Author Topic: I've Saved $20,000. Now what?  (Read 28983 times)

freelancerNfulltimer

  • Stubble
  • **
  • Posts: 157
I've Saved $20,000. Now what?
« on: October 08, 2012, 02:49:45 PM »
I'm not as severe about living a frugal life as a lot of MMM people are. I am somewhere between extreme frugality and a spendthrift. I'm careful in my money making decisions but I also allow myself to blow some of what I earn for funsies. I like what I do and I have confidence in my ability to increase my yearly earnings steadily.

Over the last year I've been able to save $20,000. I want to keep it liquid for a possible business or real estate investment. But I also don't want it to just sit in my savings account. This is my emergency fund as well. I think by mid next year I will have saved another $5000 or more depending on how much freelance I decide to take on.

What are some options?
« Last Edit: October 09, 2012, 09:18:09 AM by freelancerNfulltimer »

SpendyMcSpend

  • Bristles
  • ***
  • Posts: 320
Re: I've Saved $20,000. Now what?
« Reply #1 on: October 08, 2012, 03:06:39 PM »
First, how old are you and what is your income?  I think the first step is to make some tax-wise decisions.  You should really open up a Roth IRA and put some money in there each year.  Your earnings grow tax-free in there so it really maximizes your long-term savings.  I would put $5000 per year in there and invest it in some low-fee funds (someone else can speak better on which ones they are but I have had luck with VINIX).  Then you said you wanted to start saving for a home or real estate.  I would keep that sort of savings in a high-yield savings account like ING.  That way it's separate from your regular money and you can pile up there for a down payment on a home.  It's important to save for retirement and also for short-term goals even if you aren't extremely interested in early retirement.  Just getting to regular retirement age with savings is impossible if you don't put any money specifically for that purpose away.

freelancerNfulltimer

  • Stubble
  • **
  • Posts: 157
Re: I've Saved $20,000. Now what?
« Reply #2 on: October 08, 2012, 03:25:22 PM »
First, how old are you and what is your income?  I think the first step is to make some tax-wise decisions.  You should really open up a Roth IRA and put some money in there each year.  Your earnings grow tax-free in there so it really maximizes your long-term savings.  I would put $5000 per year in there and invest it in some low-fee funds (someone else can speak better on which ones they are but I have had luck with VINIX).  Then you said you wanted to start saving for a home or real estate.  I would keep that sort of savings in a high-yield savings account like ING.  That way it's separate from your regular money and you can pile up there for a down payment on a home.  It's important to save for retirement and also for short-term goals even if you aren't extremely interested in early retirement.  Just getting to regular retirement age with savings is impossible if you don't put any money specifically for that purpose away.

I'm 28. I make $60,000 in salary and about $10,000-$18,000 a year in Freelance.  The freelance varies a lot depending on what projects I can dig up and how much of my free time I'm willing to give up. This is the first year that I've made that much. Previous years my income was considerably less.

I've personally decided that I want to wait to start seriously saving for my retirement until 30. I know this goes against what everyone else here is going to recommend.  But I decided to buy a property that was on "sale" last year to take advantage of the low prices and low interest rates versus starting to fund my retirement account now. It is a house I'll stay in a long time I want to have the money available for possible business or real estate investments. I'm giving myself permissions to be somewhat risky until I hit 30. The other reason I feel comfortable doing this is I know I'm going to be inheriting a decent amount of money from my parents and grandparents. It's not guaranteed by any means but it is very likely.

I put a small amount each month into a HSA and my 401K. I may start an IRA next year but I don't like the idea of the money being locked up.
« Last Edit: October 08, 2012, 03:27:19 PM by freelancerNfulltimer »

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28022
  • Age: -999
  • Location: Seattle, WA
Re: I've Saved $20,000. Now what?
« Reply #3 on: October 08, 2012, 06:34:27 PM »
Why don't you count real estate ventures as "saving for retirement?"

Are you going to give them all away before you retire?
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Kriegsspiel

  • Guest
Re: I've Saved $20,000. Now what?
« Reply #4 on: October 08, 2012, 06:49:22 PM »
You could buy short term treasuries instead of a savings account.  It's free at Vanguard.

kkbmustang

  • Handlebar Stache
  • *****
  • Posts: 1286
Re: I've Saved $20,000. Now what?
« Reply #5 on: October 08, 2012, 06:53:55 PM »
Hey Kriegsspiel- Are you in Texas now???

Kriegsspiel

  • Guest
Re: I've Saved $20,000. Now what?
« Reply #6 on: October 08, 2012, 08:56:36 PM »
Yup!

Kriegsspiel

  • Guest
Re: I've Saved $20,000. Now what?
« Reply #7 on: October 08, 2012, 08:57:46 PM »
By the way, it's a lot colder than I had imagine... I put all my cold-weather stuff in boxes, dammit!

Psychstache

  • Pencil Stache
  • ****
  • Posts: 842
Re: I've Saved $20,000. Now what?
« Reply #8 on: October 08, 2012, 09:02:03 PM »
Yeah, it is freakishly cold in Dallas for this time of year. I don't really have clothes for this kind of weather.

cko

  • 5 O'Clock Shadow
  • *
  • Posts: 14
Re: I've Saved $20,000. Now what?
« Reply #9 on: October 08, 2012, 09:23:43 PM »
This is what you should do:

Put 3.5% down on a FHA-insured multifamily. A $400k fourplex, ideally. Including closing costs, should cost you about $20k. Rent out the other sides and live in one side.

This is only if you can find a decent area with decent numbers. A good rule of thumb is a rent of $1000 per month (from your tenants) for every 100k worth of property.

I started at age 25. I'm almost 27 now and I own three income properties. (I wish i lived in an area with good numbers so that I can get a fourplex). Real estate is awesome because you can deduct the depreciation against your earned income. In year 2012 I expect to have saved 90% of my income - I net $70k after taxes, spend about $15k a year, but will get a tax refund of at least $10k. I plan to buy one or two properties yearly.

Too many people suggest stocks and bonds. Any mediocre real estate investment can beat any kickass stock portfolio. The key is "mediocre" though. It's easy to screw up in real estate. Research it.

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28022
  • Age: -999
  • Location: Seattle, WA
Re: I've Saved $20,000. Now what?
« Reply #10 on: October 08, 2012, 09:27:38 PM »
Getting a multiplex and living in one unit and renting out the others is a solid plan.

Only minor quibble:
A good rule of thumb is a rent of $1000 per month (from your tenants) for every 100k worth of property.

Gross rent of 1% of purchase price is a little low.  Typical investor shoots for 2% on multiplexes (i.e. where rent is around 500), SFRs may get less, but hopefully over 1%, closer to 1.5%.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

kkbmustang

  • Handlebar Stache
  • *****
  • Posts: 1286
Re: I've Saved $20,000. Now what?
« Reply #11 on: October 08, 2012, 09:28:14 PM »
By the way, it's a lot colder than I had imagine... I put all my cold-weather stuff in boxes, dammit!

Just wait until next week. It will warm up. We have schizo whether around here.

cko

  • 5 O'Clock Shadow
  • *
  • Posts: 14
Re: I've Saved $20,000. Now what?
« Reply #12 on: October 08, 2012, 09:34:23 PM »
1% is low, yes. In terms of cash flow it's just above break-even. But if he's living in one side, it should be in a decent neighborhood with growing population + diverse economy. Difficult to find all that PLUS 1.5-2% gross PLUS living near the job. The key is to build equity, have the tenant help pay down the loan, and be able to get a nice income tax refund.

Which is why I still rent, despite owning three income properties (it'll be five by next fall).

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28022
  • Age: -999
  • Location: Seattle, WA
Re: I've Saved $20,000. Now what?
« Reply #13 on: October 08, 2012, 09:41:07 PM »
1% is low, yes. In terms of cash flow it's just above break-even. But if he's living in one side, it should be in a decent neighborhood with growing population + diverse economy. Difficult to find all that PLUS 1.5-2% gross PLUS living near the job. The key is to build equity, have the tenant help pay down the loan, and be able to get a nice income tax refund.

Fair enough. Can't argue with that analysis.

Where are you located, cko?
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

cko

  • 5 O'Clock Shadow
  • *
  • Posts: 14
Re: I've Saved $20,000. Now what?
« Reply #14 on: October 08, 2012, 09:48:02 PM »
I'm in New Jersey. My properties are in Texas. I was going to ask where you were, then saw Las Vegas. Which might explain the $500 per month rent? :P

freelancerNfulltimer

  • Stubble
  • **
  • Posts: 157
Re: I've Saved $20,000. Now what?
« Reply #15 on: October 09, 2012, 09:05:30 AM »
Why don't you count real estate ventures as "saving for retirement?"

Are you going to give them all away before you retire?

I do. I just meant that I'm not aggressively funding traditional retirement vehicles right now like 401k or IRAs that you can contribute to with pre-tax dollars.
« Last Edit: October 09, 2012, 09:17:10 AM by freelancerNfulltimer »

freelancerNfulltimer

  • Stubble
  • **
  • Posts: 157
Re: I've Saved $20,000. Now what?
« Reply #16 on: October 09, 2012, 09:06:27 AM »
You could buy short term treasuries instead of a savings account.  It's free at Vanguard.

I can Google this for more info, but I know nothing about short term treasuries. Care to give me the bullet points on what these are and what type of returns to expect?

freelancerNfulltimer

  • Stubble
  • **
  • Posts: 157
Re: I've Saved $20,000. Now what?
« Reply #17 on: October 09, 2012, 09:16:05 AM »
This is what you should do:

Put 3.5% down on a FHA-insured multifamily. A $400k fourplex, ideally. Including closing costs, should cost you about $20k. Rent out the other sides and live in one side.

This is only if you can find a decent area with decent numbers. A good rule of thumb is a rent of $1000 per month (from your tenants) for every 100k worth of property.

I started at age 25. I'm almost 27 now and I own three income properties. (I wish i lived in an area with good numbers so that I can get a fourplex). Real estate is awesome because you can deduct the depreciation against your earned income. In year 2012 I expect to have saved 90% of my income - I net $70k after taxes, spend about $15k a year, but will get a tax refund of at least $10k. I plan to buy one or two properties yearly.

Too many people suggest stocks and bonds. Any mediocre real estate investment can beat any kickass stock portfolio. The key is "mediocre" though. It's easy to screw up in real estate. Research it.

This is kind of what I've already done. I bought a single family home last year with an FHA loan 3.5% down. It has a detached garage apartment that I rent out for $700/month. I considered a multi-family unit but the one I found seemed like a gigantic money pit that the owner was trying to cash out on.

I feel like I have a leg up in the Real Estate investment arena because my mother is the Regional Manager of a large property management company in my area and she's a Real Estate Broker. I also have experience with renting out my previous residence. Unfortunately that property was purchased in 2006 so it's a money suck not an income producer. I'm trying everything I can to refinance it under HARP so I don't lose so much on it every month.

I want to live in my current home, but if I found a multi-family home for investing in that I could get an FHA loan on it, would it matter that I already have an FHA loan on my current property? Also I think you have to live in the property for one year, which I could manage by my Fiance probably wouldn't be keen to go along with that unless I found one near the beach. Which is why I'm thinking single family home as my next investment property. FHA is nice because you can get away with such a low down payment but then you have to pay the mortgage insurance.

SpendyMcSpend

  • Bristles
  • ***
  • Posts: 320
Re: I've Saved $20,000. Now what?
« Reply #18 on: October 09, 2012, 10:39:21 AM »
These are all good ideas, but include a lot more risk than I'd be comfortable with.

Kriegsspiel

  • Guest
Re: I've Saved $20,000. Now what?
« Reply #19 on: October 09, 2012, 11:59:40 AM »
You could buy short term treasuries instead of a savings account.  It's free at Vanguard.

I can Google this for more info, but I know nothing about short term treasuries. Care to give me the bullet points on what these are and what type of returns to expect?

Yea, I went back to re-read your post after seeing everyone recommending buying real estate and whatever, but obviously if you want to keep that money liquid (so, real estate is out). 

Short term treasuries right now have 0.19, 0.28, and 0.35 for 1, 2, and 3 year bills.  Since they are so short term, they aren't very susceptible to interest rates changes, so they behave a lot like just regular cash.  So if you might need this money for whatever reason, you can be reasonably sure that your short term treasuries haven't taken a huge hit, like that money might if you put it in stock/bond indexes, or whatever.

Obviously most liquid is cash in a savings account, ING has 0.8% interest.  I don't understand how they can safely offer that rate, since the safest investment available that I know of, t-bills, are pretty far below that.  Which would lead me to think that they use that money for much riskier investments in order to get you your 0.8% cut while also making a profit, and I'd prefer to take risks with my non-cash allocation and emergency fund.

Again, that's just how I see it, other people might throw out an enlightening post, which would be cool.

freelancerNfulltimer

  • Stubble
  • **
  • Posts: 157
Re: I've Saved $20,000. Now what?
« Reply #20 on: October 09, 2012, 03:19:59 PM »
I actually DO want to buy Real Estate, but I don't want to move on that until next year. I'm hoping to be able to refinance my bad rental property under HARP next year dropping the rate from 6.5 to whatever is the current rate then. This would move it from a bad rental to a not so bad rental. Having multiple properties under HARP through Wells Fargo makes it harder to qualify.

This money I've saved would be possibly for a investment property. I just don't know what to do with it between now and next year. It seems wasteful to have it just sitting in a savings account.

Kriegsspiel

  • Guest
Re: I've Saved $20,000. Now what?
« Reply #21 on: October 09, 2012, 06:30:45 PM »
I think that would be pretty much the safest place for it if you will want to access it in a year.  Or maybe those other things I talked about.

cko

  • 5 O'Clock Shadow
  • *
  • Posts: 14
Re: I've Saved $20,000. Now what?
« Reply #22 on: October 09, 2012, 10:06:49 PM »
To my knowledge you have to shed off the first FHA insurance to get another FHA loan. That probably means 20% equity.

cko

  • 5 O'Clock Shadow
  • *
  • Posts: 14
Re: I've Saved $20,000. Now what?
« Reply #23 on: October 09, 2012, 10:10:23 PM »
By the way I assume you're cash flow negative on your 2006 residence. Are you underwater? If you're break even or more, have you considered selling it to stop the bleeding?

freelancerNfulltimer

  • Stubble
  • **
  • Posts: 157
Re: I've Saved $20,000. Now what?
« Reply #24 on: October 11, 2012, 02:41:02 PM »
To my knowledge you have to shed off the first FHA insurance to get another FHA loan. That probably means 20% equity.

Good to know. My other option is a VA loan. My fiance (getting married in May) has a VA loan available to him, but I think we're going to save it for a future purchase.

freelancerNfulltimer

  • Stubble
  • **
  • Posts: 157
Re: I've Saved $20,000. Now what?
« Reply #25 on: October 11, 2012, 02:44:28 PM »
By the way I assume you're cash flow negative on your 2006 residence. Are you underwater? If you're break even or more, have you considered selling it to stop the bleeding?

I am cash flow negative to the tune of $380 a month. I am incredibly underwater. I owe $126k and on a good day it might be worth $90k. I would love to sell it. I'm hoping to refinance next year under HARP to get the monthly loss down to about $150.00. The $30,000 down payment is gone never to be recovered and I don't want to put any more money into this property. I could walk away from it but the loss is unpleasant but manageable.