Author Topic: No Debt- Now What?  (Read 4082 times)

BlueLagoon

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No Debt- Now What?
« on: August 19, 2014, 07:43:08 PM »
Age 34

Salary: $59,000/year. Annual bonus ~$4,000/year

Take home pay $3,300/month

ASSETS:

401K: $46,000 Contributions: 6% prepay period with a 6% company match.

Savings: $27,500. Auto deposit of $1,000/month

7 year old car: 80,000 Miles

EXPENSES:

Debt: Zero, Yes!

Rent: $1,100 (includes water & garbage)

Phone: $35-40/month

Internet: $45/month

Electricity: $50/month

Gas: ~ $200/month

Groceries: ~$200/month

Dining Out/Entertainment: ~ $45/month. Varies

Shopping: ~$200/month (aaand hereís the face punch) Iím a sucker for department store ďsalesĒ and a trip to Target ends up being more than a quick trip to buy toothpaste. Shopping expenses can be more than $200 on occasion.

Total: $1,888

So hereís my question. I feel like I donít have enough in savings and I donít have enough in my 401K so where should I put my focus? I would like to buy a house eventually. I have a 10 minute commute and houses in my area are expensive. Iíd prefer to buy a house rather than a condo. (Iím tired of sharing walls). I think Iíll be looking at spending around $275,000 - $300,000(sigh) unless I find something in foreclosure. But Iíd like to have a good chunk for a down payment. So should I focus on that or increasing my 401K contributions? Also, when the time comes for a new (to me) car Iíd like to have enough to pay in cash. Although my current car has enough life left in it.
« Last Edit: November 23, 2014, 07:41:27 PM by BlueLagoon »

Retired To Win

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Re: No Debt- Now What?
« Reply #1 on: August 19, 2014, 08:04:54 PM »
At 34, having emergency savings is more of an immediate issue than increasing 401(k) contributions.  IF it has to be either/or, fund your emergency reserve first.  Twelve grand (6 months of expenses) ought to do it, provided you have access to additional liquidity via credit cards (on an emergency basis, ok?).  But keep contributing enough to the 401k to get the company match.

As for the house, take another look at that after your emergency reserve is funded.

Good luck!

FrugalSpendthrift

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Re: No Debt- Now What?
« Reply #2 on: August 19, 2014, 08:12:03 PM »
So hereís my question. I feel like I donít have enough in savings and I donít have enough in my 401K so where should I put my focus?
Which goal is more important?  buying a house or reducing how many years you spend working?

EscapeVelocity2020

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Re: No Debt- Now What?
« Reply #3 on: August 19, 2014, 08:34:57 PM »
You, my BlueLagoon friend, are kicking butt.  However, I would say that putting everything into a 401k first, and anything extra into after tax savings is the way to go early on.  This helps lower your taxes NOW, and gives you many options to retire early and start tax advantaged living (see 'GoCurryCracker's post:  http://www.gocurrycracker.com/never-pay-taxes-again, and his follow-up: http://www.gocurrycracker.com/the-go-curry-cracker-2013-taxes).
I was in a similar situation to you.  Maybe I screwed up by borrowing from my 401k for a 20% house downpayment, but it was a low interest rate loan that I paid back to myself, as opposed to PMI and/or a piggyback loan.  The market was quite up and down, so being out wasn't too big a deal, I had plenty of exposure.  Only you know how you feel and what you can live with when it comes to equity exposure vs. real estate.
Anyways, be confident in the fact you are in a win-win scenario, don't beat yourself up if one win is less than the other win.  I hope you participate in more threads, a journal, or a blog to help out others get to this position of strength (and don't be put off by MMM seemingly out-badassityi'ng you, I and many other forum members are surely impressed by what you have accomplished.  It is surprisingly rare 'in the real world').

BlueLagoon

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Re: No Debt- Now What?
« Reply #4 on: August 20, 2014, 07:18:24 PM »
Thanks for the articles EscapeVelocity! 

Cheddar Stacker

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Re: No Debt- Now What?
« Reply #5 on: August 20, 2014, 07:43:56 PM »
+1 to everything escape velocity said. Plus I will add:

Your savings is too high in my opinion. Your income exceeds expenses by $1,500/month. That equals TONS of flexibilty in an emergency. Don't add anything to it without a very specific purchase, and put that in the stock market in a post tax account.

But before anything, max that 401k. Make sure you read those links ev gave you.

Mr Mark

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Re: No Debt- Now What?
« Reply #6 on: August 21, 2014, 08:48:11 AM »
Escapevelocity, thanks for those links. Totally awesome.

I had often wondered how to calculate the cap gains vs income to work out cap tax rates.

The USA is a wonderful place. I'm sure our foreign members would faint at his 2013 tax return - income of 90000 dollars, tax paid - zero. For a couple.

EscapeVelocity2020

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Re: No Debt- Now What?
« Reply #7 on: August 22, 2014, 06:49:56 AM »
Cheddar, Mark - My mind was totally blown on the no-tax implications of RE (having paid so much tax for so long).  More than happy to share the links, it's just one more reason why young folks should be 'optimizing life' by starting the FIRE plan early!  If we stash everything in our 401k until 'full retirement age' (65 for Medicare eligibility, 67 per Social Security definition - and it's recommended to wait until 70 to maximize benefits...), then we'll be saddled with hefty taxes on RMD's at 70.5 - so retiring early to move money tax free into a Roth (with no RMD) is something we all need to be aware of. 

It's like the government wants smart people to retire early!  I'm using i-ORP.com to analyze taxes, definitely check that out!

Franklin

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Re: No Debt- Now What?
« Reply #8 on: August 22, 2014, 07:12:32 AM »
Cheddar, Mark - My mind was totally blown on the no-tax implications of RE (having paid so much tax for so long).  More than happy to share the links, it's just one more reason why young folks should be 'optimizing life' by starting the FIRE plan early!  If we stash everything in our 401k until 'full retirement age' (65 for Medicare eligibility, 67 per Social Security definition - and it's recommended to wait until 70 to maximize benefits...), then we'll be saddled with hefty taxes on RMD's at 70.5 - so retiring early to move money tax free into a Roth (with no RMD) is something we all need to be aware of. 

It's like the government wants smart people to retire early!  I'm using i-ORP.com to analyze taxes, definitely check that out!

Damn.  I just ran ORP.  Freakin' awesome.