Author Topic: What to do first - Learn to invest or Increase Income?  (Read 3568 times)

effortmonkey

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What to do first - Learn to invest or Increase Income?
« on: September 29, 2012, 09:48:17 AM »
I just started to read the forums, so pre-apologies for having more noobossity than badassity!

My basic question is the same as all noobs - where should I start? Learn how to invest, or increase my income?

Here's my situation:

Income

Monthly income as a web developer is 2400. 30% of that ends up in savings (I actually deposit my entire paycheck into a savings acct, so it's more accurate to say 70 percent goes into spending). My savings account is at almost exactly 20k right now.

Work offers a 401k with a match, and I put in around 150/month. That's worth 3500 right now, and is invested conservatively.

I have a small rollover IRA from another job, invested aggressively, which I'm haven't contributed to since I left at the end of '07. It's still below where it was in 2008, at 1200 bucks.

Finally, I have some paper bonds, worth about 800 bucks.


Spending (Time and Money)

My SO and I split all of our spending. We share a credit card that we pay off every month. It costs 75 bucks a year, but we get a couple of flights out of it each year.

I share a car with my SO. Maintenance and gas cost about 130/month. It's got over 100k miles on it, so it'll be costing more in the future, I'm sure.

I rent from my SO's family, about 400/month.

Work pays for health insurance. They also offer to pay half a gym membership, which I don't have time for. I'm up ~5:30-6:00, start getting ready for work a 7, and by the time I get home and finish supper it's 7:30. I am pretty much exhausted by the end of the day. Keep going like this, and it's going to drive up my health costs, definitely.

Work pays for a bus pass. My daily bus commute is an hour each way. I wish we could move closer to work, but it's not gonna happen.

As for loans: ZERO. Paid my student loans off on my birthday in 2011.

I attached a screenshot of my income/spending spreadsheet for those of you who enjoy such things.


"Plan"

Yeah - I have no plan. But here are my vague ideas for the future:

Invest savings. Investing still doesn't feel like a real thing to me. I'd like to keep about 6000 on hand as an emergency fund. The rest of it I'd like to earn more than the pitiful 0.15 percent it earns sitting in savings. But that old, tiny IRA that's lost money over five years still freaks me out whenever I think about investing.

Increase income. I get stuck here because I have a lot of potential options, and so little time to pursue any of them. I started with an art degree, taught myself web design/development, and spent a few years freelancing before getting my current job. So in my spare time, I could: freelance, teach workshops, increase my programming skills, sell art, get an MFA etc., etc., etc.

But wait, spare time. I don't have much. So would it be more beneficial to spend my bus rides reading about investing, or figuring out a business model/focusing on increasing income?

Edit: Got rid of some fluff.










« Last Edit: September 29, 2012, 10:15:51 PM by effortmonkey »

It Figures

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Re: What to do first - Learn to invest or Increase Income?
« Reply #1 on: October 01, 2012, 08:07:03 AM »


But wait, spare time. I don't have much. So would it be more beneficial to spend my bus rides reading about investing, or figuring out a business model/focusing on increasing income?


Start first with learning about saving and investing for Financial Independence.   If you only focus on making more, you might just end up spending more.  First learn what to do with the money you currently make.  Once you do that, then you can consider other streams of income. 

gdborton

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Re: What to do first - Learn to invest or Increase Income?
« Reply #2 on: October 01, 2012, 08:30:05 AM »
I'm surprised there haven't been more comments on this yet.  The first thing to do is starting contributing more to your 401k to get the maximum match.  Even with no growth in the market, there is a 100% safe ROI from the match.  If there is additional money left over after that, the next step should be a roth IRA, but it is up to you how much you want to save.

You should absolutely look at increasing your income. I'm not sure where you live or what sort of web development you do, but your gross salary is less than 40k which is pretty low even for a starting web developer.

These two paths aren't independent either.  You can start contributing to your 401k, and search for a new job/ask for a raise all at the same time.

James

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Re: What to do first - Learn to invest or Increase Income?
« Reply #3 on: October 01, 2012, 08:35:10 AM »
Start by following a nice basic investment plan.  MMM's plan is index funds, so I would go with that. (which I do)


So now you have learned to invest, you can focus on increasing your income.  Along the way you should certainly continue to learn about investing by reading good books, following posts here, reading MMM posts on the topic, etc.  But I really don't see it as an either/or proposition.

alandjackson

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Re: What to do first - Learn to invest or Increase Income?
« Reply #4 on: October 01, 2012, 03:25:07 PM »
Not sure where you live or what sort of web development you do, but you are early enough in your career that you probably have major raises coming.  In 5-10 years if you learn the right things, there is a good chance you'll be making 3-4 times what you are now.

arebelspy

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Re: What to do first - Learn to invest or Increase Income?
« Reply #5 on: October 01, 2012, 06:41:45 PM »
I vote increase income.

As a Mustachian, the amount you save is MUCH more important than the return you get.  You'll be working for a decade or so, so max the earnings during that time.

Go with simple index funds while accumulating, and begin to learn more about your own personal investing preferences as you go.

Then you have many years of FIRE to tweak and play and chase yield.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
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effortmonkey

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Re: What to do first - Learn to invest or Increase Income?
« Reply #6 on: October 01, 2012, 10:26:01 PM »
Wow, great responses! Because my disorganized mind needs lists and deadlines, here's what I'm thinking based on everyone's advice, and digging into the site a bit:

1. This Week
James - "Start by following a nice basic investment plan.  MMM's plan is index funds, so I would go with that...So now you have learned to invest" - this cracked me up and put the process of investing (which, in my mind, is as intimidating as an angry octopus) in perspective. I suppose learning as I go isn't a terrible thing. I'll call Vanguard this weekend, as they seem to be recommended, and ask what funds they suggest.
 
2. This Month
Once I've got my index funds,  I'll transfer my emergency funds into an ING or other higher rate savings account. Then I'll move the rest of my cash to a credit union (been meaning to do that for awhile, now seems like a good time). I'll also research no-fee credit cards.

3. Within Next 12 Months
As for my relatively low salary; I'm mostly self-taught and was freelancing/working retail for a few years before I lucked out with this job. I'm still learning, and I want to give these folks a good two years. So I should be free to search for a new one by next August. gdborton - "These two paths aren't independent either.  You can start contributing to your 401k, and search for a new job/ask for a raise all at the same time." Another simple but mind-blowing concept. I have trouble thinking this way - my level of commitment is usually much higher than the rewards that come from it, so it feels like "cheating" on my job to ask for more benefits while checking out some other company's assets. But I don't want to work for someone else forever, so I've got to open my mind...

4. Now and Forever
I could definitely do better saving. When I worked retail I lived on 1300/month. Then my SO got a job and I got a better one, and now I'm up to 1900 on avg (though this was a "special circumstances" year, medically and travel-wise). I'm hoping to transfer some of our expensive hobbies (mostly eating out) into lucrative ones, as we're both "creative types." We should be able to make money on what we produce.

I'm already getting the maximum match (4%) so I'll keep contributing to the 401k as usual. The tiny Fidelity Roth IRA would cost 50 bucks to transfer to another account, so I'll just leave that alone for now. The bonds are earning a lowly 2.9% combined interest, but I guess I'll leave those alone too until they mature.


Wow, hey, that sounds like an actual path, definitely more direction than I've had in awhile. Thanks all!

arebelspy

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Re: What to do first - Learn to invest or Increase Income?
« Reply #7 on: October 01, 2012, 10:39:24 PM »
Having a plan is invigorating, huh?

I'd recommend JLCollin's blog for terrific investment advice.

A few hours there and you'll know more than you need (and 15 minutes or so for the bare minimum to be good).
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with two kids.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

James

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Re: What to do first - Learn to invest or Increase Income?
« Reply #8 on: October 02, 2012, 09:30:25 AM »
Good plan to call Vanguard, when I called they treated me very well and were helpful in every regard.  Main thing is to get that first call in and get the ball rolling.

Sounds like you have things moving in the right direction, good luck!