Author Topic: Noob Seeking Advice/Suggestions  (Read 2128 times)

vuedoolor

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Noob Seeking Advice/Suggestions
« on: November 06, 2017, 01:01:14 PM »
Hi all, I'm in need of some advice from those more experienced. A few months back I stumbled on to this forum read a few posts and lurked around for a bit but quickly got discouraged when I realized that my $30k/year wasn't going to be enough to help me save for anything. Fast forward to today I'm now at $50k/year and still hate my job, it's physically demanding, boring, repetitive, and has no meaning to me. I'm currently self studying and trying to break into the IT field but have been stressing out a lot lately because I feel like I'm coming in to this finance thing a bit late at the age of 35. In the past I've always been jumping from one job to the next and never really thought about saving for retirement, investing, or enrolling in 401k so ALL of these terminologies are very new to me. The only thing I have is a checking account with not much in it so I am literally starting from scratch, probably at the same stage as a 16 yr old. That's pretty sad...

I've been trying to read and Google as much as I can to try and get some of the basics down but I'll still need a book. A book that can answer questions such as, if a 401k is to stocks and bonds and vanguard is to stock and bonds do I need both? Or is that redundant? If my 401k is through fidelity does that mean I already have a brokerage account? If my 401k is through fidelity would it make sense to open an account at vanguard to diversify?

Now to some details:

sex: male
age: soon to be 35
net worth: probably $0.00 (not even sure how to calculate my net worth)
Have checking account: Yes
Debt: Mortgage payment of $1050/month (loan is $158k on 30 years  fixed interest rate No other debt besides mortgage)
Family of 6 with me being the only working adult for now.

I recently bought a house a few months ago in a sellers market with an interest rate of 4.25%. I'm also a first time home buyer and this is our starter home which I DON'T plan to live in for 30 years. I really didn't want to buy a house yet but at that time I was currently paying for a 3 bedroom apartment at $1100/month and also my DW's brother decided to move in with us because he had no other place to go too so that pushed me to move into a house which will give us more room. Right now I'm just confused on what to do next and need a plan of action. Oh and the bro n law is being charged $400 per month for rent.

Here's what I plan to do:

1. Create emergency fund
2. Get term life insurance ??
3. Get disability insurance ??
4. enroll into 401k and match up to employers max contribution
5. track spending and create budget (maybe get YNAB)
6. Currently making $50k/year so if I work OT and do 16 hours of OT I may be able to bring it up to $73k/year??
7. Keep studying and get on a new career (the company is merging and there's a chance it'll change to a rotating shift which will minimize OT) Can't depend on one company to put food on the table, I need to learn a skill that I can take with me.

Now once I complete the first couple steps above should I eliminate PMI first or save into 401k? And after PMI should I start saving and investing our should I try to pay off as much of the principal as possible?


marty998

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Re: Noob Seeking Advice/Suggestions
« Reply #1 on: November 06, 2017, 01:32:26 PM »
Topic is in the wrong forum (this is for people already FIRED). You may want to post a case study.

Just chill for a moment. Your eyes are just opening after being born again :)

Basics: Yes, build an emergency fund. 2 months income will do for now. Give yourself a little piece of mind.

Second: Lets calculate your net worth - write down everything you have - house, bank accounts, retirement accounts, any other investments. Subtract what you owe - mortgage, credit cards etc. This is your net worth.

Thirdly: Track your expenses. Figure out how much you are spending now. How can you invest if you have no idea how much you have left over at the end of each month?

I am not usually an advocate for lots of insurance, but in your case with 5 dependants it would be a good idea, at least until the kids are grown up.

BTDretire

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Re: Noob Seeking Advice/Suggestions
« Reply #2 on: November 06, 2017, 03:05:01 PM »
Quote
...stressing out a lot lately because I feel like I'm coming in to this finance thing a bit late at the age of 35.

 Stop stressing and just start building, it is slow year by year process. You're not late, many people never start saving.
The 'Median retirement savings of families between 56 and 61: $17,000'*
You could be ahead of that two years from today. You may not be able to retire at 50, but by 60 you could have a Nest Egg that will easily support you, and then a few years after that, you'll get some SS as gravy.
Here's the article my quote came from, but, these are not the people you want to follow, you want to do 10 times better. I did it, you can to.

* https://www.cnbc.com/2017/04/07/how-much-the-average-family-has-saved-for-retirement-at-every-age.html

Laura33

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Re: Noob Seeking Advice/Suggestions
« Reply #3 on: November 07, 2017, 08:51:03 AM »
1.  For basic advice, google the JD Collins stock series (sorry, I don't have the link).

2.  Fidelity, Vanguard, etc. are brokerages.  They buy and sell stocks, bonds, etc., and package them all together into mutual funds and ETFs, which they will then sell you shares in; many of them also offer an individual brokerage option in which they will sell you stocks and bonds directly rather than as part of a mutual fund, but they will charge you trading fees to do that. 

A 401(k)/IRA/etc/ is more like a bucket in which you hold your investments that comes with certain tax advantages.  For your IRA, you can set one up with any brokerage firm you want; for your 401(k), you are stuck with the brokerage and funds that your employer chooses.  Fidelity/Vanguard and the like do run some people's 401(k)s, but not mine -- mine is run by a specialty shop that makes its money from managing companies' 401(k)s; they don't offer their own mutual funds, but they select the funds from other brokerages that we can invest in.

So say your 401(k) is with Vanguard, and you just want to buy indexes for simplicity.  So first, you put money into your 401(k) -- you choose VTSAX.  But then you also want to open an IRA.  So you call Vanguard and open a separate IRA account, and you you also put that money in VTSAX.  And now you have extra money you want to invest, so now you open a separate brokerage account with Vanguard, and you also put that money in VTSAX.  Now you have three accounts with the same company, and they all own the exact same thing!  One brokerage, three buckets, one investment.  [You could also set up your IRA and post-tax account with Fidelity or anyone else; I just chose Vanguard for illustration] 

Why this complexity?  Because the different buckets have different rules.

-- The 401(k) is governed by your company's rules and the IRS rules.  You can put in up to $18,000 this year, plus any employer match or profit-sharing.  You cannot withdraw from the 401(k) until you leave the company, but you can take a loan if your company's plan allows it.  You can change your investments, but only among the ones that your plan offers -- you can't send your money from Vanguard to Fidelity, for ex., or buy Fidelity funds if your plan doesn't offer them.

-- The IRA is governed by the US tax rules.  If you make too much money and have a 401(k) at all, you can't open an IRA.  You can only put in $5500/yr, but that money grows tax-free until you retire.  You can't take a loan, but you can withdraw money if you need it -- but then you pay taxes and a 10% penalty if you're not old enough.  You can also roll it over into a Roth IRA; there is no 10% penalty for that, but you need to pay taxes on the growth, and then you need to leave the Roth alone for 5 years before you can use that money.  You can also buy and sell within the IRA -- e.g., now you want bonds, so you sell some VTSAX to buy a Vanguard Bond index -- and as long as you keep the funds within the IRA, there are no tax consequences.  You can even transfer it to another firm if you want to (which you can't with the 401(k). [There is also a Roth option with its own rules, but I am ignoring that for now]

-- Note that those first two options give you significant tax benefits, but those benefits come with restrictions on how and when you can access the money if you need it.  That is why many people keep some investments in a post-tax brokerage account (account #3).  You pay taxes on any dividends/capital gains Vanguard pays out every year, and on any other growth when you sell it -- but you can sell at any time, for any reason.  So you can sell this index to buy bonds, or to buy a house, or to pay for a kid's college, or to send money to some other brokerage that your brother-in-law works at, or whatever -- but then you pay taxes on the growth every time you sell.  The big difference here tends to be the tax-free growth:  every year, almost every fund with throw off some capital gains and dividends, and you get to pay taxes on that money -- even if you just reinvest it in the account.  And that means that you have a little less left invested to grow over time, because the taxes suck a little bit out every year.  Whereas in your 401(k) or IRA, there are no taxes until you sell, and so all that extra $ remains there and continues to compound. 

So the tl;dr here is that the different buckets matter because they have different rules, and those rules affect what you can do with your money and what taxes you pay on it.

3.  "Diversification" means "the specific investments you put your money in," not "the company that holds your money."  The Vanguard and Fidelity S&P 500 indexes are both going to hold fundamentally the same stocks:  stocks of the companies on the S&P 500 index.  So you get no diversification whatsoever by putting half your money into the Fidelity one and half your money into the Vanguard one.  You can safely keep your money with a single brokerage like Fidelity or Vanguard*, and then just worry about splitting your actual investments among stocks, bonds, cash, etc. as you like.

*This is limited to the large, well-know brokerages like these guys.  I would never put all my money in some small advisor's hands and let them trade stocks and such for me -- yeah, these guys are supposed to be protected and such, but there's too much chance of a Madoff, and I don't want to have to worry about where my money is if the guy retires or gets hit by a bus or goes out of business for any reason.  But Vanguard and the like, that's not a worry.

NeonPegasus

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Re: Noob Seeking Advice/Suggestions
« Reply #4 on: November 07, 2017, 09:37:26 AM »
Here's what I plan to do:

1. Create emergency fund
2. Get term life insurance ??
3. Get disability insurance ??
4. enroll into 401k and match up to employers max contribution
5. track spending and create budget (maybe get YNAB)
6. Currently making $50k/year so if I work OT and do 16 hours of OT I may be able to bring it up to $73k/year??
7. Keep studying and get on a new career (the company is merging and there's a chance it'll change to a rotating shift which will minimize OT) Can't depend on one company to put food on the table, I need to learn a skill that I can take with me.

Now once I complete the first couple steps above should I eliminate PMI first or save into 401k? And after PMI should I start saving and investing our should I try to pay off as much of the principal as possible?

There's no time like the present to get started. You can't change yesterday so changing today is the best you can do.

Your #1 priority is to track spending and create a budget (YNAB or mint.com). It's hard to know how much you have available for the other goals if you don't know what you're spending.

Once you do that, create a case study.

Regarding PMI versus 401k contributions - how much is PMI (both the monthly payment and how much more you have to pay total to be done with it)? Does your employer match any of your 401k contributions?

Also, what kind of work do you do? That would give some perspective on the disability insurance.

Bicycle_B

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Re: Noob Seeking Advice/Suggestions
« Reply #5 on: November 08, 2017, 05:31:38 PM »
Hi, Vuedoolor.  Take a deep breath.  Where possible, take steps that leave you at least a little time to rest or spend time with the fam.  This will be a long hike, not a sprint, don't burn out.

For simplicity, MMM's Start Here post is helpful.  The concrete advice starts in the middle of the article.
http://www.mrmoneymustache.com/?s=from+zero+to+hero

Roughly, the things I would do in chronological order are:
1. Gather data so you understand your situation.  The stress of knowing will be less than the stress of the unknown.
2. Cut costs.  This is just like earning more at work, but tax free and more reliable.
3. Build an emergency fund.  In other words, have some money (a few thousand dollars, a couple months' expenses, something) to pay variable expenses and unexpected events.  Do this before you pay more than the minimum on any accounts.
4. Pay down non-mortgage debt.  Congrats, you already did this!!!
5. Invest.  By the time you reach this step, you'll have enough time to sort this out. 

The PMI thing brings different opinions and depends a little on your individual details, but in most cases, it's better in the long run to pay down debt and then invest in financial investments.  So for now I'd leave the PMI alone.

I like the other poster's suggestion about disability insurance.  Re focusing on overtime vs studying for different career, that's a judgment call.  My instinct is that you should get a handle on your spend rate so you can use data to make these decisions. 

Mint.com is a free site that can aggregate all your spending and automate the expense recording, if you and your family do all spending through credit or debit cards.  Cash spending you would need to add in yourself.  (You could make it easy and all use cards.  Your call.)  That plus the net worth calculation from marty998 will help you and us know where you really stand. 

Last remark - success in this is achievable, and very likely without exploding your brain, heart or arteries.  Often, these financial decisions pay more per minute than work does, because they compound for a long time.  Get one thing done each day and soon it will all fall into place.  You're going to knock this out of the park.
« Last Edit: November 08, 2017, 05:36:43 PM by Bicycle_B »

vuedoolor

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Re: Noob Seeking Advice/Suggestions
« Reply #6 on: November 10, 2017, 03:03:38 AM »
1.  For basic advice, google the JD Collins stock series (sorry, I don't have the link).

Oly $hit that was very informative and really cleared up some confusions I had!! Thank you thank you thank you. You should write a book LOL.

vuedoolor

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Re: Noob Seeking Advice/Suggestions
« Reply #7 on: November 10, 2017, 03:04:51 AM »
Hi, Vuedoolor.  Take a deep breath.  Where possible, take steps that leave you at least a little time to rest or spend time with the fam.  This will be a long hike, not a sprint, don't burn out.

For simplicity, MMM's Start Here post is helpful.  The concrete advice starts in the middle of the article.
http://www.mrmoneymustache.com/?s=from+zero+to+hero

Thank you Bicycle_B

I wished there was a thank you button or like button in this forum :)

vuedoolor

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Re: Noob Seeking Advice/Suggestions
« Reply #8 on: November 10, 2017, 03:07:29 AM »
Thanks to all of you for your help, advice, and suggestions.

Gonna start doing some reading and possible buy a book... Maybe after reading some more info online I'll get the book 4 pillars of investing.

mousebandit

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Re: Noob Seeking Advice/Suggestions
« Reply #9 on: November 10, 2017, 10:56:09 AM »
Laura33, that was an excellent and very clear explanation!  Thank you!

jmwagner5

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Re: Noob Seeking Advice/Suggestions
« Reply #10 on: November 10, 2017, 05:45:38 PM »

Gonna start doing some reading and possible buy a book... Maybe after reading some more info online I'll get the book 4 pillars of investing.

In the spirit of saving money, I recommend your local library as a cost sensitive resource for finding an investing book.  Good luck on your journey!

bestname

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Re: Noob Seeking Advice/Suggestions
« Reply #11 on: November 10, 2017, 06:11:35 PM »
I just want to add that if you can save any amount of your income with five dependents, then you are a ROCK STAR in the frugality department. So do not forget to congratulate yourself.