Author Topic: Just starting out  (Read 2587 times)

cnn

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Just starting out
« on: September 25, 2012, 08:21:44 PM »
Hi everyone.  I just started reading MMM.  I love it so far!  My wife and I are 25 and used to live paycheck to paycheck.  In January I got a promotion which carried a raise of about 60%.  Since then I've paid off my student loans(6.8K), the remainder of our auto loan(3.2K) and by January my wife's student loans(10.1K) will be paid off.  After my wife's student loans are paid off we will be down to only having a house payment and our monthly expenses(utilities, water, car insurance and internet).

Monthly Income(after taxes): 4.5K

Home Payment: $1,160
Monthly Expenses(Utilities, Water, Food, Car Ins): $738
----------------------------------------------
Net:  +$2,600

Currently I have a 403(B) account with a 4% employer match.  I'm currently contributing 6% to that.  I want to set up Roth IRAs for myself and my wife(and hopefully max them out).

I have two questions...

1) How am I doing so far?  I'm new to being frugal, the concept of financial independence and MMM.

2) After maxing out our Roth IRAs where should I put our money?  I understand that there are penalties for withdrawing money early from some retirement funds.  What's the best place to hold your money for early retirement?  What do you think about paying off the house a bit early?(We have a low interest rate: 3%)     

Thanks much for your time and replies.

arebelspy

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Re: Just starting out
« Reply #1 on: September 25, 2012, 08:42:36 PM »
If you have a 403b, you likely work for the government or a nonprofit.  That means it is very possible you have a 457 available to you.  Check, because it's like a 403b, but you can access it penalty free when you stop working for them (unlike the 403b.. That's the only difference).

That being said, there are ways to access other retirement accounts like a 403b early without penalties.

I'm not a fan of paying off a house at 3% with money you could invest, but that's a personal call.
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gooki

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Re: Just starting out
« Reply #2 on: September 25, 2012, 09:07:41 PM »

1) How am I doing so far?  I'm new to being frugal, the concept of financial independence and MMM.


Exceedingly well. Just keep lifestyle inflation to a minimum and you'll be set for life in a decade or so.

Lars

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Re: Just starting out
« Reply #3 on: September 25, 2012, 11:46:40 PM »
I have two questions...

1) How am I doing so far?  I'm new to being frugal, the concept of financial independence and MMM.
For what it's worth, it looks like your doing great - a great savings rate, paying down debt, planning for the future.
2) After maxing out our Roth IRAs where should I put our money?  I understand that there are penalties for withdrawing money early from some retirement funds.  What's the best place to hold your money for early retirement?  What do you think about paying off the house a bit early?(We have a low interest rate: 3%) 

If your job has a high deductible health plan and matching HSA, I would take advantage of it (if you have a lot of health expenses or plan to have children soon make sure to run the numbers). I would also put considerably more into your 403b - 1000/month or more. Although you'll likely retire decades before the standard withdrawal age, it think it makes sense for 3 reasons:
Low expenses - keep spending like you currently are and you'll have a very low tax rate in retirement so you'll likely come out ahead even with your low percentages you are paying in taxes now
Options for early withdrawal - with things like 72t and roth conversion pipelines, you can get out the money early with no penalties.
Post 60 buckets aren't full - unless you have a firm FI plan, i think it makes sense to contribute aggressively to tax deferred accounts especially until they contain what you expect you'll need after 60 when allowing for future growth. If you decide to do an extended semi-FI or similar, you maximize invested earning with tax deferred growth and you may not even need to do much fancy early withdrawal stuff.