I'm really not sure what to do at the moment. I want to start investing in the IRA that I opened but would also like to build up my E-Fund a little more. It was up to $10K but then my transmission went so now it's down to $7K. I have a whopping $50 in my IRA. I would feel more comfortabl if my E-Fund had $10K back, but it'll just sit there and not 'make' me money. On the other hand I know I should start investing in the IRA as I'm not getting any younger. (31) I'm single and don't have any debt other than student loans. What would you do? If I get it back up to $10K that'll be about 8-9 months worth of expenses.
I thought I'd do an IRA with Vanguard into a target fund. Thoughts on that? Then I wanted to take any extra money I have an start investing in various stocks outside of the IRA.
Thanks in advance.
Personal:
I wouldn't stress too much about the designation you place on money you've saved.
The important thing is you have saved money and intentions of saving more.
I would get started on retirement savings. The annual contribution limits are a
"use it or loose it" proposition and the time value compounding is what makes
retirement aacounts so powerful. I'd look at setting up an automatic payroll
deduction directly into your retirement account. The psychology of "you can't
miss money you never handled" actually works as far as automatic investing.
I would replenish the "emergency fund" with little windfalls as they occur. My
concept of "emergency fund" is two way. It acts as a buffer for unforseen expenses,
but it also acts to siphon off windfalls before they get spent just because they
are "found" money. I just make sure that the "emergency fund" is in healthy
range. Yours looks pretty good now. Don't let it get too small, but also don't
allow too much investible cash to sit in it.
Roth accounts have several potential advantages over conventional retirement
accounts. One of them that isn't discussed much is the ability to tap the contributions
you have made tax free. I would never advocate early withdrawal of retirement
funds, but it does allow one advantage - it allows the calculation of "emergency
fund available" to be expanded a bit. If a real honest to goodness emergency did
happen, Roth contributions are there as a last resort. I have never tapped my Roth
contributions in the +20 years I've been contributing, but their availability has increased
my comfort level. All psychological, but psychology is important.
If you get access to employer sponsored savings plans in the future, jump at the
chance. A 401K match is great benefit and a HSA is a very under appreciated
benefit. If you change jobs/careers like the majority of people have to now days,
give benefits offered the full consideration they warrant when choosing which way
to go on you career path.
+
850 FICO8 since 2015, Thanks MyFICO - 5+ years since last HP
@bada_bing wrote:I wouldn't stress too much about the designation you place on money you've saved.
The important thing is you have saved money and intentions of saving more.
I would get started on retirement savings. The annual contribution limits are a
"use it or loose it" proposition and the time value compounding is what makes
retirement aacounts so powerful. I'd look at setting up an automatic payroll
deduction directly into your retirement account. The psychology of "you can't
miss money you never handled" actually works as far as automatic investing.
I would replenish the "emergency fund" with little windfalls as they occur. My
concept of "emergency fund" is two way. It acts as a buffer for unforseen expenses,
but it also acts to siphon off windfalls before they get spent just because they
are "found" money. I just make sure that the "emergency fund" is in healthy
range. Yours looks pretty good now. Don't let it get too small, but also don't
allow too much investible cash to sit in it.
Roth accounts have several potential advantages over conventional retirement
accounts. One of them that isn't discussed much is the ability to tap the contributions
you have made tax free. I would never advocate early withdrawal of retirement
funds, but it does allow one advantage - it allows the calculation of "emergency
fund available" to be expanded a bit. If a real honest to goodness emergency did
happen, Roth contributions are there as a last resort. I have never tapped my Roth
contributions in the +20 years I've been contributing, but their availability has increased
my comfort level. All psychological, but psychology is important.
If you get access to employer sponsored savings plans in the future, jump at the
chance. A 401K match is great benefit and a HSA is a very under appreciated
benefit. If you change jobs/careers like the majority of people have to now days,
give benefits offered the full consideration they warrant when choosing which way
to go on you career path.
Thanks for the informative post. You brought up some very good points that in a lot of ways are in line with my thoughts. Regarding the E-fund you're absolutely right. I don't want more cash than necessary sitting in there not doing anything for me. I gotta say that after listening to Dave Ramsey he's completely changed the way I think about money. I used to be a frivolous spender that lived pay check to pay check with out any real recourse if something in life came up. I didn't have respectable credit limits either so I couldn't even use that as an avenue if I needed too. Now I find myself always asking, "Do I really need that?" and it's usually a no. So because of that I'm able to save more and have the ability to invest.
Out of curiosity what would you consider too small for the E-Fund? I know this is highly individual as we all live lives differently. Speaking of ranges I think anywhere from $4-$10K is a good range. I'm single, with no children, and have $963 a month of fixed "responsibility". That doesn't include food or gas though, so I'd bump that up to $1,363 actually. The rest is 'play' money. So essentially I have about 6 month of expenses which I guess is considered "ideal".
I never thought of the Roth like that, and I like that viewpoint. That'll make me want to pour more money in there 
I would really like to change careers. Right now I work two jobs (jewelry store and bicycle shop) that don't have any type of retirement benefits. I've been thinking heavily about going to nursing school, or become a police officer. Both have outstanding benefits and have very nice incomes.
I decided to close and roll over my TD Ameritrade account to Vanguard for their targer 2050 account. Inching closer to getting my E-Fund back up to 10K. Almost there! Things keep getting better!
@oblackhawko wrote:I agree with Bada_Bing, they had very good advise and a very good post. I deviate a little in a couple subjects:
E-Fund: Personally, I like to have more than the traditional 6 months of expenses in liquid cash. This makes me feel more financially secure, more agile if I decide to make a larger purchase and in an emergency I don't want to add interest or penalties to my woes. I have no problem with the trade-off of lower returns because I have more money in the bank. Also, Ally Banking makes it a little easier with .99% APR rather than .01% major banks give.
ROTH Withdrawl: As far as I know there are penalties associated with early ROTH Withdrawl being 10% but no taxes added on to it, which doesn't make it attractive, but if you're in that big of an emergency, you wouldn't really care too much about the 10% penalty. http://www.rothira.com/roth-ira-withdrawal-rules. http://www.hrblock.com/free-tax-tips-calculators/tax-help-articles/Retirement-Plans/Early-Withdrawal...
Student Loans: You mentioned your student debt but didn't provide details nor did Bada_Bing comment upon them. I don't like loans and I always attack them aggressively because it's an added liability, cuts into your net-worth and you have to pay someone for the privilege of that loan. When decideding in whether to pay down a debt vs investing in the future I look at a couple things: Why did I originate the loan? (Establish credit, Acquire a skill, etc.), How much is the APR, how is my E-fund and What is the alternative to paying off my loan (Opportunity Cost).
I like Mark Cuban's take on Loans vs Investment (I can never find the video) He essentially says: When paying off a loan (he says credit card) you have an essentially guarantee rate of return equal to the APR because you are not paying that APR over the life of the loan so if you have a 5% APR you get a return of 5% since you're not paying that interest. When investing are you going to get higher than the APR? If your ROI was 5% and APR was 5% it's a net zero. But, in actuality it's not a favorable trade-off because you have additional risks associated with investing including fees, your investment can go into negatives in an unforeseen event, etc. so you would have to get 12% ROI just to provide decent returns. Food for thought.
Thanks for the advice! Regarding my student loans I'm at a bit of a cross road. I do want to pay off the $25K in it's entirity. However, my monthly payments are only $58 so regarding opportunity costs it's not really affecting that. The APR is 3.5% and the sick thing is the last year of payments of $58 a whopping $1.95 has gone towards the principal. So basically I'm only paying intersest. However, in the last 8 months I've been able to go from $0 in savings to $10K and allow me to start investing into the future. I have budget, pay my cards in full (in fact I have a whopping $146 in credit card debt at the time of this post. Since my BR I have never gone over 10%). My GF jokes on me all the time because I'm so worried about paying off my CC's lol.
I think what I will do is continue to save and save 6 months of expenses past the student loan and then pay it off all in one swoop.
Regarding the withdrawls I am able to withdrawl my contributions anytime I want with no pentaly. It's if I start tapping into the earnings is when I'm subject to the 10% prior to 59 1/2. This has been confirmed with Vanguard and a few other firms.
I will agree that having this e-fund makes me feel so much better. I have a coworker that lives with her parents, only has a car payment and insurance payment ($400). She has $120 in savings, $100 in her checking account, a $6,700 balance on one card, $1,900 on another one, just opened 2 more cards because the other 2 are maxed out. She's heading in the wrong direction and I plead with her to try to change. She's living to paycheck to paycheck and doesn't even get to see any of it. I couldn't imagine, as I've been there, and I'll never go back!
About Mark Cuban, I couldn't agree more. However, in my above situation now that I'm writing this out I think I'm handling it correctly. The E-Fund historically has returned 8% so I'm getting a smidge ahead, considering my loan APR and the cost of inflation.
Again, thank you. I'd love to hear more!
@Anonymous wrote:I have Vangard TR 2050 too. I set up a futureadvisor dot com account for free and they gave me some pretty solid suggestions while I'm learning. I have some tech stocks I've been eyeballing a long time too. Vanguard is really easy, good choice.
Awesome. I'm going to head over there now and check it out. I've never heard of that! Yes I also have some tech stocks I want to get into. I have a separate savings account set up for incase the market tanks I'll have a bunch of money set aside to buy stock while they are at an ultimate low so hopefully it'll pay off in the future.
@Anonymous wrote:Exactly. Buy low. However don't let that dissuard you from jut not investing. You loosing the gains you would have, especsially over the christmas hump, stocks always up.
I didn't start my IRA Roth until just december last year, and from then on, even though I have a house goal. My retirement account trumps everything. I have about 15k saved up so far for my house. I would have had 22k if I hadn't started this IRA. And I'm totally ok with that. I knew that if I didn't make this priority number one, it would never happen.
I'm watching my mom struggle right now with her life chooses she has made to no ever really be financially stable. And I just want to be able to take care of my self.
I'm the same way, but with my dad. He owned 20 houses at one point. He had a major land development investment go bad and it ruined everything. He even forced me into BR because of him using credit cards he opened in my name, along with utilties. Neither of us had any kind of back up. Never again for me. Clawing out of the perverbial hole that I didn't dig, and looking into the future.
I only opened up my IRA two months ago so I only have $1,400 in there. I figured I'd do cost per dollar averaging (So I buy when the market is high and low, in theory) so I'll make a monthly contribution into it instead of a lump sum. I've budgeted for it even with the modest income I have. It's very exciting to say the least because I know I am creating a future for me and won't have to work forever.
Who do you use for your other stocks?