Author Topic: Financial Overhaul  (Read 984 times)

pauburns

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Financial Overhaul
« on: March 08, 2019, 01:40:32 PM »
My wife and I are in our early 20's and are starting down the path of Financial Independence! I have been reading through the blogs and forums and have an investing plan but please let me know if I am thinking correctly.

#1 6 months of expenses as an emergency fund in an Ally Bank savings account (2.2% APY)
#2 Max out Roth IRA yearly in a Betterment account
   I chose Roth because I believe in growing passive income and therefore will hopefully be in an equal or higher tax bracket at
   retirement than I am now.
#3 Separate retirement savings account outside of IRA through Betterment
#4 Funding for home purchase in the next 2-3 years
   Would it be wise to also place this in the high APY savings account or should I be investing this through Betterment or the like with a
   low risk profile? Any ideas are welcomed!

Along with this I already have 7 % going into a Roth 401(k) with my company and they match 6 %.

EvenSteven

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Re: Financial Overhaul
« Reply #1 on: March 08, 2019, 07:44:15 PM »
My wife and I are in our early 20's and are starting down the path of Financial Independence! I have been reading through the blogs and forums and have an investing plan but please let me know if I am thinking correctly.

#1 6 months of expenses as an emergency fund in an Ally Bank savings account (2.2% APY)
#2 Max out Roth IRA yearly in a Betterment account
   I chose Roth because I believe in growing passive income and therefore will hopefully be in an equal or higher tax bracket at
   retirement than I am now.
#3 Separate retirement savings account outside of IRA through Betterment
#4 Funding for home purchase in the next 2-3 years
   Would it be wise to also place this in the high APY savings account or should I be investing this through Betterment or the like with a
   low risk profile? Any ideas are welcomed!

Along with this I already have 7 % going into a Roth 401(k) with my company and they match 6 %.

#1 emergency funds are a highly personal thing that will vary widely depending on personal circumstance. 6 months falls square in the middle of the reasonable range.

#2 Your thinking is correct on Roth vs Traditional. If you expect your marginal tax rate to be higher when withdrawing than contributing, Roth is a better choice.

#3 See the sticky for investment order for some ideas about which account type to place funds.
https://forum.mrmoneymustache.com/investor-alley/investment-order/

#4 2-3 years is generally too short of an investment horizon to place in equities, or even a medium duration bond fund. If instead of "2-3 years", it's "2-3 years, unless the market goes down, then 5-10 years is just fine," then equities or bond funds are more reasonable.

MustacheAndaHalf

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Re: Financial Overhaul
« Reply #2 on: March 09, 2019, 04:56:36 AM »
Betterment charges 0.25% of assets, but you can manage things yourself and save that 0.25%.  Just keep Vanguard, Fidelity and Schwab in mind when you're deciding where to park your investments.

I think Fidelity now allows individuals to open/transfer a health savings account (HSA).  So you might be able to have your Roth IRA, HSA, and taxable investments all in the same place.  If you're new to investing, though, Vanguard is better since it's much harder to make a mistake.

Are you willing to delay your home purchase if the market corrects?  Meaning, if the market drops significantly, your down payment might no longer be enough.  If you can accept that risk, and wait 1-2 years (based on most corrections - not guaranteed) after a stock market correction, then you might be able to invest your down payment in stocks and bonds.

pauburns

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Re: Financial Overhaul
« Reply #3 on: March 18, 2019, 09:59:01 AM »
Thank you both for the responses. Asking myself the question of "if the market goes down can I delay buying a home" is not something that I thought of. Sounds like I need to have a conversation with the wife!

Also I will be reading that thread!

John Galt incarnate!

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Re: Financial Overhaul
« Reply #4 on: March 18, 2019, 10:32:46 AM »

#4 Funding for home purchase in the next 2-3 years
   Would it be wise to also place this in the high APY savings account or should I be investing this through Betterment or the like with a
   low risk profile? Any ideas are welcomed!



If I planned on using the $ in 2-3  years to purchase a home  I would choose the high APY savings account or a short-term  CD for the surety of knowing   the $ would be available  when I decided to buy.

John Galt incarnate!

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Re: Financial Overhaul
« Reply #5 on: March 18, 2019, 10:41:49 AM »
Thank you both for the responses. Asking myself the question of "if the market goes down can I delay buying a home" is not something that I thought of. Sounds like I need to have a conversation with the wife!

Also I will be reading that thread!

"If a really good deal on a house pops up within the next 2-3 years  we want  to be sure we have the $ to buy it."

^^^

Another way to think about the desirability of having a certain sum of $ set aside for the purchase of a home.