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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: retireby40 on July 15, 2014, 10:10:34 AM

Title: Advice for a brand New Mustachian
Post by: retireby40 on July 15, 2014, 10:10:34 AM
I'm an aspiring mustachian looking for some advice on what to do with my savings and investments.

I am currently 23 years old making $47,000 a year. I am married but my wife is still in school so we are living off of just my income for the next year (Once she starts working we will have about $30,000 extra dollars per year to put towards retirement. We currently have about $35,000 in the bank (savings and checking accounts), $5,000 in my work 401k and I just opened a Betterment account with $1,000 that I pulled from my savings. We have no debt, other than a mortgage, so anything we have left over each month can go into savings/retirement.

My work 401k matches 100% up to 6% so I have been contributing that for the past year but just upped my contributions to 10% today. I also feel that the amount I have in savings with my bank is far too much since I work for my dad's company which gives me pretty solid job security.

Anyways, I am contemplating dropping my emergency savings by about 10-12k and using that money to put into either my Betterment account or starting to max out a Roth IRA every year. Is that where I should be putting that money or would that be a mistake? Should I instead be putting more money into my work 401k?

I just wanted to make sure I was doing the right thing and that I am not missing something important. If anyone has any advice for me please let me know.

Thanks

Logan
Title: Re: Advice for a brand New Mustachian
Post by: frugaliknowit on July 15, 2014, 10:29:52 AM
I would only fill up the 401K to the matching point, then divert to a Roth IRA, then, consider adding more to the 401k or invest outside the plan once the Roth IRA is maxed.  Does your 401k have a roth option? 
Title: Re: Advice for a brand New Mustachian
Post by: matchewed on July 15, 2014, 10:35:08 AM
Tax deferred accounts are a powerful savings tool. http://www.madfientist.com/retire-even-earlier/

You need to be able to run numbers for your particular circumstances and choose appropriately. You will have three major tools if investment is your chosen path. Pre-tax tax preferential accounts like the traditional 401k and the traditional IRA, after-tax tax preferential accounts like Roth 401k or Roth IRA, and taxable accounts. Understand what each one does, understand how they affect your taxes, focus on minimizing fees while having broad diversified index funds.

Read and learn -

http://jlcollinsnh.com/stock-series/
http://www.bogleheads.org/wiki/Investment_Policy_Statement
Title: Re: Advice for a brand New Mustachian
Post by: Cheddar Stacker on July 15, 2014, 10:40:13 AM
Tax deferred accounts are a powerful savings tool. http://www.madfientist.com/retire-even-earlier/

You need to be able to run numbers for your particular circumstances and choose appropriately. You will have three major tools if investment is your chosen path. Pre-tax tax preferential accounts like the traditional 401k and the traditional IRA, after-tax tax preferential accounts like Roth 401k or Roth IRA, and taxable accounts. Understand what each one does, understand how they affect your taxes, focus on minimizing fees while having broad diversified index funds.

Read and learn -

http://jlcollinsnh.com/stock-series/
http://www.bogleheads.org/wiki/Investment_Policy_Statement

+1. Roth's can be great, but you might be missing an opportunity to never pay taxes on those earnings.
Also, check out this one: http://rootofgood.com/make-six-figure-income-pay-no-tax/

If I were you I'd max the 401K and Traditional IRA if possible.
Title: Re: Advice for a brand New Mustachian
Post by: LibrarIan on July 15, 2014, 10:42:38 AM
Everyone here is going to have different advice. Here is mine:

Put your 401K down to 6%. Then max out a Roth IRA. Then anything left over from your oncoming badassity will go to a Vanguard indexed mutual fund. I recommend keeping about $10k in your emergency fund.
Title: Re: Advice for a brand New Mustachian
Post by: Dyk on July 15, 2014, 08:07:05 PM
+1 for Cheddar Stacker and matchewed

Read those articles, get a handle on why they recommend you to max. out the 401k and Traditional IRA.  I made spreadsheets to see the effects on my taxes, etc.
(I have just asked the same questions as you, and am following the order:  Traditional IRA, then 401k.  The 401k is only 2nd because the one my work offers isn't all that great, and the IRA I can open myself at Vanguard)