Wow, thanks for the responses guys. I'll definitely be making some tweaks / changes based on your replies. The biggest thing seems to be that instead of prioritizing investing, I need to focus a bit more on maxing retirement, creating an emergency fund, make a plan for my house funds (I expect to buy for another 12-24 months, so that will be part of the plan), and THEN start throwing the rest into investing.
Oh, and I intend to put the full $5,500 into the IRA. $5,000 was a mistake on my part. I still haven't decided the flavor of IRA yet, though.
As to your questions...
How much are houses where you want to buy? What kind of down payment would you need? Are you sure you want a house? (I love houses but they are a TON of work to maintain). Would a condo work better for your needs? Is buying cheaper than renting in your area, or is renting cheaper?
How exactly does your employer's 401k match work?
When you say $5k into IRA do you mean a regular IRA or a Roth? You are below the income max to make a full Roth contribution, FYI.
I don’t plan on buying for another 12-24 months, as I still need to figure out if I’m going to follow my dream and move to a mountain area or stay here to support relatives. I plan on renting until I figure that out. Up until recently, it was much cheaper to rent because housing prices are somewhat high and didn’t drop as much as the rest of the country. I'm guessing 20% down on a $150,000-$250,000 house as an initial goal, so that’ll be $30,000-$50,000 set aside in, most likely, 18 or so months. Condos don’t interest me as much because they are very hard to sell around here.
As for 401(k), they’ll match the first 5% of our salary with 10%. So basically they’ll match the first $4,550 of my 401(k) with $455.
You sound in a pretty good state to me. I'm 39 and I have 3 kids and my main question would be are you planning on having a family at any time and how would you handle this ?
The next question to me is should you rent or buy ?
I'd like to have a family, but I have to meet someone first. At least I know to look for someone who enjoys coupon and bargain hunting! But really, that’s the wild card.
I agree with owning a house being a key to FI, but I’m not ready to tackle that at 100%. I’m starting to see the value in putting serious effort into building a down payment fund, though.
And thanks for the advice! I like the idea of maxing out my IRA, and I’ll definitely up my 401(k). An 80-20 type of split makes sense to me, although I’ll likely tweak it a bit.
Im a big fan of the Roth IRA. I'd stick $5500 there to start. If you want to buy a house soon you might want to leave whatever cash you plan on using for your downpayment in your savings account.
*nods*
If I plan on finding a place in 12-18 months, and can put ~$1,000 dollars to the $30,000-$50,000 down payment fund each month, I’d want to look at $15,000 as a minimum starting point.
And have you decided what you're going to invest it in, fund-wise? If your 401(k) is lacking in any asset class, this is a good way to make up for that.
Not yet, but you make a good point.
Is it towards retirement? Have you decided if you want to treat your tax-advantaged and taxable accounts as one large portfolio or separately? Reasonable people disagree about whether or not to do this, regardless of desired retirement age.
In fact, depending on how much you need for the down payment, you might want to put the $35,000 in a higher-yield savings account and/or CD (depending what rates you can get - I haven't looked lately) and add to it (if savings account) until it's enough for that purpose. Then you can start investing the additional money each month in something for your 'stash.
BTW, is the current 401(k) your only retirement savings, or do you have old 401(k)s and/or IRAs?
My current 401(k) is my only pure retirement at the moment.
Yeah, I’m planning on putting a bit more in savings, and may add more to it until I get close to 6 months emergency fund. It just seems like such a high dollar amount with such little return.
As for my current $35,000, I initially wanted the bulk of it to go towards the ‘stash to work towards the 11 year plan, with a smaller percentage of it going towards the house fund. You guys are making a good case though, and seem to agree with each other, so I’m definitely rethinking that strategy. I’ve been so hyper cautious for so long I think the pendulum has swung a bit too far to the other end.
Bogleheads is an excellent site for personal finance and investing.
Oh, thanks for the link! That seems like some pretty good advice on savings, too.
Bonds generally should be in tax sheltered vehicles, like a 401k or Roth, rather than in a taxable account.
The bonds were received as a gift when I was very, very young, and only began to mature in late 2011. However, what you said makes a lot of sense. I’ll definitely check the website out and put some thought into developing a plan.
I hope this helps.
It’s been extremely helpful, so thank you. It’s one thing to read these generalized strategies, but it’s been extremely enlightening hearing them applied to my situation. I’ll be commenting on more of the ideas in your post once I’ve had a chance to digest it all and incorporate them.
You can definitely do better than .02%!
Agreed! Thanks for the suggestions.