Author Topic: Newbie Looking for Better Saving Strategy  (Read 3666 times)

clucernoni

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Newbie Looking for Better Saving Strategy
« on: September 03, 2014, 10:45:55 AM »
Hey all, I am a very new reader to the blog and forums and have found the site very useful. I have a question about what I could do with my current bad habit of saving too much in low yield/no yield savings and checking accounts.

A little about me:
I am 29 years old, gainfully employed as a software engineer (Making about 120k annually). My wife is also employed and allows me to handle all the finances. We bought a townhouse last year and have about $320k left on a 30 year mortgage(Maryland/DC area is so expensive). I am a very conservative person by nature and that carries over to my financial habits.  We currently have about $35k in a 401k and another $55k in a low yield savings account. I like keeping that money available "just in case" (just in case what, I'm not sure).

I would like to find a place to put this money where it will actually work for me, but in a place that would still be accessible if we ever need it. I have read a bit about REITs/high dividend stocks and I like how they can provide a long term income stream, but are still a pretty liquid asset. I'm fine with long term, medium risk/medium reward assets, but I just don't know enough about what exists out there that would fit these requirements nicely. I am fairly familiar with how stocks/options work, but beyond that, I don't know much about other investments.

I am also in the process of getting our expenses better defined and under control and would love to be able to continue to feed our extra income each month into any of the investments that are available continuously.

Thanks in advance and I look forward to any comments/suggestions/criticisms.

fallstoclimb

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Re: Newbie Looking for Better Saving Strategy
« Reply #1 on: September 03, 2014, 11:05:28 AM »
Two glaring things are jumping out at me:

1. You make 120K in addition to your wife's income -- are you maxing out both 401ks?  It sounds like you are not.  Get on that, yesterday. 

2. Roth IRAs (one for you and one for your wife) would take care of 11K of that savings account money.

44K is still a lot to have in savings, so you'll need to do more.  Do you have PMI left on your house?

clucernoni

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Re: Newbie Looking for Better Saving Strategy
« Reply #2 on: September 03, 2014, 11:10:18 AM »
Two glaring things are jumping out at me:

1. You make 120K in addition to your wife's income -- are you maxing out both 401ks?  It sounds like you are not.  Get on that, yesterday. 

2. Roth IRAs (one for you and one for your wife) would take care of 11K of that savings account money.

44K is still a lot to have in savings, so you'll need to do more.  Do you have PMI left on your house?
Thanks for the reply!

1. We hadn't been maxing it out, but we are as of a couple of months ago.
2. I will look into getting Roths for each of us.

We have no PMI on our house at all. so just the mortgage at 4.25% and about 4k left in student loans at 2.5%

Cheddar Stacker

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Re: Newbie Looking for Better Saving Strategy
« Reply #3 on: September 03, 2014, 11:23:53 AM »
I would pay the mortgage and student loans as slowly as possible, but with only $4K in SL's I can understand the urge to just get rid of it so if you have to, go for it. fallstoclimb can tell you how good that feels. : )

Max the 401k's, max the IRA's (likely would have to be Roth based on income), and invest whatever you're comfortable with in a taxable account in stock index funds.

You don't mention expenses, but given the amount you've been able to save they must be fairly low, like < $50K maybe. I don't think you need anywhere near $55K in your emergency fund. You should keep some since you are conservative, but I would aim for maybe 6 months of mortgage payments plus 3 months of other expenses, then invest the rest. Even if the market declines temporarily you will have plenty of cushion. You clearly have a lot of earning and saving potential, so your investments should grow very quickly if you begin right away.

If you absolutely can't stomach investing, you should look into putting some of the cash into Bonds, T-Bills, TIPS, etc. I wouldn't do this with that much of my net worth, but I'm aggressive.

Welcome to the forum.

GGNoob

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Re: Newbie Looking for Better Saving Strategy
« Reply #4 on: September 03, 2014, 11:26:48 AM »
We have no PMI on our house at all. so just the mortgage at 4.25% and about 4k left in student loans at 2.5%

At 2.5% you wouldn't save much by paying off that student loan. But its also only $4k so that might be pretty easy for you guys to pay off quickly if you wanted to just get rid of it. Otherwise just keep at it with the minimum payments.The interest rate on the mortgage is also low enough that I wouldn't bother making extra payments to that.

Although I am currently switching from Betterment to Vanguard, I like to recommend Betterment as an easy place to invest for new investors. You can set up different "goals" to keep your money separated and adjust the risk on each goal separately. You can also create a Roth IRA in just a few clicks. There's a small advisor fee, 0.15-0.35% annually of your assets. But as a new investor, it may be worth it. You could create a safety net fund (based on Betterment's advice), a long term taxable savings, and your Roth IRA, all in one place. The best part is how easy it is to get your money. If you schedule a deposit before 11PM EST, it invests the next business day. If you withdraw money during market hours, it will arrive in your bank account on the 2nd business day. That's faster than some online banks!

Just an FYI, Betterment offers "referral" bonuses. If you liked the idea of Betterment and wanted to set up, feel free to ask me or anyone else on the forum for a referral link. Once we refer you, you could refer your wife (for her Roth IRA). The referral bonuses are for $25 free or 1 year of free investing (on top of the 30 days they already give you). If you put enough money in, the 1 year free is worth a lot more. If nothing else, that 1 year free gives you the opportunity to get your feet wet with investing and you can always roll over your Roth IRA to Vanguard later on.

clucernoni

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Re: Newbie Looking for Better Saving Strategy
« Reply #5 on: September 03, 2014, 11:54:01 AM »
Cheddar and Logan,

Thanks so much for the replies. I will def look into Betterment's offerings, if you want to post your referral link, I would be happy to use it. I know MMM likes Vanguard as well.

I am a bit wary of just regular stocks, but I suppose index funds are a bit more conservative? Perhaps dividend stocks that aren't as volatile? I'd really like to get to the point where I can have a decent percentage of my income coming from dividends/REIT payments and other types of investments on a consistent basis.

Cheddar Stacker

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Re: Newbie Looking for Better Saving Strategy
« Reply #6 on: September 03, 2014, 12:01:40 PM »
I am a bit wary of just regular stocks, but I suppose index funds are a bit more conservative? Perhaps dividend stocks that aren't as volatile? I'd really like to get to the point where I can have a decent percentage of my income coming from dividends/REIT payments and other types of investments on a consistent basis.

Index funds aren't automatically more conservative, but they are automatically more diversified and therefore are safer than individual stocks. Some dividend stocks are less volatile, and if you really want to go that route there are stock index funds that are geared toward heavy dividend payers. If you want REIT's you should try to access them in tax advantaged accounts because their dividends are taxed at ordinary rates.

lafa33

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Re: Newbie Looking for Better Saving Strategy
« Reply #7 on: September 03, 2014, 12:32:53 PM »
I would definitely get rid of the student loan(s) for two reasons. One, putting your emergency savings to work as it is probably not earning more than a 1% return and the loan(s) are costing you 2.5%. Two, you will have one less thing to think about allowing you to put your focus elsewhere.

Put the rest of the emergency savings into an index fund except for a couple thousand. This will allow your money to work better for you and the couple thousand on hand will allow to pay for any irregular expenses or small emergencies. If a big emergency comes up sell some of the index fund money.