| 23 Year old in need of advice |
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YoungInvestor
Member
Cash: $ 3.30
Posts: 16
Joined: 17 Sep 2011
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| 23 Year old in need of advice |
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Hey guys Im looking for some money savy peoples opinions on what I should do! Heres my deal.
I owe 170k at 4.25% on a 30 year fixed on my home(owned for a year)
I have no school debt or CC debt.
I have 3k in savings. (only gaining .9%
I earn 1150-2000 a week before tax (depending on OT)
My monthly bills are around 1500.
Right now i put 14% of my check into my 401k and my employer matches 7%. I have 10k in there so far.
I have my 401k very diversified right now between Aggressive, conservative, mid cap equity, us equity, foreign equity and a few other choices.
I Am single and living alone but plan on getting married with a kid or two sometime in the future(probably at least 5 years from now)
I am wondering if i should put more in retirement or put it in savings or pay off my house? Or something i dont know about?
What would you do!
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Sat Sep 17, 2011 5:16 am |
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coaster
Senior Advisor
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Location: Wisconsin
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I suppose I'll catch some flak for my suggestion, but here it is: you don't need to be putting that much into your retirement fund right now. It's admirable that at your age you're already doing it, period. But your cash level is too low. I'd suggest reducing your retirement contributions to the amount that's matched and put the extra cash flow into savings until you've got over $10K in there. Then at that time, take another look at what you want to do, what your time horizon is, and go from there.
At 4.25% you don't need to do a thing with your mortgage payments.
~Tim~
Eye Candy : Why Whimsy
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Sat Sep 17, 2011 6:01 am |
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globaldoc2001
Senior Member
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Reading you post, I could not help but admire you for preparing for your future at that young age. I think you might be putting in too much for that though, because I really think there should be a limit for the retirement savings. I would rather that you put a portion of you funds into something more productive. You can even study and invest in the stock market, but once again, within your specified limits.
Business Tax Filing
Debt Consolidation Companies
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Sat Sep 17, 2011 11:30 am |
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oldguy
Senior Member
Cash: $ 309.30
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Joined: 21 May 2006
Location: arizona
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quote:
I owe 170k at 4.25% on a 30 year fixed on my home(owned for a year)
That's a keeper, there will be many times over the next 30 yrs that you will be pleased with a fixed rate 4.25% capital. Just keep paying the $836/m, no prepay.
quote:
I am wondering if i should put more in retirement or put it in savings or pay off my house?
I would avoid those 3 choices - the 401k money is locked away until age 59 1/2, you need wealth for you (and your family) in midlife. We limit our savings to about $5000, that is enough 'dead' money, you want to have most of your money working for you. Prepay House? No, see above.
The keys to wealth building are (1) the amount invested, and (2) the returrn. You are putting about $12k/yr into your investing (including the match), That, at the historic return of 11%/yr, is a million at age 45, about $2M at age 51, $4M at age 57, and so on. So you are on the right track.
But I would use a taxable account for 1/4, or even 1/2, of your investing - don't lock $4M into an account that you can't use for over 35 yrs. A taxable account (in a market index fund or a Target fund) is immediately available to you, so it is a good fallback EF. It grows tax deferred, the fees are minimal - and if/when you sell some you pay only 15% capital gains on the profit.
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Sun Sep 18, 2011 4:34 pm |
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coaster
Senior Advisor
Cash: $ 1357.80
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Location: Wisconsin
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Young, the usual "financial advisor" advice given as to how much "dead money" (usually called an "emergency fund") to have is living expenses for six months. I thought perhaps more was in order in your case since you have plans for some big expenditures within the next five years. And generally, the "financial advisor" advice is to not put any money you'll need in five years at risk of loss due to market decline.
However, oldguy does have a point in that this money is not working for you, and the key to wealth is putting your money to work making more money, which it's not going to do in a savings account.
So, here we get into risk tolerance: how much of your money do you want locked up not making any money; and how much are you willing to risk taking a loss on in order that it will --- repeat will --- in the long term, make money for you.
I'm thinking that in view of your age, your plans for possible large expenditures in the near future, and the lack of any other assets that could be easily liquidated if the need arose, that having more rather than less sitting in savings is appropriate. I suggested $10K as a round number since I don't know your living expenses. That amount may be too little or too much, depending on how much you need AND how much you're willing and able to risk.
Never easy decisions, but the great thing is that you have a long time yet to recoup mistakes, so don't be afraid of making one. 
~Tim~
Eye Candy : Why Whimsy
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Mon Sep 19, 2011 4:41 am |
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littleroc02us
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Your mortgage payment each month is $1013 a month which includes taxes, insurance. The first problem I noticed is that your housing is over 50% of your income. That is a big problem because a majority of your income goes towards interest and housing. Is there a way you could downsize or are you to underwater? IMO your housing should never be more than 35%. Until you get this issue resolved it's going to be hard to amass great wealth.
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Mon Sep 19, 2011 1:14 pm |
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infinity
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Location: U.S.
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You are doing a lot that is right. I was more than eight years older than you before I had a real job because of college and the army(drafted) and older still before I made over $50k. But from the time that I started that real job until now I have saved at least 20% of my income per year and that was beyond the 401k that I had(I only put in enough to get the companies full match which if I recall was 2/3 of my contribution). This has served me well since I was laid off after a little over 12 years and investing became my only source of income. Enough about me. Based on my experience, I recommend saving as much as you can and investing it, some in growth and some in income, at least until you reach that point of marriage and kids. Don't overlook some income investments as also being growth investments. As others have said you can get a good yield on some income investments ranging from 5% to 7% that are very safe and some much higher yields than that on ones that are more risky but may be relatively safe for a couple of years.
infinity
Blog:
http://infinity-4-money.blogspot.com/
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Mon Sep 19, 2011 10:20 pm |
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YoungInvestor
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Cash: $ 3.30
Posts: 16
Joined: 17 Sep 2011
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I appreciate all the input guys. Seeing to what some of you said ill give you a more details that may make my situation clearer.
My mortgage with taxes/insurance is $1135 That is about 35% of my income my base pay is 70k which is about 700 take home a week but I get at least 4-8 hours overtime a week. I figured it would be a little bit of a "struggle" to afford a house for the first few years, but I do plan on getting married some day to HOPEFULLY a women who works. I have decided i am going to get my savings up to about 10k for emergency uses. But i imagine I will still save more then that after i make a few home improvements I would like to do and buy a toy or two before i get married and am not allowed too haha!(with cash of course)
What everyone on here is telling me that I don't understand is why shouldn't I put an extra 100 or 200 a month on my house is I can afford it. Should I do that after i get my emergency fund up? or will it never be the smarter thing to do? Im sure theres a logical reason I dont get.
I appreciate all the input guys! I have 100s more of questions lol.
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Tue Sep 20, 2011 12:37 am |
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oldguy
Senior Member
Cash: $ 309.30
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Location: arizona
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quote:
or will it never be the smarter thing to do?
Never.
Your mortgage is $836/m - that costs $301,068 over 30 yrs.
If you added $200, ie $1036/m, it would shorten the loan by 9.5 years, and the cost would be $254,856.
If, instead, you invested that $200/m into an 11%/yr index fund for 30 yrs, it will be $530,000. Personally, I would pay the $301,000 and take the $530,000 index fund, rather than pay $255,000 and have zero in a fund. (In fact, I do this with each of my rentals).
quote:
after i make a few home improvements I would like to do and buy a toy or two
Not sure if you mean home maintenance or home upgrades. But most upgrades cause your net worth to go down. Eg, if you spend $25,000 to upgerade a kitchen, it will usually add about $10,000 to the value of the house. So you immediately lose $15,000.
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Tue Sep 20, 2011 2:35 am |
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coaster
Senior Advisor
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quote:
Originally posted by YoungInvestor
Im sure theres a logical reason I dont get.
Sure. The principal is to put your money where the net return is the best. You take $200 away from earning eight to ten percent and put it toward paying off money that's costing you net a little over three percent after tax deductions. You lose the potential earning power of the difference; say five percent minimum.
Of course, that's if you don't spend it on stuff.
But I don't think you have that problem. 
~Tim~
Eye Candy : Why Whimsy
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Tue Sep 20, 2011 3:43 am |
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YoungInvestor
Member
Cash: $ 3.30
Posts: 16
Joined: 17 Sep 2011
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Ahh ok I see how putting the money else where can make me more in the end now. And by home projects I plan on building a back deck, residing and doing alot of landscaping work(which should be to expensive really). But I also do plan on living in this house for at least 10 years, its 5 minutes from work and the same town as most of my family, and is capable of providing room for a family of my own.
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Tue Sep 20, 2011 4:00 am |
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littleroc02us
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Cash: $ 205.35
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Joined: 09 Feb 2009
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quote:
Originally posted by YoungInvestor
I appreciate all the input guys. Seeing to what some of you said ill give you a more details that may make my situation clearer.
My mortgage with taxes/insurance is $1135 That is about 35% of my income my base pay is 70k which is about 700 take home a week but I get at least 4-8 hours overtime a week. I figured it would be a little bit of a "struggle" to afford a house for the first few years, but I do plan on getting married some day to HOPEFULLY a women who works. I have decided i am going to get my savings up to about 10k for emergency uses. But i imagine I will still save more then that after i make a few home improvements I would like to do and buy a toy or two before i get married and am not allowed too haha!(with cash of course)
What everyone on here is telling me that I don't understand is why shouldn't I put an extra 100 or 200 a month on my house is I can afford it. Should I do that after i get my emergency fund up? or will it never be the smarter thing to do? Im sure theres a logical reason I dont get.
I appreciate all the input guys! I have 100s more of questions lol.
Sorry I misread I thought your income was per month. So you mentioned that you make 70k a year maybe more, which comes out to about $4166 a month in net income minus $1500 a month in bills which leaves you $2666, if you are investing 14% into 401k's then that leaves you with $2083. wow that leaves a ton of money left to play with. Personally I would max out your Roth every year which comes out to $416 a month and that leaves you with $1667 to put towards the mortgage each month. At that rate you could pay off the house in 100 months and have 2 million in tax free retirement making 11% for 35 years along with your 401k retirement. Sounds like a plan to me, if you don't pay off the house and just invest the remainder you are taking on more risk because you still owe on the house and should something go wrong and you lose your job and the market is way down you have to borrow money from your 401k or sell off investments to make the payments. I prefer the lower risk idea with 2 or 3 mill in the bank and a paid for house.
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
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Tue Sep 20, 2011 5:15 pm |
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oldguy
Senior Member
Cash: $ 309.30
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Joined: 21 May 2006
Location: arizona
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quote:
if you don't pay off the house and just invest the remainder you are taking on more risk because you still owe on the house and should something go wrong and you lose your job and the market is way down
Not exactly true. If you prepay the loan and lock up your extra money in the house - that is high risk. Because after you are out of work you cannot access that money, a lender can't lend you money when you don't have a way to repay it. So you would be forced to sell the house to get money for food and for the job hunt. A job loss is bad enough, being forced to sell a house in the middle of it is way worse.
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Tue Sep 20, 2011 5:36 pm |
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littleroc02us
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Cash: $ 205.35
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quote:
Originally posted by oldguy
quote:
if you don't pay off the house and just invest the remainder you are taking on more risk because you still owe on the house and should something go wrong and you lose your job and the market is way down
Not exactly true. If you prepay the loan and lock up your extra money in the house - that is high risk. Because after you are out of work you cannot access that money, a lender can't lend you money when you don't have a way to repay it. So you would be forced to sell the house to get money for food and for the job hunt. A job loss is bad enough, being forced to sell a house in the middle of it is way worse.
When you pay off your house and have no debt that type of person such as myself has a ton of money saved up for emergencies and can whether the storm better because he has no payments, not sure why you think he'd sell the house because he has Roth IRA's to take money out if he should run out of savings. The risk is always lower when you don't owe debt. I would much rather have a paid for house then someone who is underwater on one.
Romans 13:8 “Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law.”
Last edited by littleroc02us on Tue Sep 20, 2011 5:55 pm; edited 1 time in total |
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Tue Sep 20, 2011 5:54 pm |
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oldguy
Senior Member
Cash: $ 309.30
Posts: 1481
Joined: 21 May 2006
Location: arizona
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quote:
if you don't pay off the house and just invest the remainder you are taking on more risk because you still owe on the house and should something go wrong and you lose your job and the market is way down
Not exactly true. If you prepay the loan and lock up your extra money in the house - that is high risk. Because after you are out of work you cannot access that money, a lender can't lend you money when you don't have a way to repay it. So you would be forced to sell the house to get money for food and for the job hunt. A job loss is bad enough, being forced to sell a house in the middle of it is way worse.
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Tue Sep 20, 2011 5:55 pm |
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