Author Topic: Where to allocate savings?  (Read 3241 times)

elizabeth112

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Where to allocate savings?
« on: May 21, 2015, 08:01:20 PM »
Long time reader! I am 28, female, I've just recently relocated to SoCal 4 months ago to work as a Federal employee after quitting a PhD program. I'm finally settled in the area, purchased my CL furniture, found a roommate, passed a smog check, etc. I like my job so far but it is a bit early for me to figure out if I'm going to want to stay here long term, or I'm going to want to relocate back to New England Area to be close to family. LA is a very different place! I've started putting money into TSP, but I'm having trouble trying to figure out where I should allocate my savings? Retirement, new (used) car, or house?

Here is my breakdown.

Assets
20k in savings, 3k in checking
1k in TSP (allocated 20% of paycheck to TSP, 15% in L050, 5% in Roth, govt matches up to 5%)

Income: 65k (pay grade increase to 77k next January, go up by pay-steps for a while, verbal assurance to get to GS-13 (92k) position within 5-10 years. 

Paycheck breakdown
$2500 (gross) every two weeks
$375 TSP tax deferred
125 TSP Roth
740 Health insurance, taxes, Medicare, FERS, etc
Remaining paycheck $1260 (net), monthly $2520 (+ 2 extra checks a year)

Monthly Expenses
Rent: $1100 (share apartment with roommate, walking distance to work).
Food: $200
Eating out: $50-100
Gas: $20 (drive car to mall or grocery shopping weekly)
Gym: $15/month
Car Insurance $50/month
Gas + Electric $30/month
Internet $45/month
Other (300/month) Facepunch -  this category includes clothes, renting a surfboard, haircut, makeup, etc. I am still building a professional wardrobe but I should be able cut this out slowly.
No cell phone bill

Yearly Expenses
PO Box - 80 dollars a month
1200 flights to New England area twice a year

Currently, I'm putting 15% in TSP and 5% in Roth. I'm thinking about jumping it up to meet the 18k limit. I don't really understand Vanguards, but anyone thinks Vanguard is better than TSP, let me know. Houses run about 500k+ here, probably going to be higher before I actually have the down payment ready. I am not sure if my savings should be allocated to retirement or house down payment?  Is it actually more wise to rent indefinitely?

Buying a house here seems like it might depends on my personal life. It seems more financially possible with an employed partner.  After a few years, I'm considering relocated back to a lower cost of living area, but I'm already getting a bit attached to the nice weather here!

Within the next 2 years, I'd like to get a "newer" used car as the car I own is a is a hand-me-down from my parents. It is fine for driving around town for groceries but it isn't safe for the aggressive CA highway driving.  Not having a more reliable car seems to be affecting my willingness participate in social events a bit which worries me as I'd like to meet a life partner.

And lastly, as a millennial who might never get married, I am not exactly sure what my FIRE goals are anymore. I feel a little lost with the possibility that I might never have a family to nurture and support. I guess I could foster or adopt kids?  I'm starting to feel a bit unmotivated regarding financial goals since I can't really see very far into my future. I do participate in work social events and volunteer - it just happens that my age demographic is not really in this part of LA and I'm not really willing to drive on the highway with my current vehicle. Public transportation is a no-go for me.

I'm almost thinking about buying a house in upstate NY (close to family), paying a mortgage, and committing to relocating in 3-5 years with hopes of finding work when I relocate.

Thank you for any thoughts you have!

electriceagle

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Re: Where to allocate savings?
« Reply #1 on: May 21, 2015, 11:16:37 PM »

Buying a house here seems like it might depends on my personal life. It seems more financially possible with an employed partner.  After a few years, I'm considering relocated back to a lower cost of living area, but I'm already getting a bit attached to the nice weather here!

Within the next 2 years, I'd like to get a "newer" used car as the car I own is a is a hand-me-down from my parents. It is fine for driving around town for groceries but it isn't safe for the aggressive CA highway driving.  Not having a more reliable car seems to be affecting my willingness participate in social events a bit which worries me as I'd like to meet a life partner.

.... it just happens that my age demographic is not really in this part of LA and I'm not really willing to drive on the highway with my current vehicle. Public transportation is a no-go for me.

I'm almost thinking about buying a house in upstate NY (close to family), paying a mortgage, and committing to relocating in 3-5 years with hopes of finding work when I relocate.

Thank you for any thoughts you have!

Er.... you did come here for facepunches, right?

You're just getting started after a long period of making no money in an unsuccessful PhD program. Collect some cash, save and invest.

Get over the desire for a "newer" used car. People use vague concerns about safety as an excuse to buy something prettier/shinier all the time. Unless your car has a significant item in need of repair, you don't need to replace it with something more expensive.

Also, get over the "public transporation isn't for me" bit. If you can't see yourself on the bus with working class folk, you'll be stuck buying a house 3000 miles away from the place where you live.

Pooja Sharma

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Re: Where to allocate savings?
« Reply #2 on: May 22, 2015, 06:34:32 AM »
Have you ever considered investing the money in stock market?

forummm

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Re: Where to allocate savings?
« Reply #3 on: May 22, 2015, 06:54:38 AM »
Definitely up your TSP to the full $18k. It has slightly lower fees even than Vanguard. The TSP is one of the best employer-provided tax-advantaged savings vehicles there is. And then put anything you have left into a Vanguard IRA, up to the maximum ($5500/year).

elizabeth112

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Re: Where to allocate savings?
« Reply #4 on: May 23, 2015, 09:43:05 AM »
Thanks for the responses so far!

Electric Eagle - I did come for face punches, so thanks! I probably was unintentionally misleading in my original post. I don't live in LA, so when I said public transportation was no-go, I just meant that I live in an area where there is no public transportation except for an Amtrak station about 10 miles away.

Forummm - Thanks! Should I change my current TSP (Roth vs tax deferred) ratio? The thing is that I don't feel like I have any of my money in anything that compounds? Should I put any of it in an Index fund?

No one has really said anything about buying a house - I guess I'll keep my rent cost as low as I can for the time being.

Thanks everyone!

forummm

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Re: Where to allocate savings?
« Reply #5 on: May 23, 2015, 09:48:22 AM »
At $65k, I would put it all in traditional, unless you're planning to *increase* your spending in retirement.

The L2050 fund is just fine. It definitely "compounds" to use your word. What you care about is long-term growth of capital, and L2050 is a highly diversified balanced fund that will do that.

elizabeth112

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Re: Where to allocate savings?
« Reply #6 on: May 23, 2015, 10:27:13 AM »
Would you suggest putting any of the 20k I have in savings in an Vanguard index fund to compound until I am ready to buy a house?

forummm

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Re: Where to allocate savings?
« Reply #7 on: May 23, 2015, 10:56:28 AM »
You're going to buy a house in LA on $62k? Maybe certain areas are more affordable than others. But my understanding is that the real estate market there favors renting as the financially superior strategy.

I favor a max-savings approach, regardless of what the money is going for. Max out your TSP and your IRA. Then put anything left into a Vanguard taxable account. That's what we do. If you get to the point where you do decide to buy a house, and you don't have enough for a down payment, you can take a loan from your TSP if you're still working for the government. The terms are very good.

forummm

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Re: Where to allocate savings?
« Reply #8 on: May 23, 2015, 10:58:57 AM »
We keep about $3-5k (depending on what time between bills and paychecks) in checking and the rest is in retirement accounts and Vanguard taxable accounts. Since you work for the government, your income should be pretty stable. If you have a credit card, that should be all you need for an emergency fund. You can always sell some of your Vanguard funds and they will be in your checking account in 2 days.

wordnerd

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Re: Where to allocate savings?
« Reply #9 on: May 23, 2015, 12:49:40 PM »
You should definitely max out your TSP. On your bigger life questions, I'd recommend taking a moment to breathe. It sounds like you just got to LA, and you're already thinking about buying another house in New England (now?) so you'll be committed to moving back there? Or maybe buying a house in LA?

I understand the "where is my life going?" crisis, but I think you need to give yourself sometime to figure out (a) whether you like SoCal and want to stay there (I lived there for five years and loved it, but it's not where I wanted to settle), (b) whether you like your federal agency/federal service in general, and (c) what your life goals are. All of this takes time, which is OK because you can settle into your life, save up money, and have a lot more options in a few years. Don't put so much pressure on yourself.

On federal service...it sounds like you're in a GS-11/12 ladder position, so staying through your promotion to a 12 (and maybe to your vestment at 3 years) probably makes sense, but you can look into lateraling into another position in a different part of the country. After a year as a 12, you could also compete for 13s elsewhere and get it a lot sooner than the 5-10 years you've been verbally assured.