The Money Mustache Community
General Discussion => Welcome and General Discussion => Topic started by: Longwell on March 27, 2017, 10:54:33 AM
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Hi all! I was introduced to this site and the concept of personal financing about 2 years ago and have been obsessed ever since. I would say that I have more excitement and dedication than knowledge, and when it gets to more complex topics I tend to get lost. I wanted to give a rundown of my current situation and plan to know if it makes sense to more experienced and knowledgeable members of the community.
Below I laid out my fiance's and I current portfolio. Our general savings plan is to contribute $1k per month to our individual 401k's and then throw whatever extra we have into our Betterment accounts. We just started contributing a lot of money into our 401k's so we want to see how this goes for a little before considering raising to $1500 a month. I hope to eventually be maxing out both of our 401k's. Also, are you supposed to be calculating your savings rate before or after taxes? I have always been confused on this.
In my head my goal is to aim for retirement around the age of 40. What steps do you guys think that we can take to help us reach that goal? I plan on using the Roth IRA conversion ladder while living off of Betterment returns. I've heard a lot of people say that Betterment isn't worth the fees, but I love how easy it is. I'm open to any and all suggestions to easy alternatives. I'm really just looking to make sure that I have the right foundation in place and to see how I can improve it moving forward.
Me
Age: 25
Salary: $78k (with and additional $10k income from side work)
Checking: $9k (tends to hover around $5k)
Savings: $7.5k (slowly funneling more into Betterment)
Investments
401k: $25.5k (contribute $1.2k/month)
Betterment: $22k (contribute $500/month)
Debt
Mortgage (3.625%): $211K (paying $2k/month)
Fiance
Age: 24
Salary: $48k
Checking: $5k
Savings: $5k
Investments
401k: $3.5k (contribute $1k/month)
Betterment: $2.5k (contribute $100/month)
Debt
Car Loan (2.99%): $6k (paying $300/month)
Combined Total Expenses (including mortgage): $3500-$4000/month
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If you haven't already, check out the sub-forum, Case Studies (https://forum.mrmoneymustache.com/case-studies/), as well as the sticky post. I'm sure someone helpful will do some maths based on what you provided, but the big answer to your question is "reduce expenses", and we have no insight into your expenses here, so we cannot offer useful insights.
As for savings rate - depends who you ask, or what you're using your savings rate to determine. If you're thinking about MMM's simple math, savings rate before taxes is both useful (because you'll pay taxes after retirement) and not useful (because you'll pay a presumably lower tax rate after retirement) but also... your budget including health insurance might be different after retirement, too...
I recommend you get a solid grasp on current expenses, try to estimate your expenses after retirement (mostly the same, less taxes, more health insurance) and figure out the total nest egg you're building towards. Then figure out how quickly you're building towards your nest egg and see if it's fast enough for your target. Your savings rate percentage won't necessarily help you do any of that, though.
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I second the recommendation to post a full case study in that sub-forum. You'll get more eyes on your post over there.
I recommend you read the sticky thread on what financial steps you should take in which order and why. https://forum.mrmoneymustache.com/investor-alley/investment-order-65299/ That will answer a lot of your questions.
I also recommend searching for existing threads on this forum about Betterment. You may like it for its convenience but in the long run, you will be much better off avoiding their fees and moving your investments to a low-cost provider like Vanguard or Fidelity (choose funds there wisely). It's not the end of the world if you keep your money there for now while you educate yourself on investing, but I wouldn't recommend that being your long-term plan.
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I wasn't aware of that board, I'll have to go post something over there. Thanks guys!
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We'll know more when your case study is up.
In the meantime, congrats, you are doing amazing. High combined income, doing a decent job with spending for a person just starting out, and super young.
There's going to be a lot of low hanging fruit on your spending. My guess is that your overall transportation spending can be cut a bunch. That'll probably end up being the biggie. Really, you are doing great. As your salaries go up and up, just keep your spending the same and your savings rate will get ridiculous.
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What is it that you are looking to see happen before you max out your 401(k)s? Wanting to "see how it goes" sounds like you are looking to see which account performs better over X period of time, which is precisely the wrong way to evaluate it. You need to be comparing fees, not chasing hot funds/stocks. Does your 401(k) offer a low-fee index fund (either a total stock market fund or a S&P 500 fund)? If so, throw all your money there and forget about it, because at your age, you have plenty of time to ride out the ups and downs in the market.
If you are really, really unsure and want handholding, then go compare the Betterment expenses against the expenses of the target date fund(s) in your 401(k). The target date fund will be managed to provide you a "glide path" (i.e., becoming more conservative as you get older), so you don't have to make decisions about asset allocation, etc.
A 401(k) has significant advantages to a post-tax account -- most immediately, it allows you to keep more money in your pocket now, because your investments are made with pre-tax money, so you can save more for the same net income; it also grows tax-free and has some creditor protection built in. That is almost the best starting point for investments.