New Job with more Income. Please help with Maximizing Stache :{D

[Mr. Moneymustcash]

Hello fellow Mustachians!

Recently I received a promotion at work $$$

I have been living on $1400 per month prior to this and still able to pay my bills and eat and entertain myself. I believe my stubble may be starting to show here.

Here is a breakdown:

Rent+UTIL                                                                                                                    ($500 per month)
I work from home and bike everywhere still I have to drive sometimes                           ($100 per month)
Cell Phone trying to get a prepaid but canceling my plan is more expensive ATM              ($90 per month)
Student Loans. I currently owe $9900 and I am paying average 5% interest                  ($125 per month)
Auto Insurance. I am 26 with a clean record. It is about to lapse in May                         ($66 per month)
Food                                                                                                                             ($200 per month)
Fun                                                                                                                              ($100 per month)
MISC for Auto Tags, Oil Changes, Unexpected expenses                                                  ($100 per month)

($1281 per month in expenses)
$119 profit every month to savings give or take

Income                                                                                                                          $16900 per year
Credit Cards used for gaining credit. I pay it off every month so I gain rewards                 $4.25 per month
401k employee matching %6
401k contribution %7
401k balance $3100


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Now I have a better job where I make $38000 per year

I am wondering what is the best way to maximize my growth/pay off existing debt the fastest. I realize I am already trimming on my expenses and able to live well given my income, but now there is so much more and I am looking for ideas on how to best grow my stache based on fellow mustachian's opinions. You all were great in helping me to get my expenses this low, and I will get less expensive insurance this go round and get a prepaid phone starting January, when I can end my contract without fees.

I am getting CISCO certifications so I can get a larger salary, but in the meantime, this is my situation. I appreciate all of your insights and God Bless!

[jpo]

Maxing out your 401k and a Roth IRA would be good goals to strive for. You may be eligible for the Saver's Credit for contributing to an IRA this year depending on income.

Also, if your new job has health insurance, consider using a high deductible plan and putting money into a HSA. You should be able to invest within your HSA once you have a high enough balance (for my provider it was $4000).

Of course, if you think your investments are going to do worse than 5% nominally, you should pay off your debt ASAP.

[Mr. Moneymustcash]

My 401k max is $17,500

I am throwing 7% at it now. Are you saying I should try to reach $17500 or only maintain what I have since my work contributes to match 6% maximum? I dont have a lot of knowledge on ROTH investing so I guess I need to do some research there.

I have the HSA and I have a ~$1500 balance in it. I am not quite there yet, but will take this into account as I reach that amount.

[Done by Forty]

I agree with jpo about investing in your 401k and Roth IRA.  Here is the order I would use:

1) Max out your 401k
2) Max out your Roth
3) Pay down your student loans

Given that you are young, I think your timeline is long enough to assume your investments, on average, will beat a 5% return.  Now, you are in a pretty good tax bracket so you could switch the order of 1 and 2.  Ideally, you could do both and then the order wouldn't matter.

[jpo]

My 401k max is $17,500

I am throwing 7% at it now. Are you saying I should try to reach $17500 or only maintain what I have since my work contributes to match 6% maximum? I dont have a lot of knowledge on ROTH investing so I guess I need to do some research there.

I have the HSA and I have a ~$1500 balance in it. I am not quite there yet, but will take this into account as I reach that amount.

I would do things in this order then:

• 6% in 401k for match
• Max 3,250 in HSA
• Max $5,500 in Roth IRA
• Max $17,500 in 401k

[Done by Forty]

What's the advantage of putting $4k in a cash position into his HSA, before investing all he can in a 401k or Roth IRA?

[jpo]

What's the advantage of putting $4k in a cash position into his HSA, before investing all he can in a 401k or Roth IRA?

HSA has the potential to avoid all taxation if used for medical costs. Both Roths and 401k eventually will be taxed. Also, I would guess his out of pocket maximum is more than $1500/year.

Assuming his HSA is configured the same way as mine, they make you keep $1k cash and the minimum investment amount into VTSAX is $3k. He'll hit $4k sometime within the year, so having it in a cash position would have an opportunity cost of ~$260 = $3250 x ~8% ROI. To me, that's worth it in case I need the (untaxed) money in case of a health emergency.

Feel free to poke holes :-)

[Done by Forty]

I agree that if he has medical costs then spending out of the HSA is the most efficient way to cover those costs.  But, and I am generalizing here, young people typically don't have thousands in medical costs in a given year.  If I were wagering, I'd say in a given year, his costs would be $0.

I don't know the specifics of his HSA so I can't say how much he has to have sitting in cash before he can invest, so it's hard for me to really pin down what his opportunity costs are and weigh them against whatever his out of pocket might be against the risk of paying medical costs.

They're all good options though: any order would be fine.  With some luck, all could be maxed and the order is irrelevant.

[CrochetStache]

Step 1. Pay off that Student Loan ASAP! That loan is at 5%

Step 2. Then add as much as you can to your retirement accounts

Thoughts: Your total car expenses come to about $266/month according to the numbers you provided yet you mention you usually bike. In what circumstances do you use the car?
How much per/month do you think using a taxi or renting a car or uhaul truck would add up to?

[Mr. Moneymustcash]

I am taking the Dave Ramsey approach to debt snowball, which is great and all, but higher rate of return on 401k AND taking care of this at the same time seems like something I can manage. Obviously debt is the major concern, but it is only at 5%. I should be able to take on both and still manage a profitable longterm profit higher than if I started after the debt was gone, right?

This felt really weird to do, but I just increased my 401k percentage to 30%

My medical costs are $0 right now as I have been fortunate enough to be healthy. I try to eat well and exercise too and I think that also helps.

My 401k change wont take effect for a couple paychecks and as long as I am still able to manage increasing my rate of debt reduction, then I will continue to increase it until max, then push the rest into my HSA and a business idea that has $10k startup(longterm savings). 401k at max right now seems logical, but since I have that debt, I need to take care of that too.

I drive once a month to visit family out of town, who live 20 miles and several hours away respectively. I would like to eventually sell my vehicle, and I'm trying to use it less and less. Also, I am basing that figure over the average last 6 months.