Author Topic: Loans Done - What Next  (Read 1818 times)

Geist

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Loans Done - What Next
« on: July 10, 2016, 08:14:48 AM »
Hi All,

I'm a relatively new, 25 year old mustaschian who discovered the site a few months ago and voraciously devoured all the content I could find. Over the last 2 months I've payed off all of my high interest student loan debt (6.8%) and am down to the last 2,000 on my car (5.8%, I know could've made better choices here but hadn't yet been shown the way)

I'm now looking for some advice on what to do next. For some context here are where my finances currently stand:
  • Making 90k/year, about 3600 after tax and 401k and spending 2600
  • I currently have 15k in my 401k and am contributing 6% to the standard 401k and 4% to the roth. My company offers both and matching up to the first 5k
  • I have 15k in a taxed investment account that likely isn't particularly well managed, though has actually returned ~5% per year from getting lucky on some individual equities

What should I do with the $1000 surplus cashflow coming each month. This will expand another 300 after my car is paid off and likely another 2-300 after I move in a few months to a place with lower rent.

Some goals I presently have is to move from CT to San Diego next year so I would like to save up for that, but beyond that I don't know if it makes sense to start saving for property or continue to put money in other vehicles. I also want to launch a business over the next 2 years but am uncertain how much (if any) of my own capital I should use to finance that.

This seems like a really great community so I hope y'all can give me some pointers on the potential best paths for my next steps on the journey to financial independence. Thanks!

Choices

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Re: Loans Done - What Next
« Reply #1 on: July 10, 2016, 11:19:30 AM »
Great job so far! In addition to your current 401k contributions,

Step 1- build a 3-6 month emergency fund, especially if you're planning a move.
Step 2- consider your tIRA and Roth IRA options
Step 3- get out of your current taxable account and move it to index funds at Fidelity or Vanguard. Check out Bogleheads.

Good luck!

Mother Fussbudget

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Re: Loans Done - What Next
« Reply #2 on: July 11, 2016, 12:05:46 PM »
We get questions like this often, and in every case, the answer varies according to your financial situation.
Julie gives good advice (IMHO).  I assume everyone sets aside a 3-6 month emergency fund, and works forward from there. 

The investment order I recommend:
1) Max out your 401K contribution to get the dual benefit of saving pre-tax dollars, and reducing taxable income.
2) Max out your HSA account (must have a HDHP to have an HSA account).  http://www.madfientist.com/ultimate-retirement-account/
3) Max out a T-IRA or ROTH IRA contribution.  A tax-advantaged $5,500/year saving bucket above and beyond the 401K/Roth401K.
4) Invest in a taxable account.  You can always invest in a taxable account, so don't kick yourself for having one today.  Purchase low fee ETF's >> Total Stock Market Fund / Total Bond Market Fund, and/or REIT's if you want a real-estate component to your investment portfolio but don't want to be a landlord (http://www.mrmoneymustache.com/2011/08/15/become-a-lazy-landlord-with-reits/)

Also... set your investments up to DRIP - Dividend Re-Investment Program.  Each stock trading company lets you re-invest dividends into the stock that generates dividends.  In most cases, you'll have to manually specify you want dividend reinvestment for each holding in your account. 
Keep up the good work, and all the best!

Geist

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Re: Loans Done - What Next
« Reply #3 on: July 12, 2016, 06:14:28 PM »
Thanks, this is super helpful! I'm having trouble figuring out whether to go roth or traditional for my 401k. Any idea what makes more sense for someone targeting early retirement?

Also, if I want to buy a house (either rental or main residence) over the next 5 years, should I prioritize that over an IRA or do something else?

Fishindude

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Re: Loans Done - What Next
« Reply #4 on: July 12, 2016, 06:28:11 PM »
Good job!   It sure wouldn't be the end of the world if you rewarded yourself for this success with a nice vacation or something.  You are young, enjoy it.