Total Investing Newbie Help

[LateStarter1]

Hi everyone. Very glad I found this forum. So much info but that is also causing some confusion as well.

Quick rundown of my situation:

30 years old, single income of $45k/year
Own a house ($150k mortgage 4.25% rate 30 years)
1 Car payment $270 at 6% for 5 years.
No CC debt, No student loan or any other kind of debt.

I have $3k in a standard savings account.

$1800 in my work 401k account. They do not match at all. I just started putting money in this. Only 3% right now.


I guess my questions are:

What should I do next?

I know I want to get a larger emergency fund set up.

I see all sorts of Vanguard talk here and it is very interesting. Should I start doing investments into Vanguard now or after an emergency fund or in conjunction? Since my 401k does not match, should I even put my money in it and instead go all Roth IRA?

Most here are about really early retirement. But I see there are all sorts of penalties for taking money out of 401k or IRA before the standard retirement age.  But then I see traditional vs taxable and am even more confused. As well as limits on how much you can put in each.

I just know im lagging behind on saving money for retirement and I'd like to start catching up and make sure I do it the smartest way.

Realistically I can have around $500-$700 a month I can start investing comfortably.

I know to focus on emergency fund first, but want to be fully prepared and understanding on the investing part when that time comes. Or should that be now? Pay off car before investing?

Sorry if this was all over the place. I appreciate any help!

[Drole]

I probably beat to a different drummer than most around here.  But I highly recommend joining a investing club through NAIC.  After having a money manager lose a bunch of my money, I joined a club with the sole goal of "losing my money at a slower rate than the professionals." 

It was great to not only learn financials, but also be in a group with people from wildly different backgrounds, ages, etc.  Since no one was drinking the same Kool-Aid, it helped make sure you weren't seeing investments with those rose colored glasses on.  If you thought something was a great investment, you had to show the group the numbers/the reasons. 

After gaining confidence, I started investing on my own and never looked back. 

The club I joined had something like a $50 a month contribution, so you can join one now and learn for relatively little money and risk while you are building your emergency fund.  Usually you have to take a couple of classes and attend a few meeting before you can join.

I'm less concerned about Roth/401K/etc as the dear government can change tax laws at anytime.  Mostly I'd work on building up the funds and not stress over the type of account.     

[Radagast]

30 years old, single income of $45k/year
Own a house ($150k mortgage 4.25% rate 30 years)
1 Car payment $270 at 6% for 5 years.
Take care of the car loan first. 6% guaranteed is an excellent rate. If your car is worth more than $4,500, strongly consider selling it.

I have $3k in a standard savings account.
Dump it in the car loan if you are keeping the vehicle and within $3,000 of paying it off.

$1800 in my work 401k account. They do not match at all. I just started putting money in this. Only 3% right now.
Make sure to invest it in a low cost stock fund.

What should I do next?
I know I want to get a larger emergency fund set up.
Take care of the car loan first. If for some reason you decide not to sell that money loser.

I see all sorts of Vanguard talk here and it is very interesting. Should I start doing investments into Vanguard now or after an emergency fund or in conjunction? Since my 401k does not match, should I even put my money in it and instead go all Roth IRA?
Put at least $8,000 into an IRA (NOT Roth IRA) and 401k. This moves you from the 25% tax bracket to 15% tax bracket. 15% is a much nicer place to be. The cutoff for 15% is $37,950, so contribute more than your annual income minus $37,950 to stay in 15%. Read this: http://forum.mrmoneymustache.com/investor-alley/investment-order-65299/

Most here are about really early retirement. But I see there are all sorts of penalties for taking money out of 401k or IRA before the standard retirement age.  But then I see traditional vs taxable and am even more confused. As well as limits on how much you can put in each.
IRA: $5,500 per year, 401k: 18,000 per year, for 2017. Read this: http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

Realistically I can have around $500-$700 a month I can start investing comfortably.
Good job. With a year of practice and hanging out in this forum you can probably raise that to $2,000 per month, enough to max out both the IRA and 401k plus start work on a taxable account/level 2 emergency fund.

[Radagast]

I probably beat to a different drummer than most around here.  But I highly recommend joining a investing club through NAIC.  After having a money manager lose a bunch of my money, I joined a club with the sole goal of "losing my money at a slower rate than the professionals."

It was great to not only learn financials, but also be in a group with people from wildly different backgrounds, ages, etc.  Since no one was drinking the same Kool-Aid, it helped make sure you weren't seeing investments with those rose colored glasses on.  If you thought something was a great investment, you had to show the group the numbers/the reasons.

After gaining confidence, I started investing on my own and never looked back.

The club I joined had something like a $50 a month contribution, so you can join one now and learn for relatively little money and risk while you are building your emergency fund.  Usually you have to take a couple of classes and attend a few meeting before you can join.
Cool, if that's your thing and you feel you get $600 per year of enjoyment out of it go ahead.

I'm less concerned about Roth/401K/etc as the dear government can change tax laws at anytime.  Mostly I'd work on building up the funds and not stress over the type of account.
This is bad advice. "Math" must have been the club's least favorite flavor of KoolAid. The government isn't taxing taxable accounts in the future. They are taxing them right now. And in the future. And at every point between. Dropping from 25% to 15% marginal tax rate eliminates capital gains taxes right now. It saves on dividend taxes right now. We don't know what the future will be, but we know the present.

[Brokefuturedoctor]

Welcome to the forum,

Radagast gave a lot of good advice; however, I don't think I would burn the 3k on the car loan if you don't have an emergency fund size that you are comfortable with. You could try refinancing your car loan at a lower rate in order to save some money there and finish building up your emergency fund. If you feel comfortable not having an emergency fund for some reason (ie. you have a very stable job) for a little while then using that savings money is an option.

It's great that you don't have any CC debt or student loans. That is usually a pretty big hurdle. I would give some of the listed resources above a read. Good luck!

[Hargrove]

Hi everyone. Very glad I found this forum. So much info but that is also causing some confusion as well.

Quick rundown of my situation:

30 years old, single income of $45k/year
Own a house ($150k mortgage 4.25% rate 30 years)
1 Car payment $270 at 6% for 5 years.
No CC debt, No student loan or any other kind of debt.

Refi the house closer to 3% if you can. If you can rent a room, that could be a big help.
If the car is economical and sturdy, pay it off immediately. If not, sell it and buy a used car without an insane interest rate. It's not about whether you can afford the payment, it's about the total money (cost + depreciation) you're sinking into the car. If you can ditch the car and bike, you'll feel rich basically immediately.
Good job on no debt other than the mortgage!

Withdrawing money tax-penalty-free from 401k or IRA:
http://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/


IRA guide: learn the IRA limits and read up on them. There are lots of threads here on them already. General tip at your income level: go Roth if you think you'll have more money when you retire than you do at the end of your working life, go Traditional IRA if you think you'll have less (and therefore be in a lower tax bracket). It's too bad there's no 401k match, but maxing that out can also quickly lower your tax bill.


I know to focus on emergency fund first, but want to be fully prepared and understanding on the investing part when that time comes. Or should that be now? Pay off car before investing?

Yes. Your debt is costing you a 100% guaranteed negative return that you're best off paying first. If you could invest and see how it goes, or invest and get a guaranteed 6% forever that never fluctuates, think about it - that's what you do when you pay off high-interest debt. Better to sell the car if you can, but hey. Your emergency fund size is a personal choice, but I already think you have enough. And for goodness sake don't join a pay-to-play investing club. Read the investment forums, a lot, and you'll learn all about the 401k/IRA info. Look at the top threads for investment order and where to begin. Learn about index funds. Then when you get all that down, you can look at other investments like real estate and decide if that's right for you. But pare down your expenses and you could easily beat 6k/yr in savings.

[Heckler]

See investment order sticky

http://forum.mrmoneymustache.com/investor-alley/investment-order-65299/msg1333153/#msg1333153

[LateStarter1]

Ok, so I miss spoke on the auto loan. That is at 4% rate.  I would hate to get rid of it, its a utility vehicle that fits all of my needs, takes me on cheap budget camping vacations, great gas mileage and I would lose more money by selling it I'm sure. Its not terribly expensive vehicle either. At 4% loan is it still recommended to sell?  I will look into refinancing it as well for a lower rate.

I have changed a couple things.

I upped my 401k to 5%. I have about $2100 in there right now.

I had now $4k in savings account. Now I took out $3k and left only $1k in there as a small emergency fund.

I moved the $3k out of the savings and put it into a Vanguard IRA account into VTSMX.

I will get the savings account back up to probably $3k or so for an emergency fund.

I will then add about $450ish a month to the Vanguard IRA (until its maxed at $5500) while keeping the 5% going to 401K.

So I should have no problem maxing out the IRA each year. Once my income raises, I will up the 401k.

Still no other debt.

I did my taxes and was in the 15% bracket. I am single, head of household father. Not sure if that helped as well? My taxable income ended up being $20,358. Out of the $40,372 total earned. (did not make the full $45k this year. Got raises throughout the year).

Is that a good starting point and path forward?