Author Topic: Case Study: Financially ignorant and requiring advice  (Read 5234 times)

ignore-rant

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Case Study: Financially ignorant and requiring advice
« on: July 13, 2014, 07:24:17 AM »
My financial IQ is about non-existent.  To give you guys understanding of where I stand, it might help to provide a brief synopsis of my background. 
During my time in university, most of my basic needs were taken care of for me.  Whether living in an apartment or at home, I didnít really make those expenses my responsibility.  Scholarships, grants, and a student loan of $20,000 took care of my other living expenses.  I wasnít scraping by or in a position where I was struggling and the importance of saving wasnít instilled in me.  After graduation, I went on a sabbatical to Korea where I taught English, with an engineering degree I might add, for 2 and a half years and spent 6 months traveling.  Again my living expenses were taken care of by my employer and I would spend my time budgeting for travel expeditions and still living fairly comfortably on my income.  Luckily Iím innately frugal with my money with spurts of extravagant spending.  At this point, I was stunted in my education of personal financing and investing. 
Fast forward to the present and Iíve been back stateside for little over a year.  I spent the first 6 months struggling to find work and living at home while depleted of money and realizing that Iíve steered myself wrong.  After landing a career I thoroughly enjoy, I believe itís high time I begin the process of saving for my future.
I donít want to spend my late years in regret due to poor financial circumstances; that needs to be the least of my worries.  My focus now is to gain competency in this area and let the enjoyment of life be a product of that net gain. 
OKAY, on to the numbers!

INCOME

Gross Annual Salary: 
$95,000 - 105,000 for 2014 year
I expect this number to increase to $120,000 Ė 130,000 for 2015 Ė on

No other income source at this time.

INVESTMENTS/SAVINGS

401k:
$18,500 (vested 4% company matching and 3% company retirement contribution vesting in JAN2017) Ė 88% in stocks (30% company stock, 60% blended fund investment retirement fund, 10% US Large/Mid Cap Eq) and 12% US Savings Bonds.

Savings:
$15,000 - Bank of America Money Market Acct.

Iíve been throwing 30% of my income heedlessly into my retirement savings plan (401k) with little understanding on how to invest.  I just hear the word diversify and so Iíve been doing what I believe that to mean.  FYI, I am using Fidelity as it is linked with my companyís retirement savings plan.

I stupidly passed on HSA for this 2014 period as I have been recently educated on why it is a good idea to open one.  Fidelityís library resource, reddits /r/personalfinance forum, and of course MMMís website have provided me with a wealth of beginning knowledge.  Itís just taking a while to sink in and I have a lot to learn.

EXPENSES

I currently live with my mother in a family home.  Due to my fatherís passing last year, I care for all home-related expenses and others.  There is no mortgage on the house.  No property taxes are paid on the house as my father was 100% disabled from military service.  Quite a blessing. The house is valued at around $320,000.  It was purchased at $260,000 in 2006. 

Home:
$370 Ė Insurance
$220 Ė Gas/Electric/Water/Sewage

Other:
$45 Ė Internet, no home phone
$175 Ė Cellphone plan for two.  Pretty high and probably can find a way to lower this cost.
$610 - Car payment and insurance
$100 - Gas
$250 Ė Grocery, dining out, at the bar with friends, etc.  Trying to cut down on the drinking as my fitness goals have become more of a priority.
$300 Ė This is just to consider other costs I may have such as clothes, travel, personal spending, etc.  Usually everything is expensed while traveling, but I make it a priority to do a bit of personal sightseeing and purchase gifts for friends and family.  It adds up.

$2070 Ė Total expenses per month

CLOSING THOUGHTS

I am thankfully debt free.  My housing costs are ridiculously low given that the mortgage is paid off and there are no property taxes.  The things Iíll be doing short-term from the advice Iíve seen on MMM or other resources:
-   Looking into switching banks.  I have not had many issues banking with BoA, but read on MMM I may get better interest rates on saving accounts going to another bank.  Any thoughts on this?
-   Maximize point potential with credit cards.  Currently not doing so.  Need to obtain the right cards for my lifestyle.  MMM provided good pointers on this. 
-   Accumulate air miles and use it for my personal flights hopping around whatever region Iím in.  Thatíll save me 100s of dollars.
-   Take advantage of an HSA next year. 
-   Look into investing with Vanguard.  Havenít even got a ROTH IRA started.  Is it as simple as going to the website and opening an account?  Guessing this isn't tied to your 401k, correct?  Will I be able to transfer funds from 401k to ROTH IRA?
-   Find ways to reduce expenses. 
      o   Change cellphone plan when contract expires or see if there is any incentive in canceling early.  I can possibly just use my company phone as personal, but there is several reasons not to so.  In any case I can cut corners here.
      o   Obtain a bike, save on gas.  Exercise is good.

The thing Iím looking into now is saving to put a down payment on a place.  The family home Iím currently setup in is out in suburbia and Iíd rather be setup in the city where I frequent for work and play being that Iím 28 and single.  Iíve considered getting a condo/townhome as Iíll be traveling 6 months out of the year and Iíd rather not bother myself with caring for a lawn and home repairs.  Is this advisable?  Or should I just get more of a temporary solution, such as an apartment.
It might be to my advantage to receive financial counseling.  Do you guys feel the personal interaction of a knowledgeable expert on the topic would be more beneficial or can most of these things related to personal financing, investing, etc be obtained online? 
Iím 28, single, and ignorant on how to best invest.  Please teach me your ways, Mustachians!  I have a long road ahead of me, but excited about the potentials.  And I kind of want to grow a mustache now.

Bbqmustache

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Re: Case Study: Financially ignorant and requiring advice
« Reply #1 on: July 13, 2014, 07:51:58 AM »
Before I begin, please understand that these are my opinions, and you may feel differently.  Do seek out the advice of a financial advisor for investment information, but hit the library and learn, learn, learn.

30% of your 401K sitting in your company stock is 30% too much.   That money is the opposite of diversification.

Put enough into the 401K to get the company match, which it looks like you are doing.  But over this amount, fully fund a Roth IRA before you add more to your company's 401K.  Vanguard you can open a Roth IRA for as little as $3K, at Schwab you can open one for as little as $100.  Max out contributions to the Roth, take the annual maximum and divide it either by 12 months or by pay periods and auto debit your bank account where your direct deposit goes to make these contributions automatic.

You might start out investing in what is called an Index.  Index funds and ETFs mostly mirror the stock index the follow, like the S&P500 (Here's where you get the expert advice from a professional at the investment company, not from me)

Your combined income and low expenses could really have you saving a lot quickly.  I am a fan of emergency funds (even though MMM is not), an it looks like you could be socking away money for your own place down the road.

Good luck, and read, read read!

mxt0133

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Re: Case Study: Financially ignorant and requiring advice
« Reply #2 on: July 13, 2014, 08:27:21 AM »
-   Looking into switching banks.  I have not had many issues banking with BoA, but read on MMM I may get better interest rates on saving accounts going to another bank.  Any thoughts on this?

Keep one bank for your daily expenses that is convenient and another one for your emergency fund, the interest is so marginal for most accounts and with the amount you will have in there it will not make much of a difference.  Be careful of banks that have an unusually high interest rate and make sure it's not some sort of ponzi scheme, even to this day they are still around and people still fall for it.

-   Look into investing with Vanguard.  Havenít even got a ROTH IRA started.  Is it as simple as going to the website and opening an account?  Guessing this isn't tied to your 401k, correct?  Will I be able to transfer funds from 401k to ROTH IRA?

You can start a Roth IRA for 2014 and it is as simple as opening an account with Vanguard.  It is not tied to your 401k and no you cannot just transfer funds from a 401k to a Roth IRA without causing penalties and taxable events.

The thing Iím looking into now is saving to put a down payment on a place.  The family home Iím currently setup in is out in suburbia and Iíd rather be setup in the city where I frequent for work and play being that Iím 28 and single.  Iíve considered getting a condo/townhome as Iíll be traveling 6 months out of the year and Iíd rather not bother myself with caring for a lawn and home repairs.  Is this advisable?  Or should I just get more of a temporary solution, such as an apartment.

I would hold of on buying a place for a few reasons, you are just starting your career and since you travel a lot for work the possibility of re-location, voluntary or required, is pretty high.  So unless you have a burning desire to own your own home and intend to stay there for a while I would advise against it.  Don't just do it because it's what your supposed to do when you start a career.  I would live at home as long as possible to build up your savings and investments.


It might be to my advantage to receive financial counseling.  Do you guys feel the personal interaction of a knowledgeable expert on the topic would be more beneficial or can most of these things related to personal financing, investing, etc be obtained online? 

Use the next couple of months to educate yourself as much as you can and if you still feel the need to see a financial planner then try to use a fee only adviser.  Other financial advisers either work on commission and will try to steer you into investments that is to their benefit and not necessarily yours.  Or they will charge you a percentage of you assets and most likely will just put you into mutual funds that themselves charge a percentage of invested assets.

While you are educating yourself keep your expenses low and don't fall into lifestyle inflation.  With you current income and expenses you should be financially independent before you are 40.  Check out this link to see how early you can be FI:

https://networthify.com/calculator/earlyretirement?income=50000&initialBalance=0&expenses=20000&annualPct=5&withdrawalRate=4

Cpa Cat

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Re: Case Study: Financially ignorant and requiring advice
« Reply #3 on: July 13, 2014, 10:34:49 AM »
30% of your 401K sitting in your company stock is 30% too much.   That money is the opposite of diversification.

I want to second this. Think of it this way: If your company goes under, you would lose your job and you would lose 30% of your retirement savings. That's a huge blow - and it happens to people.

If you get a discount on company stock and it's a strong stock, it may be worth buying. But don't keep more than 10% in it and sell out of it once in awhile to harvest gains and reinvest in something else.

ch12

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Re: Case Study: Financially ignorant and requiring advice
« Reply #4 on: July 13, 2014, 10:44:34 AM »
INCOME

Gross Annual Salary: 
$95,000 - 105,000 for 2014 year

INVESTMENTS/SAVINGS

401k:
$18,500 (vested 4% company matching and 3% company retirement contribution vesting in JAN2017) – 88% in stocks (30% company stock, 60% blended fund investment retirement fund, 10% US Large/Mid Cap Eq) and 12% US Savings Bonds.

Savings:
$15,000 - Bank of America Money Market Acct.

I’ve been throwing 30% of my income heedlessly into my retirement savings plan (401k) with little understanding on how to invest.

EXPENSES

Other:
$45 – Internet, no home phone
$175 – Cellphone plan for two.  Pretty high and probably can find a way to lower this cost.
$610 - Car payment and insurance
$100 - Gas
$250 – Grocery, dining out, at the bar with friends, etc.  Trying to cut down on the drinking as my fitness goals have become more of a priority.
$300 – This is just to consider other costs I may have such as clothes, travel, personal spending, etc.  Usually everything is expensed while traveling, but I make it a priority to do a bit of personal sightseeing and purchase gifts for friends and family.  It adds up.

$2070 – Total expenses per month

CLOSING THOUGHTS
-   Look into investing with Vanguard.  Haven’t even got a ROTH IRA started.  Is it as simple as going to the website and opening an account?  Guessing this isn't tied to your 401k, correct?  Will I be able to transfer funds from 401k to ROTH IRA?
-   Find ways to reduce expenses. 
      o   Change cellphone plan when contract expires or see if there is any incentive in canceling early.  I can possibly just use my company phone as personal, but there is several reasons not to so.  In any case I can cut corners here.
      o   Obtain a bike, save on gas.  Exercise is good.

The thing I’m looking into now is saving to put a down payment on a place.  The family home I’m currently setup in is out in suburbia and I’d rather be setup in the city where I frequent for work and play being that I’m 28 and single.  I’ve considered getting a condo/townhome as I’ll be traveling 6 months out of the year and I’d rather not bother myself with caring for a lawn and home repairs.  Is this advisable?  Or should I just get more of a temporary solution, such as an apartment.

If you are going to be traveling 6 months out of the year, is it really so bad to keep your stuff at your mom's place? I'm a twenty-something myself, but I can't imagine that you can't find a place to crash in the city at the end of a long night. For example, you can get a private bed and bath with a separate entrance for $39 a night in downtown Houston if you don't want to take girls home to your family's house. https://www.airbnb.com/rooms/1421463?checkin=07%2F26%2F2014&checkout=07%2F27%2F2014&s=IpK1 The cost of getting your own space when you travel that much may not be worth it.

I estimated some of your take-home (I don't know about your deductions like insurance - that's why it's really helpful to talk to us about your actual paycheck and not just your gross).

Let's say that you put $17,500 a year into your 401k to max it out. You make 100k gross (eh, these aren't exact numbers, but they're in the ballpark - you haven't mentioned getting a yearly bonus or stock options or anything). That means that you have $82,500 taxable (ignoring deductions and exemptions), and you'll pay $16,481 in federal tax on that. That means your paycheck works out to $66,019/year or $5,501.58 per month. Your expenses, as they stand, are $2,070 per month or $24,840 annually. $41,179 after tax plus +$17,500 before tax would be your annual savings. $61,679 per year would be your total.

If you run those numbers alongside your current net worth of $33,500, you get to early retirement in 7.6 years, assuming no raises and no house purchases. You can fiddle with those numbers to make them closer to your actual scenario.
http://networthify.com/calculator/earlyretirement?income=86519&initialBalance=33500&expenses=24840&annualPct=5&withdrawalRate=4

Other stuff
That's without changing anything. You should listen to the other commenters on diversification; I think that they have asset allocation covered, so I'm going to talk about other stuff.

Why do you have a car payment and $15,000 in cash? Do you need a really fly car to drive for 6 months?

Check out IP Daley's stuff on cell phones:
Quote
Hi, I'm Daley, the Howard Cosell of MVNOs and the Technical Meshugana. I'm also the author of the Frugal Communications Guide and our own Superguide.

An easy way to save money on your cell phones (with no research) would be to go the Republic Wireless route:
http://www.mrmoneymustache.com/2014/05/13/moto-x-vs-moto-g/
« Last Edit: July 13, 2014, 11:05:12 AM by ch12 »

Chrissy

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Re: Case Study: Financially ignorant and requiring advice
« Reply #5 on: July 13, 2014, 11:35:17 AM »
You are well on your way.  I have little to add.

If you get that raise, keep putting the max in the 401k,.  Regarding ROTHs, yes, you can open one up online.  If you want to do some sort of conversion from the 401k to the ROTH (I'm out of my element on this), you might want to stick with Fidelity.  I'm with them, and their Spartan funds are similar to Vanguard products.

Get a studio or one-bed apartment.  Sublet when you're out of town.

rmendpara

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Re: Case Study: Financially ignorant and requiring advice
« Reply #6 on: July 13, 2014, 11:53:04 AM »
I'm also in a similar situation. 25/male and make $80k. Travel on and off for around 3 months a year, but unfortunately do not live near family so I have to pay for a dumb apartment that costs me way too much.

Even if you like the area, you travel way too much to own a property (that you live in by yourself). If you have a roommate who you trust and can count on to let in plumber/painter/whoever, then it's a different story, but even then it's a headache. What happens if your roommate's 1 yr lease is up and they move out, and you have to find another roommate while out of town? Yeah... too many problems. It's just a headache, and given your income, an unnecessary one. Find a small 1 br somewhere you want to be close to, and just rent it out.

If you want, you can buy a condo/home and rent it out to start really building some wealth... just factor in a property manager as you will be traveling a lot.

Otherwise, work toward maximizing your 401k, and just forget about the Roth since you may cross the IRS income limit very soon anyway. Start investing in index funds in a taxable account (which won't be a bad thing since they don't generate too much income and only get taxed when you sell... which you won't for a long time).

Your savings rate and income are very high, so enjoy your blessings and don't squander it. Save and invest regularly and in simple ways that you understand (don't get complicated just because an advisor says so). Also, diversify wisely, and you'll be just fine.

Enjoy life!

palebluedot

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Re: Case Study: Financially ignorant and requiring advice
« Reply #7 on: July 13, 2014, 12:22:16 PM »
For tax and investing optimization read up on Mad Fientist: http://www.madfientist.com/archives/

For more on stocks, there is always the mandatory Jim Collins Stock Series: http://jlcollinsnh.com/stock-series/

Best of luck!

ignore-rant

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Re: Case Study: Financially ignorant and requiring advice
« Reply #8 on: July 13, 2014, 01:09:47 PM »
Thanks guys for the excellent advice.  I really appreciate you all breaking it down in layman's terms.  Still getting some terminology down and I plan to continue going through the libraries of information provided from Fidelity, go through MMM's posts, and these forums.

I travel in periods of 2-6 weeks, and may be home for 2-6 weeks depending on when I'm needed to mobilize (at this stage in my career, it's more out then in). 


Before I begin, please understand that these are my opinions, and you may feel differently.  Do seek out the advice of a financial advisor for investment information, but hit the library and learn, learn, learn.

30% of your 401K sitting in your company stock is 30% too much.   That money is the opposite of diversification.

Put enough into the 401K to get the company match, which it looks like you are doing.  But over this amount, fully fund a Roth IRA before you add more to your company's 401K.  Vanguard you can open a Roth IRA for as little as $3K, at Schwab you can open one for as little as $100.  Max out contributions to the Roth, take the annual maximum and divide it either by 12 months or by pay periods and auto debit your bank account where your direct deposit goes to make these contributions automatic.

You might start out investing in what is called an Index.  Index funds and ETFs mostly mirror the stock index the follow, like the S&P500 (Here's where you get the expert advice from a professional at the investment company, not from me)

Your combined income and low expenses could really have you saving a lot quickly.  I am a fan of emergency funds (even though MMM is not), an it looks like you could be socking away money for your own place down the road.

Good luck, and read, read read!


I have been real silly with the way I invested my money early on.  I just set decided to throw everything into my 401k as I didn't want the money sitting in my bank account and I knew very little about investing.  I will definitely take up your considerations.  Time to make some adjustments.


I would hold of on buying a place for a few reasons, you are just starting your career and since you travel a lot for work the possibility of re-location, voluntary or required, is pretty high.  So unless you have a burning desire to own your own home and intend to stay there for a while I would advise against it.  Don't just do it because it's what your supposed to do when you start a career.  I would live at home as long as possible to build up your savings and investments.

I think your advice and similar ones voiced by you guys is sound.  I'll find inventive ways to get closer to the city and maybe do temporary live-ins with friends who have extra rooms. 

If you are going to be traveling 6 months out of the year, is it really so bad to keep your stuff at your mom's place? I'm a twenty-something myself, but I can't imagine that you can't find a place to crash in the city at the end of a long night. For example, you can get a private bed and bath with a separate entrance for $39 a night in downtown Houston if you don't want to take girls home to your family's house. https://www.airbnb.com/rooms/1421463?checkin=07%2F26%2F2014&checkout=07%2F27%2F2014&s=IpK1 The cost of getting your own space when you travel that much may not be worth it.

I estimated some of your take-home (I don't know about your deductions like insurance - that's why it's really helpful to talk to us about your actual paycheck and not just your gross).

Let's say that you put $17,500 a year into your 401k to max it out. You make 100k gross (eh, these aren't exact numbers, but they're in the ballpark - you haven't mentioned getting a yearly bonus or stock options or anything). That means that you have $82,500 taxable (ignoring deductions and exemptions), and you'll pay $16,481 in federal tax on that. That means your paycheck works out to $66,019/year or $5,501.58 per month. Your expenses, as they stand, are $2,070 per month or $24,840 annually. $41,179 after tax plus +$17,500 before tax would be your annual savings. $61,679 per year would be your total.

If you run those numbers alongside your current net worth of $33,500, you get to early retirement in 7.6 years, assuming no raises and no house purchases. You can fiddle with those numbers to make them closer to your actual scenario.
http://networthify.com/calculator/earlyretirement?income=86519&initialBalance=33500&expenses=24840&annualPct=5&withdrawalRate=4

Other stuff
That's without changing anything. You should listen to the other commenters on diversification; I think that they have asset allocation covered, so I'm going to talk about other stuff.

Why do you have a car payment and $15,000 in cash? Do you need a really fly car to drive for 6 months?

Check out IP Daley's stuff on cell phones:
Quote
Hi, I'm Daley, the Howard Cosell of MVNOs and the Technical Meshugana. I'm also the author of the Frugal Communications Guide and our own Superguide.

An easy way to save money on your cell phones (with no research) would be to go the Republic Wireless route:
http://www.mrmoneymustache.com/2014/05/13/moto-x-vs-moto-g/



Thanks for breaking down the numbers like that, ch12.  I'm actually salaried at $60,000 with bonus and overtime pay for work overseas.  So the paychecks are very sporadic.  I have attached a picture to represent that.

I didn't previously address applications or programs to track all your accounts, assets, etc.  But besides Mint (which I do not currently use), is there any recommended means of keeping tabs on your accounts, expenses, taxes, etc?  I am definitely bookmarking all the wonderful web tools I've come across.

My car situation is a bit stupid.  Being I live in an extremely commuter dependent city, I decided I could splurge on the insurance premiums/car payments with my line of work.  But you are right, ch12, I could probably do without the $20,000 car payment I'm making and have gone for a cheaper option. 


I'm also in a similar situation. 25/male and make $80k. Travel on and off for around 3 months a year, but unfortunately do not live near family so I have to pay for a dumb apartment that costs me way too much.

Even if you like the area, you travel way too much to own a property (that you live in by yourself). If you have a roommate who you trust and can count on to let in plumber/painter/whoever, then it's a different story, but even then it's a headache. What happens if your roommate's 1 yr lease is up and they move out, and you have to find another roommate while out of town? Yeah... too many problems. It's just a headache, and given your income, an unnecessary one. Find a small 1 br somewhere you want to be close to, and just rent it out.

If you want, you can buy a condo/home and rent it out to start really building some wealth... just factor in a property manager as you will be traveling a lot.

Otherwise, work toward maximizing your 401k, and just forget about the Roth since you may cross the IRS income limit very soon anyway. Start investing in index funds in a taxable account (which won't be a bad thing since they don't generate too much income and only get taxed when you sell... which you won't for a long time).

Your savings rate and income are very high, so enjoy your blessings and don't squander it. Save and invest regularly and in simple ways that you understand (don't get complicated just because an advisor says so). Also, diversify wisely, and you'll be just fine.

Enjoy life!

Thanks for the suggestions!  Gonna have to look into the IRS income limit again.  I need to write all these things down so I can readily access it and it helps me to remember these details.

ch12

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Re: Case Study: Financially ignorant and requiring advice
« Reply #9 on: July 13, 2014, 01:34:19 PM »
I travel in periods of 2-6 weeks, and may be home for 2-6 weeks depending on when I'm needed to mobilize (at this stage in my career, it's more out then in). 


Thanks for breaking down the numbers like that, ch12.  I'm actually salaried at $60,000 with bonus and overtime pay for work overseas.  So the paychecks are very sporadic.  I have attached a picture to represent that.

I didn't previously address applications or programs to track all your accounts, assets, etc.  But besides Mint (which I do not currently use), is there any recommended means of keeping tabs on your accounts, expenses, taxes, etc?  I am definitely bookmarking all the wonderful web tools I've come across.

My car situation is a bit stupid.  Being I live in an extremely commuter dependent city, I decided I could splurge on the insurance premiums/car payments with my line of work.  But you are right, ch12, I could probably do without the $20,000 car payment I'm making and have gone for a cheaper option. 

One option is Personal Capital. You can read Mr. Money Mustache's take on Personal Capital: http://www.mrmoneymustache.com/2013/10/11/personal-capital-the-investors-version-of-mint/ . Sidenote: Some of your paychecks are huge!

You can still go for a cheaper option on the car front. http://www.mrmoneymustache.com/2011/05/02/car-strategies-to-cut-your-costs-in-four-or-more/

It might seem like there's tons of stuff to do, but just focus on one piece at a time. Figuring out investing first, then cutting down expenses might be some good prioritization. Otherwise, you'll get burned out by the sheer amount of information you're getting right now plus the decisions you have to make. Remember that you are ahead of the game by virtue of even paying attention.
« Last Edit: July 13, 2014, 01:41:41 PM by ch12 »

Frankies Girl

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Re: Case Study: Financially ignorant and requiring advice
« Reply #10 on: July 13, 2014, 01:36:24 PM »
I'm going to definitely push the JLCollins' stock series someone already posted - absolutely read that!!! It was the main catalyst that got me up to speed on how the market works and I went from totally ignorant to "I get it and I'm fine with investing" and even giving out (questionable) advice! :)

http://jlcollinsnh.com/stock-series/



I totally get why folks push Vanguard - it's the tops in terms of index fund investing. But it is still very possible to use Fidelity and get comparable (and weirdly, sometimes better) options than Vanguard.

http://www.bogleheads.org/wiki/Fidelity

I have all my accounts in Fid. I was lucky that my 401k offered the Spartan total stock market index fund (FSTVX) as an option, so that's what it is all in and it's maxed to the limit. Check out the Spartan series and look at the above link to see how to set up a boglehead type of passive/index portfolio using Fid. If it was me, I'd say max out your 401k (assuming you have a few decent options that are low expense ratios), then max out a Roth IRA (and it would be fine to keep the account at Fid; I think their website and customer service are superior to Vanguard, but that is strictly my opinion). Probably don't have a good thing with the BoA money market... I could be wrong, but most of the banks screw over folks with front loaded or other crappy options (and yes, I know from personal experience). I'd move the money over to a high interest savings account (Ally, et al) or other MM options with either Vanguard or Fid.

About the house situation... I understand you want your own space and it's sort of awkward to think of being an adult and still living with your mom out in the suburbs. But you're saying you're gone/traveling for several months on and off. Doesn't seem to make much sense to pay for a place you won't be using most of the time. If it was me, I would probably still live at home as long as the parent wasn't feeling imposed upon and save uber amounts of money. In your case, it would be bad in my opinion to buy a house/condo whatever. Renting an apartment would be better since you wouldn't have to deal with maintenance and the fact that you'd be gone for weeks at a time... but honestly, I just don't see it being a really smart move to buy or rent when you have a perfectly awesome arrangement living at home for a while.


Bbqmustache

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Re: Case Study: Financially ignorant and requiring advice
« Reply #11 on: July 13, 2014, 03:47:19 PM »




Otherwise, work toward maximizing your 401k, and just forget about the Roth since you may cross the IRS income limit very soon anyway. Start investing in index funds in a taxable account (which won't be a bad thing since they don't generate too much income and only get taxed when you sell... which you won't for a long time).   

If you have no other Traditional IRAs, you can still invest in Roth IRAs via a technique called a back-door Roth IRA.  If you have other funds in traditional IRAs, see your tax advisor before employing this technique.

If your taxable investment is in mutual funds, you will have annual capital gains tax as the funds management sells positions in the fund.
 
Read and learn.


[/quote]

rmendpara

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Re: Case Study: Financially ignorant and requiring advice
« Reply #12 on: July 13, 2014, 05:04:38 PM »




Otherwise, work toward maximizing your 401k, and just forget about the Roth since you may cross the IRS income limit very soon anyway. Start investing in index funds in a taxable account (which won't be a bad thing since they don't generate too much income and only get taxed when you sell... which you won't for a long time).   

If you have no other Traditional IRAs, you can still invest in Roth IRAs via a technique called a back-door Roth IRA.  If you have other funds in traditional IRAs, see your tax advisor before employing this technique.

If your taxable investment is in mutual funds, you will have annual capital gains tax as the funds management sells positions in the fund.
 
Read and learn.


[/quote]

I meant to say that a Roth is not likely to be advantageous, given a relatively high tax rate, not because it isn't possible to get into a Roth.

You are correct, there will be *some* income (and therefore taxes) on the holdings, but it will be relatively light.

For someone who is not an experienced investor, it's probably not a great idea to start getting too complicated until you understand the big points and get the basics correct. I think it's more important to learn how to walk before you run, but that's just my own opinion.

Anyway, @ignore-rant, BBq mustache is correct, there are ways to get into a Roth and a taxable account will incur taxes... but just try not to do too many things at once and do things in the investment universe that you don't understand very well.
« Last Edit: July 13, 2014, 05:07:38 PM by rmendpara »

MBot

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Re: Case Study: Financially ignorant and requiring advice
« Reply #13 on: July 13, 2014, 08:19:36 PM »
On the expense side, what "home insurance" is $370/month? That seems unbelievably high.

By driving a paid-off used car and avoiding a car payment, plus likely lower insurance on the used car, that would also drastically cut expenses.

 

ignore-rant

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Re: Case Study: Financially ignorant and requiring advice
« Reply #14 on: July 15, 2014, 09:27:26 PM »
I'm going to definitely push the JLCollins' stock series someone already posted - absolutely read that!!! It was the main catalyst that got me up to speed on how the market works and I went from totally ignorant to "I get it and I'm fine with investing" and even giving out (questionable) advice! :)

http://jlcollinsnh.com/stock-series/



I totally get why folks push Vanguard - it's the tops in terms of index fund investing. But it is still very possible to use Fidelity and get comparable (and weirdly, sometimes better) options than Vanguard.

http://www.bogleheads.org/wiki/Fidelity

I have all my accounts in Fid. I was lucky that my 401k offered the Spartan total stock market index fund (FSTVX) as an option, so that's what it is all in and it's maxed to the limit. Check out the Spartan series and look at the above link to see how to set up a boglehead type of passive/index portfolio using Fid. If it was me, I'd say max out your 401k (assuming you have a few decent options that are low expense ratios), then max out a Roth IRA (and it would be fine to keep the account at Fid; I think their website and customer service are superior to Vanguard, but that is strictly my opinion). Probably don't have a good thing with the BoA money market... I could be wrong, but most of the banks screw over folks with front loaded or other crappy options (and yes, I know from personal experience). I'd move the money over to a high interest savings account (Ally, et al) or other MM options with either Vanguard or Fid.

About the house situation... I understand you want your own space and it's sort of awkward to think of being an adult and still living with your mom out in the suburbs. But you're saying you're gone/traveling for several months on and off. Doesn't seem to make much sense to pay for a place you won't be using most of the time. If it was me, I would probably still live at home as long as the parent wasn't feeling imposed upon and save uber amounts of money. In your case, it would be bad in my opinion to buy a house/condo whatever. Renting an apartment would be better since you wouldn't have to deal with maintenance and the fact that you'd be gone for weeks at a time... but honestly, I just don't see it being a really smart move to buy or rent when you have a perfectly awesome arrangement living at home for a while.

Wow, thanks for pointing out that stock series link for me!  Can't stop reading!  Great, simply delivered words of advice.  And I've since changed my mind about moving out.  I've thought about the savings potential by staying in the family home and all that money could be put to good use.  Financial freedom over independence at this point.  Your words have helped more than you know!


On the expense side, what "home insurance" is $370/month? That seems unbelievably high.

By driving a paid-off used car and avoiding a car payment, plus likely lower insurance on the used car, that would also drastically cut expenses.



It's actually combined home + car insurance that I pay for my mother.  I forgot to make that correction. 

Yeah, on the car front, I am paying too much for what little need I have for it at this time.. especially being away from home so much.  I will figure something out on this front. 
In the meantime, I've been obsessively pouring over articles and laying down a foundation for investing and saving for retirement.  I've got more money than I'm use to coming in and glad I took the initiative to learn how best to use it. 
Thanks for all the words, guys.  I'll most likely be browsing the forums until I feel I have some knowledge I can lend.  This is a great community I look forward to being a part of.