Making my first steps into the financial world

[retire 2028]

Hey everyone!!

Very excited about all the blog posts and forum posts I've seen around this site.
It seems like everyone here has solid priorities that really resonates with me.

I've recently committed to a "real" job where I've got to show up 5 days a week and take my limited vacation. With a background in living on bikes and out of cars for months at a time, this was a tough decision.

I want to get my money working for me right away, so I thought I'd ask for your help! The simple answer I get from the blog is go VTI or Betterment and forget about it. Would the majority agree???  Or should I stay liquid and just keeping saving and invest in a house? What about a cd through the bank?


So how can I get my money working best for me??

Life Situation: 25, Single, 0 dependents, Metro area, Tennessee USA.

Gross Salary/Wages: $54,000

Taxes: Standard

Current expenses per month:
$500 for rent
$60 for utilities and internet
$30 for phone
$55 for all health insurance
$100 for gas
$300 for groceries
$125 for gym
$200 fun fund, eating out etc.

$1,370 spent per month
 
Assets:
Money in the bank: $20,000
Car: Kelly Blue Book is like $650, plan on driving it into the ground
Currently have $2,200 in a traditional IRA

Liabilities: None?

I am trying to save money for future car and home purchase.

I'd like to have $12,500 for a down payment on a house (life partner providing other half) and $7,500 for a car though I dont know when ill need this. Along with safety net in bank.

I'm very new to all of this so if i've left out something obvious, let me know! This will help me grow my financial understanding!

Everyone in the community seems very helpful and I am excited to work towards financial freedom!!!!

[Mikila]

There are some variables here that must be known.  How much are you planning on spending on another car?  Are you cool with using some of your $20K in the bank on a new car and house downpayment, or do you want to maintain that balance? 

If you think you will need money for a car and house soon, then I would park it in a savings account (find one paying around 2%).  If you say, I will need $13K in 5 yrs, then I would start laddering CDs as you save so that they come due around the time you need the money.  You should be able to find 2.5% return for that.  But, if you are cool using your existing savings for those expenses and then replenishing it after, then by all means invest the money you are saving in the market. 

And of course, this is all my opinion so take it with a grain of salt.

[MDM]

retire 2028, welcome to the forum.

Investment Order is the usual set of suggestions.  How do those seem to you?

[kpd905]

Do you have a 401k at work? Do they offer a match?

[retire 2028]

Mikila:

I'm planning on spending around $7,500 for a car when the time comes.

I'm totally cool with putting $20,000 towards these goals of house and car. The house will be in the next 2-3 years. Not sure about the car, thats up to my current car!


kpd905:

My company does offer and I'm putting in the max that they match at 5%.


My overall goal is to figure out the best way to use my $20,000 today, so its not just sitting in a savings account.

[Watchmaker]

I think it makes sense to keep that 20k liquid, although you should look for an account that pays a decent interest rate (most savings accounts pay virtually no interest. But you can find ones that are around 2% if you look around.

The reason I say you should keep it liquid is that you need an emergency fund, and you have two large expenses (down payment, car) coming up. 7.5k+12.5k is the whole 20k, so you'll actually probably want to add even more to that so you have an emergency fund left over after those expenses. Also, it wouldn't be a good idea to buy a house and then have zero cash. So I would build the account up to say 30k.

But, I wouldn't wait to start investing either. Even if it isn't matched, putting money into a 401(k) is still usually a great deal (though you should look into what the fees are like). I'd consider increasing your contributions there. Figure out how much you can save per month, put part of it (i.e. $250) in your bank account and raise you 401(k) contribution to use the rest.

[Check2400]

So how can I get my money working best for me??

Life Situation: 25, Single, 0 dependents, Metro area, Tennessee USA.

Gross Salary/Wages: $54,000 [What is your monthly Net?]

Taxes: Standard

Current expenses per month:
$500 for rent
$60 for utilities and internet
$30 for phone
$55 for all health insurance
$100 for gas
$300 for groceries
$125 for gym
$200 fun fund, eating out etc.

$1,370 spent per month

So Monthly Net - 1370 = What?
This will let us know what your monthly save is
 
Assets:
Money in the bank: $20,000
Car: Kelly Blue Book is like $650, plan on driving it into the ground
Currently have $2,200 in a traditional IRA
Where is the 401K that you are contributing to for the 5% match?

I'd like to have $12,500 for a down payment on a house (life partner providing other half) and $7,500 for a car though I dont know when ill need this. Along with safety net in bank.

So in other words, you want to know what to do with your $20,000 while saving an additional $20,000 for down payment and car. 

If you are spending $1,370 per month, that is $16,000 a year.  Even if taxes, health insurance and current 401K contribution are 20% of your gross, that means you're saving almost $30,000 a year, or $2500 a month? 

I think that your options are pretty straightforward for the first two steps.  First, get a Roth IRA to start saving $5,500 a year.  This is post tax money that doesn't get taxed on withdrawal.  Bonus, if you want, you can withdraw the principal for a home purchase in the future as a safety net. I'd be comfortable with you even doing the 2018 and 2019 both immediately in January to get money in the Roth, and then replenish the safety net if that makes you dip below 20K.   
Second is max out your 401K.  If you're running an excess of $2500 a month, you can max your 401k for roughly $1200 in post tax dollars, not even counting that you already are putting in some case.  That still leaves you with over $1000 a month to save.

That means that if your horizon for a car and home purchase, at the same time, is 20 months away, you're set.  Put aside some cash to get a lawyer to draw up a joint tenant cohabitation agreement for when you purchase the home if you are not married beforehand, since that ounce of prevention is worth the pound of pain. 

The biggest question regarding the home purchase is that since you just now got into the 'real world' job, is this location the final location?  If you don't have objective reasons to stay where you're staying, make sure you have a year or two under your belt in your career and career location before making that commitment. 

If you do nothing else but max 401K and Roth, and loosen the purse strings to a 20K spend, you'll be FIRED in 13 years.  That's not putting the extra 12K a year you have left over, or any raises towards a brokerage savings account that could easily get you done in 9 years.