new convert shooting for part time work in 15 years...

[AspiringMustachian]

Hello fellow Mustachians,

I am a recent convert, and am trying to get started as an aspiring Mustachian. I would like some feedback on what I've changed so far and how I should move forward.

I am 30 years old, married with two young children, and my wife does not work. I bought my first home this summer (a townhouse for about 50k less than a comparable detached house in my area). I have a second mortgage because of the way I got 100% financing. I had zero retirement savings at the beginning of 2014. I had never really been one to live outside my means but I usually spent my whole paycheck.

So far-
I changed jobs in January, bringing my salary from 38k to 75k and my commute from 17 miles to 5.5 miles. I almost never drive to work; I'm riding my bike 50% of the time and taking the bus the other 50% and hope to be full time bike commuting very soon as my body adjusts. Our family has a 2001 Buick that was a cash purchase. I am trying to keep my cost of living where it was at my last job so I can save as much as possible.

Assets:
Townhome valued at 192k
Rollover IRA: 4.7k (invested in Schwab index ETFs and mutual funds, both US and international)
Roth IRA: 6.4k (invested in Schwab index ETFs and mutual funds, both US and international)
Taxable Brokerage Account: $101.47 (S&P 500 Schwab index fund, just getting started)
Prosper: 2k in P2P notes
Savings account: 1k

I maxed my Roth IRA last year and got some 401k funds from my old job moved over to a Rollover IRA.

Liabilities
1st Mortgage - 184k at 3.875%
2nd Mortgage - 6k at 6%
Student Loans - 4k at 5.6, 6k at 4.5%


15 year goal- I want to be able to cut my hours to part time or perhaps do IT contract work 6 months out of the year instead of working full time so I can have more time with my family without jeapoardizing my financial future or retirement. I don't think I want to fully retire for a while after that.

What's the best way for me to move towards this goal? I have a decent 401k at work that offers Vanguard index funds that I plan to use this year. Should I max out my 401k? Traditional or Roth contributions? I'll be in the 15% tax bracket. I was planning on continuing to max my Roth IRA. How much should I put into a taxable account?

How much should I prioritize getting my debts paid off? I plan to pay off my 2nd mortgage this year, but it seems to me like I might be better off maxing my 401k and IRA before worrying about the student loans.

Any feedback would be appreciated.

[MetalCap]

AM,

You don't talk about your budget much but you should be able to max Roth, 401k and pay 2nd mortgage and Student Loans while still keeping in the new safety margin you aquired in your new job.

Clear your debt first as it helps if there is a bump in the road on your career.  Since you're the sole bread winner, it's imperative to clear your risk first, especially since you're young enough.

After the debt is cleared you should build up a about 3-6 mo of emergency fund for the same risk reason above.

After that keep maxing and look into setting up an IRA and Roth for your wife.  Since she doesn't work you should fall in the range where you can get some great tax benefits from that as well.

Your prime mortgage is at a low enough rate where if that is the only debt, you can make an educated decision on investing vs paying that down.

Looks like you've got a good start!

[AspiringMustachian]

You mentioned building a 3-6 month emergency fund; do you think I should have that just sitting in a savings account? Given the absurdly low interest rates I hate to just have money sitting like that. I figured the Roth was a safe bet for that role as I can pull my contributions back out if I need to. What do you think?

[KCM5]

You mentioned building a 3-6 month emergency fund; do you think I should have that just sitting in a savings account? Given the absurdly low interest rates I hate to just have money sitting like that. I figured the Roth was a safe bet for that role as I can pull my contributions back out if I need to. What do you think?

I use a Roth as an emergency fund like you've planned. I've never had to use it (knock on wood) but I have had to delay putting money into the Roth for a month (holy crazy vet bill). I justify it by knowing that I currently don't fill up all of our IRA space so if I do pull money out and want to make up for it its available. Clearly I don't think its a terrible plan, since I do it, but it also has a risk. And you're the sole income earner. How secure do you feel your job is?

Also, second having an IRA in your wife's name. I know money is fungible and all, but its a psychological thing. She deserves some retirement savings.

And yes to maxing your 401k. If you don't change your lifestyle you should have the money to do this. Also, it really gives you a tax break.

I'd pay off those student loans first because I think they're high enough, but they're probably in a zone where it s a judgement call.

[AspiringMustachian]

Something I didn't think to mention was that my primary mortgage is an FHA mortgage that I got in 2014- so PMI exists for the life of the loan. Should I prioritize getting to 80% LTV so I can refinance, or once I get student loans/2nd mortgage paid off should I prioritize maxing 401k and IRAs for the wife and I?