017, 05:12:22 PM »
You're doing great!
Don't sweat the dating thing. Plenty of women find Russian accents sexy. Given your salary, I'd be more concerned with you falling for a pretty face who is interested in your money!

By my math (interest at 6% during accrual, 5% in retirement, 2% inflation and living until you're 90) http://www.financialpost.com/personal-finance/calculators/investment/index.html
Ten years of saving 3500/month will amount to $577,000 allowing for a monthly income of $1447 before tax (in today's dollars).
Fifteen years of saving 3500.month will amount to a bit over a million, which will get you a monthly income of $2300.

Given your current expenses, and allowing for a bit more to eventually buy your own food, I'd try to stick with it a bit more than 10 years.

BTDretire

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #9 on: October 05, 2017, 05:27:06 PM »
Your writing seems very good, so you know English.
 I would seek out some type of speech therapist to help reduce
the accent. May take several to find the right one. It may help in your job also.
 Myself, I find many accents make it hard for me to understand,
 And my wife is foreign born, even after 30+ years, I sometimes
have difficulty. Often it is a preconceived idea that I thought she
was trying convey.

Bicycle_B

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #10 on: October 05, 2017, 05:55:19 PM »
My opinion - Learn about financial investments first, real estate afterwards.  You can always convert financial assets into cash for real estate purchases later.  Real estate has advantages but also pitfalls.  Financial investments (stocks, bonds, mutual funds) can be mastered much more quickly and then be used as a base.

Keep reading basic articles on this site and others until you have reached a stable investing habit, and understood your time to retirement based on that.  MMM himself suggests investing financially first and then real estate "if you're interested."

http://www.mrmoneymustache.com/2013/02/22/getting-rich-from-zero-to-hero-in-one-blog-post/
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Admittedly his investing advice favors simplicity over perfection, but it's a good start.
http://www.mrmoneymustache.com/2011/05/18/how-to-make-money-in-the-stock-market/

Related info:
Jim Collins' Stock Series, perhaps the best summary of stocks.  A little stock-centric, though, IMHO. 
http://jlcollinsnh.com/stock-series/

For a different view, based on data, of how to allocate financial investments, explore the portfolios and calculators on portfoliocharts.com.  They give detailed data on how different investment choices have affected past returns.  Note the international options.
https://portfoliocharts.com/

If you do choose to focus on the real estate piece, the real estate section of the forum has much wise commentary.  Site moderator ARebelSpy has posted some great stuff; you can find links from his journal too, I think.  Be aware though that real estate, like stocks, has been rising from a historic low; IMHO the leverage involved makes that a bit riskier now, not as automatic as some make it sound.
 Risk + leverage = learn the business carefully... again, just my opinion.  Good luck whatever you do. 

+1 to trying to work on your accent... it'll still be there, but most Americans have so much trouble understanding accents, whatever you do to improve it will still be worthwhile.



gutts

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #11 on: October 06, 2017, 01:13:38 AM »
Alright folks, thank you for your replies =)

I'll be speaking with the HR about 401K options soon but what my employer offers is 50% match for up to 6%. So, I need to put at least 6% (roughly 498$/month) in order to get maximum advantage of it. Ofc, it is allowed to contribute more but it won't be matched.
I think I might start with the 6% but I need to talk to the HR first. And I am going to read the thread suggested by Raenia once I finish writing this post

Also, I didn't know that it was possible to convert VTSMX to VTSAX, I'll start putting money into VTSMX and see how it works. Thanks, zinnie

Lol, I didn't expect to hear so many things on the relationships topic, thank you all for the replies! Actually, I speak much better now than in the first year, so probably I will try again when I have time. Anyway, finding a gf is not the first priority for me. It is somewhere right at the bottom of the list. I just wanted to share my initial strategy in the first post, I mean planning stuff as if I were on my own for the rest of my life (or at least for a long time). Should anything change, I'll adjust.

Misc expenses are for random stuff like books, video games (I don't have time to play now though), HBO subscription etc. I don't drink alcohol and yeah I was able to quit vaping several months ago which has also resulted in HUGE savings. I am doing my best to preserve my health =)

My emergency fund is the money on the savings account before they go to Vanguard + next paycheck. I know I need a better solution.

So, I am going to start reading the books and blogposts which you guys have shared with me and start contributing to 401K ASAP.

Only one last question about the early retirement strategy: what to do about healthcare?


gutts

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #12 on: October 06, 2017, 01:34:08 AM »
One more question, I've just looked up federal tax brackets for 2017:
25% $37,950 to $91,900   $5,226.25 plus 25% of the excess over $37,950
28% $91,900 to $191,650   $18,713.75 plus 28% of the excess over $91,900

Just in theory, if I contributed 8101$ to 401K, would it put me into the 25% (91899/y) bracket?

Laura33

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #13 on: October 06, 2017, 06:50:48 AM »
One more question, I've just looked up federal tax brackets for 2017:
25% $37,950 to $91,900   $5,226.25 plus 25% of the excess over $37,950
28% $91,900 to $191,650   $18,713.75 plus 28% of the excess over $91,900

Just in theory, if I contributed 8101$ to 401K, would it put me into the 25% (91899/y) bracket?

Actually, you will probably already be in the 25% bracket, unless you get a bonus or have other income.  You will get to claim one exemption and then take the standard deduction, which together will knock about $10K off of your gross pay.

That doesn't mean you shouldn't invest all that in your 401(k), of course -- max that puppy out ASAP.  :-)

robartsd

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #14 on: October 06, 2017, 08:25:16 AM »
Only one last question about the early retirement strategy: what to do about healthcare?
Healthcare is a potentially moving target and you have several years before retirement; I'd worry about other things and wait about 5 years before trying to figure out how healthcare fits into your retirement plans. The only thing healthcare related I'd look into right away is getting on a health plan that allows contributions to a Health Savings Account.

frugaliknowit

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #15 on: October 06, 2017, 09:28:21 AM »
I disagree with maxing a 401K "off the bat".  I would use the following order:

401k up to the match

IRA (Roth or traditional...most people on this site favor traditional)

then, if you want to invest more, go back to the 401K.  The reason is most 401K fund choices suck.  With a self directed account, you have much better control of what your money is invested in and what the expenses are.

Also, folks on this forum are huge fans of Vanguard Total Market.  While this IS a great fund, I would study PaulMerrimen.com.  He has MORE optimal portfolios (it's pretty deep...too deep and complicated for some...).  Even if you don't follow his formulas, you will learn a lot from him for free and it's all on-line (check out his podcasts...all great FREE information).

robartsd

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #16 on: October 06, 2017, 01:35:17 PM »
I disagree with maxing a 401K "off the bat".
Based on the numbers the OP gave, he can easily max 401K and IRA. Being that we are late in the year, my recommendation is to set 401k contributions now that will result in at least contributing the limit over a year right away ($1500/month). I also expect him to max an IRA, but he can do that in early 2018. With a surplus of about $4100/month, he could contribute $3000/month to his 401k for the remainder of 2017, then drop to $1500/month in 2018 and still easily fill his 2017 & 2018 IRA contributions by the end of March with two months expenses added to the emergency fund.

ender

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #17 on: October 06, 2017, 01:46:59 PM »
I disagree with maxing a 401K "off the bat".  I would use the following order:

401k up to the match

IRA (Roth or traditional...most people on this site favor traditional)

then, if you want to invest more, go back to the 401K.  The reason is most 401K fund choices suck.  With a self directed account, you have much better control of what your money is invested in and what the expenses are.

Also, folks on this forum are huge fans of Vanguard Total Market.  While this IS a great fund, I would study PaulMerrimen.com.  He has MORE optimal portfolios (it's pretty deep...too deep and complicated for some...).  Even if you don't follow his formulas, you will learn a lot from him for free and it's all on-line (check out his podcasts...all great FREE information).

This answer completely misses the primary reason to prefer 401k to IRA - you can lump sum an IRA at any point in a calendar year and the first 1/3 of the following. But your 401k must be payroll contributions.


frugaliknowit

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #18 on: October 06, 2017, 02:16:24 PM »
I disagree with maxing a 401K "off the bat".  I would use the following order:

401k up to the match

IRA (Roth or traditional...most people on this site favor traditional)

then, if you want to invest more, go back to the 401K.  The reason is most 401K fund choices suck.  With a self directed account, you have much better control of what your money is invested in and what the expenses are.

Also, folks on this forum are huge fans of Vanguard Total Market.  While this IS a great fund, I would study PaulMerrimen.com.  He has MORE optimal portfolios (it's pretty deep...too deep and complicated for some...).  Even if you don't follow his formulas, you will learn a lot from him for free and it's all on-line (check out his podcasts...all great FREE information).

This answer completely misses the primary reason to prefer 401k to IRA - you can lump sum an IRA at any point in a calendar year and the first 1/3 of the following. But your 401k must be payroll contributions.

He's only got about 6 months from now to fund his 2017 ($5500/6= $917 per month).

He could do the match plus $917 per month (or the equivalent per paycheck)
then more to the unmatched 401k.

Or do the match, plus put money in savings until he's got $5500 (to put in a lump sum in an IRA), then go back to unmatched.
« Last Edit: October 06, 2017, 02:19:54 PM by frugaliknowit »

robartsd

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #19 on: October 06, 2017, 03:49:01 PM »
He's only got about 6 months from now to fund his 2017 ($5500/6= $917 per month).
Yes, but be he has only 3 months from now to fund the 2017 401k contributions! All funds available for tax advantaged savings should go here now. I don't recomend $4100 surplus only because emergency fund is not big enough yet, that's why I recommend $3000-3500 per month in 401k until the end of the year. If he's OK with the ramifications of not having an emergency fund for the next 3 months, he could put $4000 per month into the 401k, getting 2/3s of 2017's contribution limit.

Fund 2017 IRA in first 3 months of 2019 ($5500/3 = $1834 per month). With a $4100 surplus, he still has  $2266/month to invest in those months of 2018. 401k match only requires $500/mo contribution (100k * 6% = 6k; $6000/12 months = $500). 401k max contribution is only $1500 per month ($18,000/12 months).
« Last Edit: October 06, 2017, 04:17:27 PM by robartsd »

ender

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #20 on: October 06, 2017, 03:51:52 PM »
He's only got about 6 months from now to fund his 2017 ($5500/6= $917 per month).

He could do the match plus $917 per month (or the equivalent per paycheck)
then more to the unmatched 401k.

Or do the match, plus put money in savings until he's got $5500 (to put in a lump sum in an IRA), then go back to unmatched.

Why would you do this?

First, you don't need to lump sum contribute to an IRA.

Second, let's say the OP gets a $10,000 cash bonus in February of next year. If they have done their IRA already, they cannot go "backwards" and put any of that towards their 2017 retirement income. Whereas if they had done 401k > IRA, they could immediately use $5500 for their 2017 IRA.

Third, the OP has something like $4,000 a month to play with so they can trivially do both the 401k as well as an IRA anyways.

Fourth, a 401k and "autopilot savings" is way more reliable to be maintained than a "manual" IRA contribution. For established MMM followers this is a trivial detail but the OP is a self claimed new person to it. Because of this it can be helpful to establish habits from a "lowest activation cost" first approach. Setting a % or # in a 401k contribution is often easier than creating an IRA for many (most?) people.

noplaceliketheroad

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #21 on: October 06, 2017, 05:05:49 PM »

I've been wasting money on sh*t: new phone, tablet, cool TV, a car, guns, eating out trying all those fancy cuisines from all over the world etc.


You can buy multiple guns without being a US citizen?




Cheddar Bob

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #22 on: October 08, 2017, 02:46:37 PM »
Like others have said, you're only 26, have no debt, and are seeking advice on how to improve your finances.  You're already way ahead of most people.

gutts

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #23 on: October 14, 2017, 01:56:24 AM »

I've been wasting money on sh*t: new phone, tablet, cool TV, a car, guns, eating out trying all those fancy cuisines from all over the world etc.


You can buy multiple guns without being a US citizen?

Matter of fact, yes. Also, it is fair to mention that I've been paying full amount of taxes without being one, so we are even here lol. Not gonna waste my money on anything like this anymore (I can trade in should I feel any urges for a new toy). I'm expecting to get my citizenship in slightly more than 2 years...

Alright, it's been a busy week, I've got a small salary increase, also put 3K into VTSMX just to see how it works and here's the plan

1) Build out emergency reserve for 6 months: 8+1. 8000 in federal money market fund (default Vanguard settlement fund, can be withdrawn within 2 business days) + 1000 in bank savings account (immediate access)
2) Start contributing to 401K until maximum match from my employer - 6% of the paycheck.
3) Contribute 5500 to IRA. I am going to use Vanguard here since I already have an account with them. I assume I'll be able to withdraw 10K without 10% penalty from there later to pay for a first home.
4) Rest goes to VTSMX then converts to VTSAX. Probably, I'll 'play' with 1-2K and buy some individual stocks later.

Will see how it goes, perhaps I'll increase 401K contributions.

Is this plan ok?

Laura33

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #24 on: October 14, 2017, 07:57:16 AM »
Great start!  Only thing to be aware of is if you do a traditional IRA, you can withdraw up to $10k without penalty, but it will still be subject to tax.  If you do a Roth, you can withdraw your contributions at any time tax-free, and i believe if you have had the Roth for 5 years, you can take $10k of earnings to buy a home tax- and penalty-free (but you should confirm that).

Meesh

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #25 on: October 14, 2017, 11:45:39 AM »
Married a guy with an accent and it was definitely a draw. lol I know many, many others like me too. This is all in your head. The more you practice speaking the better it will be and the more comfortable you'll be. It's more about confidence and the ability to get your point across than anything else. Hubs was 24 and could barely speak English when we met but it didn't matter to me because he could say anything he needed to say. He's now head of translation at a fortune 500 lol Don't count yourself out.

As for finances you are in great shape. I think all has been said before me.

Bicycle_B

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #26 on: October 14, 2017, 12:19:00 PM »

Alright, it's been a busy week, I've got a small salary increase, also put 3K into VTSMX just to see how it works and here's the plan

1) Build out emergency reserve for 6 months: 8+1. 8000 in federal money market fund (default Vanguard settlement fund, can be withdrawn within 2 business days) + 1000 in bank savings account (immediate access)
2) Start contributing to 401K until maximum match from my employer - 6% of the paycheck.
3) Contribute 5500 to IRA. I am going to use Vanguard here since I already have an account with them. I assume I'll be able to withdraw 10K without 10% penalty from there later to pay for a first home.
4) Rest goes to VTSMX then converts to VTSAX. Probably, I'll 'play' with 1-2K and buy some individual stocks later.

Will see how it goes, perhaps I'll increase 401K contributions.

Is this plan ok?

Sounds great.

Except I'm not an expert on the IRA withdrawal part.  Here are two links from Schwab on the topic.  Both imply that $10k can be withdrawn penalty free from IRA for first-time home purchase, whether IRA is Roth or traditional.  One says more can be withdrawn from Roth after five years. 

http://www.schwab.com/public/schwab/investing/retirement_and_planning/understanding_iras/roth_ira/withdrawal_rules

https://www.schwab.com/resource-center/insights/content/can-you-dip-into-your-ira-to-buy-a-first-home-should-you

gutts

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #27 on: October 17, 2017, 02:01:49 AM »
Thanks everyone for the replies!
I've done setting up my 401K (6% of the paycheck for now - to get the maximum match from my employer)
Also, if I understand correctly, the Traditional IRA will not give me any tax advantage: https://www.nerdwallet.com/blog/investing/ira-contribution-limits/ as one needs to make less than 62K in order to leverage the tax deduction.
And the Roth IRA might not work well for me either as I am not expecting to have huge income in retirement =)
So, probably it is better just to set this money aside (in my case, put to VMFXX) for the downpayment?
« Last Edit: October 17, 2017, 02:03:47 AM by gutts »

Raenia

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #28 on: October 17, 2017, 05:50:21 AM »
You are correct that you cannot deduct a traditional IRA at your income level.  A Roth is probably still worthwhile, because the gains (capital gains and dividends) that you get in a Roth IRA are tax-free.  On the other hand, you could always increase your 401k contribution to minimize your taxable income instead if you prefer.  I don't recall how soon you planned to buy a home, but I recommend making the most of all tax-advantaged spaces before doing any post-tax investments.  If you plan to buy soon (in the next year or so), then go ahead and save for the downpayment, but with your high income level, if you don't plan to buy right away, I'd sock more away in the 401k before saving up toward longer-term goals post-tax.  With the amount you're saving each month, it won't take long to save up a good downpayment once you are close to buying, by dropping your 401k contribution back to the minimum for the match until you have enough, then putting it back up again.

gutts

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #29 on: November 06, 2017, 04:41:40 PM »
Ok, so just to avoid creating another topic. Just want to ask some extra questions:

1) What do you guys think about putting emergency cash reserve here: https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=1492 as an alternative to a high yeild bank savings account.
2) I just started doing 401K. After reading more about how it works I realized that I had been missing this powerful tool. That said, is that a good idea to go for as much as I can before the years ends? I think Iíd be able to contribute 50-60% of my next 4 paychecks (which is all paychecks I am yet to receive this year).

Laura33

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #30 on: November 07, 2017, 08:16:29 AM »
Ok, so just to avoid creating another topic. Just want to ask some extra questions:

1) What do you guys think about putting emergency cash reserve here: https://personal.vanguard.com/us/funds/snapshot?FundIntExt=INT&FundId=1492 as an alternative to a high yeild bank savings account.
2) I just started doing 401K. After reading more about how it works I realized that I had been missing this powerful tool. That said, is that a good idea to go for as much as I can before the years ends? I think Iíd be able to contribute 50-60% of my next 4 paychecks (which is all paychecks I am yet to receive this year).

1.  It's ok.  I'd stick with a money market, but that's just me.  As long as the investments are very short-term, you are unlikely to take a huge hit right when you need the money.

2.  Yes!

gutts

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #31 on: December 29, 2017, 10:28:40 PM »
Ok folks,
The things have been going good for me so far.
I've read some books, built up my emergency fund and put rest to VTSMX, actually it's almost VTSAX, just 1 more paycheck =)
Also increased my 401K contributions to 15% (it is VFFVX currently, just the default fund, I didn't change it since it gives me some exposure to the international stock and bonds).
Certainly gonna max 401K out in 2018.
Still not sure if I need the Roth IRA...
Ah, yes, have been living off less than 1500$/mo for 3 months so far!

Actually, I have a question, I just don't want to start a new thread, so I post it here.
My eye vision is awful, I blame my job mostly as well as myself for spending too much time in front of the screen playing video games when I was younger.
I hate wearing glasses, I do only when I am driving and I don't feel comfortable with contact lenses, so I want to do laser eye correction. That's a costly operation and, for sure, not covered by my insurance. So, the question:

Should I open an HSA? As I understand, it is pre-tax, so I could shelter an extra chunk of my income from taxes and use it to pay for the operation.

Eh, almost forgot... Happy New Year!
« Last Edit: December 29, 2017, 10:31:15 PM by gutts »

hgjjgkj

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #32 on: December 29, 2017, 10:48:26 PM »
I think you should open it. Look into if your citizenship effect anything but the HSA is a pretax deduction regardless of income just like your 401k. its very valuable

gutts

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #33 on: January 03, 2018, 12:44:15 AM »
I think you should open it. Look into if your citizenship effect anything but the HSA is a pretax deduction regardless of income just like your 401k. its very valuable
Thanks for the reply. I spoke to the HR earlier. I have a PPO insurance plan, so I am not eligible for the HSA =)
Well, it was worth a try lol


MrUpwardlyMobile

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #34 on: January 04, 2018, 04:51:37 AM »
   Also, it is considered rude to correct someone's English, so native speakers don't point out mistakes - especially if they know what you mean.  But a trusted friend who is willing to point out every mistake may be helpful in perfecting your English - you will get a ton of corrections at first, but it will probably help a lot.
rude to correct someoneís English? Iím going to guess thatís a local or regional thing.  Itís certainly not rude in New York, but comes off as tedious to some people.

MrUpwardlyMobile

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #35 on: January 04, 2018, 05:01:17 AM »
Hello Mustachians,

First and foremost, I apologize for my rusty English, I moved to the country (USA) just slightly more than 2 years ago. With that being said I have zero (or close to) understanding of how to make money work for me here. In the place where I am originally from, you are never mistaken if you dump cash into real estate lol. Here the things appear to be more tricky.
So, during the 2 past years in the new country I've done plenty of stupid things. Well, I actually only one stupid thing: I fell a victim of consumerism. Everything else - just consequences.
I've been wasting money on sh*t: new phone, tablet, cool TV, a car, guns, eating out trying all those fancy cuisines from all over the world etc.

Then, one day, a couple of months ago I asked myself a question. If I had a steady influx of cash from somewhere, would I go to that damn 8to5 work, 5 days a week until I become old or die? Do I really like what I am doing? The answer was NO. Then why the hell am I spending a HUGE CHUNK of my life  having to do what I wouldn't really want to do just to get money and waste it on cool sh*t because it is cool, it is considered to be cool, THE AD SAYS SO, DON'T YA BELIEVE? I've been so foolish... Alright, I didn't expect to generate that shit pile of words lol it just came out...
So, what I have:

1. Male, single, 26 y.o. living in Chicago. My English is so freaking bad that when I open my mouth and let it out native girls look at me as if I were a talking monkey. So all of my plans will be based around the fact that I am gonna remain single for the rest of my life. I am expecting to become a US Citizen in 2,5 years. I also have Russian citizenship if that matters.
2. Engineering job, 100K gross salary

=====WARNING: SHOCK CONTENT AFTER THIS LINE, MY FINANCIAL EDUCATION IS WORSE THAN ONE COULD IMAGINE EVER====

3. 401K? Well, I don't even have an account. I know my current employer matches contributions. Need to talk to HR to learn the details. When I started doing my research and b4 I found this website and forum I thought that I didn't need it. After reading some topics I realized probably it is a good idea to start maxing it out.

4. 3500 savings, a brand-new Vanguards accounts with 10 dollars in it (lol)

5. Good health, no debts

6. Recent monthly expenses after I decided to go frugal, all taxes and fees are included:
-Rent+internet+parking 860$ - I pay it as one bill, so I make 1 bullet here.
-Electricity - 40$
-T-Mobile 1 Line  - 67$ (Unlimited talks + 6G of traffic, I guess I could save some money here)
-Car Insurance - 80$ (cannot go cheaper, I already tried, I am new to the country, my DL is also new...)
-Gas - 120-150$ (I have a car which gives me 25-30MPG and my commute is only 8 miles one way but I like doing road trips on weekends and vacations)
-Food - 150$ (I eat for free at work, so I keep only protein powder, water, diet soda and cliff bars at home, however I may spend money on fast food when traveling)
-Gym membership 30$
-Miscellaneous expenses - 150

Which makes it around 1500$
Take home: 5600$

What have been done so far:

1. Car loan fully paid off. Just got the title a week ago. I don't need to pay interest anymore and I don't have to pay for premium insurance (Actually, the new plan is 80$/mo vs 220$/mo before). Gonna keep the car until it falls apart, I guess I am good for many years here.
2. Moved to a cheaper rental apartment (Used to pay 1200 for rent+parking spot + internet).
3. Stopped wasting money on crap.

TO-DO List:
-Find a job with better salary (in progress, doing my best here honestly)
-Acquire some new skills which potentially might bring me some more money(I have a couple of ideas and I am working on them but I definitely need to dedicate more time)
-Learn more about financial market and investments
-Start contributing to 401K

What do I want:
-Retire in 10 years or less, stop being a 8-5 5/7 slave, buy a home in a place with lower taxes and cost of living (Wyoming seems to be pretty appealing to me) and a fuel efficient car and travel across USA, Canada and South America. If I had a paid-off home and 1500-2000$ of passive income per month I believe I would be able to accomplish this goal.

How:
a) 401K (I want to start with Fidelity)
b) By the formula: Take home salary - Monthly expenses = investments
c) Not sure if I need to buy any property, definitely not in IL as the taxes are crazy, however I might be mistaken here and a good investment will bring revenue. The problem is that I have no idea how to make that good investment. I need to do more research on it.

So, the questions:

1. Is it doable?

2. Should I start maxing out 401K ASAP and why? Now I know that I need 401K but should I really be maxing it out?

Pros:
-Less taxes
-Free money from employer match
-Will likely grow over years
Cons:
-I won't be able to tap into it until 59.5

So, I see 401K as a
1) Tool to possibly lower my tax burden
2) Fund of last resort (well, I guess with good matches from employers it can still be pretty profitable to break bank and pay 10% penalty and taxes). I've also read that it can be tapped into without penalties for buying/making a downpayment for a first home (not sure if the source of information was reliable or I interpreted it correctly)

3. I know 0 knowledge here, so I'll start with putting money into index funds. What do I choose, VTSMX or VTSAX?
Roughly, I could invest into VTSMX every month or in VTSAX every 3 months. VTSAX has lower expense ratio.

4. Are there any good books about generating revenue from rental properties? Stock markets? There are tons of them, I don't know where to start. Any good learning materials for a total zero?

Thank you for reading this and I promise to post here about my progress =)

Youíre not as bad as you think because starting at 0 is better than most.

You probably need about $10,000 in a savings account for an emergency fund.  If youíre opening a savings account, check out Marcus by GSBank (a Goldman Sachs online savings account).  It has 1.40% APY. 

Max your 401k contributions. Once you retire early, youíll probably be able to execute a Roth Conversion Ladder.  https://www.madfientist.com/how-to-access-retirement-funds-early/#roth-conversion-ladder

Contribute $5500 to a Roth IRA While your income allows.  Consider Backdoor Roth IRA contributions once you exceed the income limits.  https://www.nerdwallet.com/article/backdoor-roth-ira-high-income-how-to-guide

Take the rest and put it in a taxable account and invest in a low cost index fund on a monthly basis.

gutts

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #36 on: January 05, 2018, 12:17:46 PM »
Thanks, MrUpwardlyMobile
I am not eligible for a Traditional IRA but I can do the Roth. I've read a lot about it but I am still not sure if I need it... I can just put 5500 to my taxable account.

turneja6535

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #37 on: January 06, 2018, 10:50:53 AM »
I think you should open it. Look into if your citizenship effect anything but the HSA is a pretax deduction regardless of income just like your 401k. its very valuable
Thanks for the reply. I spoke to the HR earlier. I have a PPO insurance plan, so I am not eligible for the HSA =)
Well, it was worth a try lol

True, but they may offer an FSA instead of an HSA to go along with the PPO.  You would have to wait until the next enrollment period, however.  I'd look into it, lasik was worth ever penny to me.

Finances_With_Purpose

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #38 on: January 09, 2018, 08:56:34 PM »
As to eyes, do homework first.  It eventually is counteracted by aging.  You can do lasik, and if you do, you can knock it out/mess it up via contact or when life happens.  Then you need more surgery.  It can get messy.  If you go the other route, PRK, it's more permanent.  But it also dries your eyes out such that you may need eyedrops.  Finally, I think both options may affect your vision in some ways: halos, loss of acuity in the evening/worse vision late in the evening. 

Like other American crap, it is sold, sold, sold as a great idea.  And it makes eye docs a ton of money.  But it isn't for everyone.  And you might only get the sales pitch if you go asking about it.  So find a doc who will tell you the cons, and do the homework yourself too. 

MrUpwardlyMobile

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #39 on: January 09, 2018, 09:27:56 PM »
Thanks, MrUpwardlyMobile
I am not eligible for a Traditional IRA but I can do the Roth. I've read a lot about it but I am still not sure if I need it... I can just put 5500 to my taxable account.

The benefit of Roth is that growth is tax free.  You can use the Roth IRA  to grow investments that would otherwise potentially be subject to taxes.  You canít dump a lot into a Roth IRA but the benefit of tax free growth is not to be ignored.

gutts

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #40 on: January 09, 2018, 10:07:44 PM »
As to eyes, do homework first.  It eventually is counteracted by aging.  You can do lasik, and if you do, you can knock it out/mess it up via contact or when life happens.  Then you need more surgery.  It can get messy.  If you go the other route, PRK, it's more permanent.  But it also dries your eyes out such that you may need eyedrops.  Finally, I think both options may affect your vision in some ways: halos, loss of acuity in the evening/worse vision late in the evening. 

Like other American crap, it is sold, sold, sold as a great idea.  And it makes eye docs a ton of money.  But it isn't for everyone.  And you might only get the sales pitch if you go asking about it.  So find a doc who will tell you the cons, and do the homework yourself too.
So far I have heard only positive things from my friends who have done lasik. However, I have never asked about the negative ones. Iíll definitely follow your advice and do more research =)

Thanks, MrUpwardlyMobile
I am not eligible for a Traditional IRA but I can do the Roth. I've read a lot about it but I am still not sure if I need it... I can just put 5500 to my taxable account.

The benefit of Roth is that growth is tax free.  You can use the Roth IRA  to grow investments that would otherwise potentially be subject to taxes.  You canít dump a lot into a Roth IRA but the benefit of tax free growth is not to be ignored.

Well, the gains are not subject to taxes but it is also harder to withdraw them comparing to a taxable account.
I have considered maxing it out for 2017 before April and then do the same for 2018. In fact, I could do it easily but the money will have less flexibility in terms of access to it, and Iíve already set a goal to max my 401k out in 2018. I donít really know if I need to go that hardcore with retirement accounts. Iíve read several topics about the Roth IRA on this forum as well as several articles on random financial websites and the opinions on it are very different.

MrUpwardlyMobile

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Re: 26 y.o. total zero in financial matters seeking advice
« Reply #41 on: January 10, 2018, 04:30:35 AM »
When you get to the withdrawal stage, youíll want to be able to keep your tax burden low.  One of the ways to do that is to have a variety of accounts from which to tap.  The Roth withdrawal will not impact your tax burden.  Everything else can.  While youíre in the accumulation phase, itís one more place to grow investment without increasing your tax burden.  The amount you can put in a Roth is limited but itís a tool that most FIRE people say not to ignore. Ideally you should be able to max your 401k, max your Roth, and invest in a taxable account. The order of importance is posted all around virtually every FIRE site and literature piece.  If you havenít already, read MadFientistís blog as he goes into a great deal of detail on pros and cons.