Clueless wannabe investor

[ccole]

Hello all, Husband and I are 30, and attempting to get finances in order. We inherited a bit of money, and it looks like we will have around $5000 that we would like to invest (rest is going to downpayment on a house and a new to us car). We have a 403 (b) through his work and have some cash in a savings account. Despite doing a fair amount of reading on investing, Vanguard, etc., I still feel a bit lacking confidence of how to handle the $5K. Is setting up a Vanguard the best bet? How did you start with investing? I really would like to get the ball rolling on this but don't want to make the wrong decision. Thanks!

[boarder42]

why not finance the car rates are still really low.  and invest the difference.

go read JLCollinsH stock series.  if you're struggling with how to invest 5k you probably are spending too much money as well and should do a case study to find out where the rest of your money is going.  at 30 you should already have been investing

http://jlcollinsnh.com/stock-series/

also look at this for the investment order:

http://forum.mrmoneymustache.com/investor-alley/investment-order-65299/

[Cwadda]

Hello all, Husband and I are 30, and attempting to get finances in order. We inherited a bit of money, and it looks like we will have around $5000 that we would like to invest (rest is going to downpayment on a house and a new to us car). We have a 403 (b) through his work and have some cash in a savings account. Despite doing a fair amount of reading on investing, Vanguard, etc., I still feel a bit lacking confidence of how to handle the $5K. Is setting up a Vanguard the best bet? How did you start with investing? I really would like to get the ball rolling on this but don't want to make the wrong decision. Thanks!

After reading the links boarder42 kindly provided...yes, opening a Vanguard account is the best way to go. After that you can make a full case study detailing all of your financial situation. Then we can advise the best way to proceed.

http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-'case-study'-topic/

[ccole]

Thanks for your responses! I love learning about all of this. That stock series is amazing. Yes, definitely should have started investing much sooner, feeling the pressure now to just get going already. I have written up information for a case study, I feel a little funny sharing some of this because we are not high earners (feel a bit out of place!) but here goes:

Life Situation: Married filing jointly, 2 dependents & one on the way

Gross Salary/Wages: Monthly: $2146
Monthly take home: $1715

Pre-tax deductions: 403b $172

Current monthly expenses: We are closing on Friday. I said "down payment" upthread, but it turns out that we received the money too close to closing to be applied as a down payment without delaying closing, so are leaning toward putting the $10,000 as a "principal reduction" instead. (Kindly advise if this is stupid.)

Mortgage P&I: $237.98
T&I: $216.77

Electric: Generally $60-$70
Heat: $280
Time Warner: $50 (phone & internet)
Cell: $12

Car insurance: $304 2x/yr
Water bill is expected to be $2-300/4x/yr
Also currently shopping around for Life Insurance.

Savings: $172

Then there's things like groceries, household goods, gas, etc. We live pretty frugally in this regard.

Assets: - $28,000 early inheritance. Have around $3,000 in savings account at our local credit union.

(Also have $5000 in student loan debt that we will likely wipe out with tax return or inheritance.)

(At some point within the next five years I would like to begin buying rental properties, but that is another can of worms for  another day.)

Thank you.

[Cwadda]

I feel a little funny sharing some of this because we are not high earners (feel a bit out of place!) but here goes:

There are plenty of folks on here that are not high earners. It's still very doable.

Gross Salary/Wages: Monthly: $2146
Monthly take home: $1715

I assume this is only one person working, and also assume mom is not working. Does said mom plan on working upon having child?

Heat: $280

Try to break this down into monthly over the course of the year. Surely this is not the heating bill for 12 months of the year? If this is the heating bill for 4 months of the year then that'd break down to about $100/month.

Car insurance: $304 2x/yr

Or $51/month

Water bill is expected to be $2-300/4x/yr

$83/month

Then there's things like groceries, household goods, gas, etc. We live pretty frugally in this regard.

If gas is $100/month and groceries are $150/month then you're $250/month and this is being very conservative for a family of 5. Do NOT neglect these things for your budget.

Generally speaking you are zero or negative in $ each month, have a baby on the way, and are buying a home (thankfully not an expensive one). On top of that you have $5000 in debt and a meager emergency fund. Fortunately there is the $28k which covers the downpayment, having a baby, and possibly the student loan debt.

However, bottom line is your hair is on fire and you need to come up with a new budget and plan for long-term savings. We're here to help :)

[boarder42]

what is the interest rate on the loan? do you have PMI? assuming its around the current prime rate(or better hopefully you locked pre election) then that 10k is better off invested.

Heat is high dont know what you can do to curb that but something should be done
can you drop a home phone thats a waste
cell seems fantastic
electric is alright could be cut some - look at light bulbs and insulation and dryer use on your income as well as temperature.  we do 61 winter 78 summer
Water is extremely high IMO. we're around 30 a month.

student loan debt depending on rate it may make more sense to invest still and just pay down overtime. 

at your income level rentals are awesome ArebelSpy a forum moderator retired at 30 on 2 teachers salaries so that may be a better path for you than investing in the market as you can leverage it.

[ccole]

what is the interest rate on the loan? do you have PMI? assuming its around the current prime rate(or better hopefully you locked pre election) then that 10k is better off invested.

Interest rate is 3.125

Heat is high dont know what you can do to curb that but something should be done

We live in a northern climate, heat bill will drop from May-October.

can you drop a home phone thats a waste

I'm going to see if I can get it back to the $10/month rate, been putting off calling.

cell seems fantastic
electric is alright could be cut some - look at light bulbs and insulation and dryer use on your income as well as temperature.  we do 61 winter 78 summer

Yes, definitely need to do some insulation work, that is on the To Do list.

Water is extremely high IMO. we're around 30 a month.

I will double check water

student loan debt depending on rate it may make more sense to invest still and just pay down overtime. 

at your income level rentals are awesome ArebelSpy a forum moderator retired at 30 on 2 teachers salaries so that may be a better path for you than investing in the market as you can leverage it.

Interesting, do you think we should sit on what we don't invest until it is time to buy a rental?

[ccole]

Ugh sorry, I messed up the quotes.

[ccole]

Heat: $280

Try to break this down into monthly over the course of the year. Surely this is not the heating bill for 12 months of the year? If this is the heating bill for 4 months of the year then that'd break down to about $100/month.

Car insurance: $304 2x/yr

Or $51/month

Water bill is expected to be $2-300/4x/yr

$83/month

Then there's things like groceries, household goods, gas, etc. We live pretty frugally in this regard.

If gas is $100/month and groceries are $150/month then you're $250/month and this is being very conservative for a family of 5. Do NOT neglect these things for your budget.

Generally speaking you are zero or negative in $ each month, have a baby on the way, and are buying a home (thankfully not an expensive one). On top of that you have $5000 in debt and a meager emergency fund. Fortunately there is the $28k which covers the downpayment, having a baby, and possibly the student loan debt.

However, bottom line is your hair is on fire and you need to come up with a new budget and plan for long-term savings. We're here to help :)
[/quote]

Sorry about that. What are your thoughts on long-term savings?

[boarder42]

dont pump anything else into a 3.125% mortgage just a waste... inflation is 3.22% on avg so youre gaining money as long as its invested else where. 

i'm not sure on the whole rental thing etc. but with that 10k you could probably find a good one and get it invested now.

[ccole]

dont pump anything else into a 3.125% mortgage just a waste... inflation is 3.22% on avg so youre gaining money as long as its invested else where. 

i'm not sure on the whole rental thing etc. but with that 10k you could probably find a good one and get it invested now.

Oh good point. We were thinking it'd be nice to get a slightly lower monthly payment, but what you say makes a lot of sense too.

This is really interesting food for thought, the rentals have always seemed like something in the future, kind of cool to think that it could get started sooner. Thank you for your responses.

[boarder42]

go read biggerpockets.com for information on investing in rentals its the holy grail blog / forum for RE investing.

[ccole]

go read biggerpockets.com for information on investing in rentals its the holy grail blog / forum for RE investing.

Perfect, thanks, never heard of it!

[SeattleCPA]

ccole,

Based on what you've provided, I think you're a perfect candidate for what I call the "thirteen word retirement plan"... which is to save money into that 403(b) plan you've got available and then pick whatever option looks most like a cheap target retirement fund.

Note: The "real" 'thirteen word retirement" I've proposed as a placeholder for anyone goes like this: "$5,500 annually into an IRA or 401(k) invested in cheap target retirement funds"...  you should be able to get into the top ten percent with the plan and it's harder to do much better without getting way more complicated or bearing way more risk.

BTW, if you get a match in  your 403(b), no real estate investment will be as good as that. And you'll probably never pay taxes when you draw the money out later on from the 403(b).

P.S. You aren't too late to start saving... you're actually starting at a nearly perfect time.

[boarder42]

Nearly perfect? 

Perfect is as soon as you have money to save start investing it.

[Cwadda]

Monthly take home: $1715

Pre-tax deductions: 403b $172
Mortgage P&I: $237.98
T&I: $216.77
Electric: Generally $60-$70
Heat: $125
Time Warner: $50 (phone & internet)
Cell: $12
Car insurance: $51
Water: $83
Groceries and household goods: $200
Gas: $100

Total monthly savings: $172
Total expenses: $1141
Money left over: $402

Assuming the inheritance covers your downpayment, cost of having a baby, and student loans, you have no immediate large expenses.

When I did it out before I must have mis calculated. You are still positive each month. An extra $400/month isn't quite enough to fully fund a Roth IRA. Is there a side hustle you can take on that pays $5k/yr so you can max you and your spouse's Roth IRAs each year?

[ChpBstrd]

I think you should spend the entire amount on cost of living....

...while temporarily bumping up your 403(b) contributions to almost 100% until the inheritance money runs out. Then dial back your savings rate to as much as you can afford.

There! An instant return by not paying taxes! Plus, the uneasy feeling of spending your entire inheritance in a couple months will motivate you to find savings. I bet your 403(b) savings rate ends up higher than when you started.

Option B - to use, for example, if you pay minimal taxes anyway - would be to find an online brokerage offering a new account setup bonus in cash (shop around). Then set up Roth IRAs for each of you. Deposit half in each account. Collect bonuses. Buy as many shares of VTI as you can. Set dividends to automatically reinvest. Done.

[ccole]

Thank you everyone for your insight! I really appreciate you all taking the time to weigh in on this.