I'm 29 only making 38k, just starting, need advice.

[MinimalDave]

Hey everyone,

Brief Background: I've been reading alot from this website and forums for the past couple weeks, but only just beginning to grasp alot of these concepts. I've been a saver all of my life but unfortunately put most of it into a regular savings account. I was offered my first 401k with work this year, and because of that, am realizing how important it is to save for retirement, vs just saving into a basic savings account. This has opened up a new world to me, with ideas surrounding whether to max my 401k, only put into matching what my employer does, also opening a traditional IRA, or maybe a Roth IRA is better, etc. My hope is to get some insight and suggestions from you, on what my best course of action is based on my current circumstances. The "Case Study" was a bit too complex for where my understand is right now, but I will try to list as much information as I can below.

Gross Salary: $38,000. I'm on track at the end of this year to get (for me) a significant raise and hopefully start making ~$42k.

Current Savings: $14,000 in 1% online savings account.

Edit: Opened a traditional IRA Vanguard account and moved $3,000 into it. Need to decide if these funds should be going into VTSAX or into Target Retirement Fund 2050.

Current Investments: ~$37,000. This was originally a college savings, which not knowing when / if I was going back to school, decided to put into a very conservative fund with a local financial advisor who seems trustworthy. This is in the Income Fund of America. I believe I am being charged 1.38% management fees on the account with the advisor taking 20% of that. I was planning on talking to him about putting this into something more aggressive but thought that I should get my pre tax retirement funds figured out first. Then I would re evaluate where this money is being allocated with this advisor and whether or not I could do this myself in the future.

Retirement (401k): $861. Started receiving a 401k middle of this year, but unfortunately this was set at a default of 3%. My employer matches 100% of first 1% and 50% of next 5%. So I need to put in 6% to get max match of 3.5%. I have this 401k currently set to 10% and its going into the default Investment Election which is a MFS Lifetime 2050 which says it has a gross expense ratio of 1.08%. (Is this high?)

Life Situation: 29 years old, Unmarried, Single Tax filer, Renting in California

Debt / Liabilities: None. No student loans. I use my credit cards (Chase Sapphire + Chase Freedom) for everything to build travel awards, and pay them off in full monthly. I don't have any issues with unnecessary spending and have been practicing minimalism for years.

Savings Goals: I am working on creating a budget to see how much I am spending, but I believe I can get my savings as high as 40 - 50% with current rent and spending. I want to be very aggressive with this and really start the snowball rolling for compound interest.

Best Path / Thoughts: My goal is to start investing less into my savings account and more into my retirement / or other account with more return. I keep reading contradicting opinions and am finding it hard to decide on my best course of action.

1) Should I, Put 6% into my 401k to get 100% match, and then put the rest into a Roth IRA? Traditional IRA? With, say, Vanguard?
2) Try to max out my 401k before thinking about an IRA / Roth IRA?
3) I believe I am just barely going to fall into the 25% tax bracket at my projected salary of $38,000. Would there be a worthwhile way to drop into the 15% bracket?
4) At my current level of knowledge I like the idea of putting my money into something that I don't have to actively manage. Would it be a good idea to put money into say a Vanguard lifecycle account until i learn more about how to choose investments on my own?

Appreciate any thoughts or feedback, and will provide more details if needed. Thanks.

[Reynolds531]

You look like me when I was your age. If I had it to do over again..

-drive cheap cars don't be a sucker
-stay out of debt
-develop your career don't just work hard study hard
-invest but don't get discouraged by other people doing better
-learn to fix and renovate things yourself

Finally enjoy the trip! Don't stress over money

[rhadams1988]

Your expense ratios on your investment accounts are super high. I think the first thing I'd do is switch to Vanguard index funds and put everything in VTSAX (Total Market Index Fund) or VFIAX (S&P500 Index Fund). These expense ratios are 0.05%, which is about 20X cheaper than your current options. (http://jlcollinsnh.com/stock-series/ Check out this stock series to learn more). There's nothing wrong with a target date fund at this point in your life, but you might as well keep it simple and go 100% stocks. You're so far away from retirement that you don't need to start worrying about adding in bonds yet.

Definitely put at least 6% into your 401K to get the employer match (free money is free money). Then after that, any of your options are fine with some slight differences. Investing more into your 401K and your Traditional IRA are essentially the same thing. They both reduce your taxable income. If I were you, I would invest enough into either one of those (probably stick with the 401K to keep it simple) in order to drop yourself out of the 25% tax bracket. Then maybe put money towards the Roth IRA. However, you can't really go too wrong as long as you're putting money into one of these three accounts.

After your expense ratios are closer to 0.05% and your investing a good chunk into your tax-advantaged retirement accounts, I would focus on increasing your income. There are tons of jobs that make >$50K that don't even require a degree. (http://www.mrmoneymustache.com/2013/07/25/50-jobs-over-50000-without-a-degree-part-1/)

Good luck! You're starting on the right path.