|
I want to get a better handle on my finances than I've had previously, and thought that having a thread to keep me accountable would make this easier. I don't have any pressing financial issues, and am actually in a pretty lucky situation, but do think that I could still do a better job of budgeting and planning. I am 23, college-educated and employed at a white collar job, and have reasonably significant savings mostly thanks to making lucky employment choices in college. Month-by-month I'm planning on using this thread to hold myself accountable to my budgeting, work at getting additional income, and saving effectively. Right now at the start, I have some basic questions about goals etc which can be found at the end of the thread. DETAILED FINANCES SNAPSHOT In short: I have a post-tax income of ~$66,000, of which I have historically saved ~57%, have ~$417,500 invested in index funds (~$17,000 of which is fairly liquid), and have around $2,900 in my checking/savings accounts. Yearly Income Base: $69,000 Bonus: Depends, but usually 40% of base or $27,600 Post tax, this works out to around $66,000/year all in. Per month, this translates to $5,500/month, though obviously some of this comes at bonus time, and some comes from e.g. tax refunds. Budget Rent: $850 Utilities: ~$50/month (varies somewhat) Internet: $20/month Restaurants/Groceries: $350 Taxis/Public Transit: $120 Recurring medical: $80 Necessities (read: household supplies): $100 Entertainment: $200 Miscellaneous: $200 (tends to go towards travel or charity) Total spending: $2,320/month Note: I don't pay for my phone or gym membership, and often have at least some food/transport costs covered by work. Savings and assets Total savings per month: 3,180 Checking/savings account: $2,900 Wealthfront account: $17,500 (this is fairly liquid -- I can get it within 5-7 days) Directly in Vanguard Index Funds: ~$400,000 (need to check as exact amount has changed since last I checked due to the market -- surprisingly hard to access site. In my experience, this is less liquid than Wealthfront in practice, and I've generally just pretended it doesn't exist) 401k: $2,300 (I forgot this initially -- I put in up to my employer's match, so 4%) OTHER DETAILS I made my budget essentially just by living as I normally would for ~3 months, seeing how much I spent in each category, and then taking the average of each month's spend and making it my budget for that category. It seems like a reasonable amount to spend given the relatively high cost of living of the major US city in which I live, so I haven't really messed with it. Savings I have on the horizon: - Getting a bike this month. My city has poor public transit, which has lead to a bunch of taxi rides. I also think this will be a nicer commute than slow, crowded trains. - Considering switching apartments when my lease is up in September. I currently live with three roommates, but would prefer a studio, and it looks like I could find one for more like ~$700 with utilities included, which would be an improvement. This would be about the lowest I could find an apartment within a reasonable distance of my work given the housing market where I am. QUESTIONS/ADVICE NEEDED So, I realized I don't have a great idea of what my long term financial goals are. I enjoy my job and would like to ultimately be in a position with more responsibility/influence in this field or a similar one, which will likely end up meaning being paid as much or more as now. I don't have any particular things I would like to buy in the near future -- I don't want to own a car, don't care much about my apartment, etc. In terms of money, I think that I should have enough to satisfy my material needs into the future. The things which I think it would be cool to be in a financial position to do are, in no particular order: - Be able to travel for an extended period of time while supporting myself with freelance work/passive income. I'd like to try this for awhile, but not for more than a few months, since I really do like work. - Be able to independently angel invest. I recognize that these investments are generally super risky, very bad ideas. So, I assume that this would require a pretty significant financial cushion to get going. These aren't super well thought out, so any advice or opinions on what financial goals make sense would be great here. Both of these basically just require working to either save or make more money. I can probably do somewhat more on the savings front, but don't think that's going to have as much of an impact as finding new sources of income. I really like my job, so I don't want to quit it or compromise my performance at it, but am considering doing freelance work or side projects to boost my income. I do data analysis and biz consulting, so this should be able to translate to freelance work, but I haven't figured out how yet. I also haven't figured out how to get started on a side project to earn more, or what this would look like. One thing I'd like to get out of this thread is getting advice here, and being held accountable to doing something to try and make this happen. Fusion Restaurant fucked around with this message at 07:39 on May 21, 2015 |
#
?
May 21, 2015 05:06
|
|
|
|
| # ? Apr 26, 2024 19:17 |
|
|
Fusion Restaurant posted:I am 23, college-educated and employed at a white collar job, and have reasonably significant savings mostly thanks to making lucky employment choices in college.  You weren't kidding about being in decent shape. But good for you for making a thread to get even better. It doesn't look like any of your assets are held in a 401k or Roth/Trad IRA...is this correct?
|
|
#
?
May 21, 2015 05:27
|
|
|
Wait wait wait, you have 417k saved from a 66k a year job, how long have you been working at that job? Like, back of envelope, and assuming rather modest appreciation in value of stocks, you have been working and earning that much since you were... 14? 15? EDIT: Okay, yeah, inheritance/windfall makes way more sense. The Dipshit fucked around with this message at 07:16 on May 21, 2015 |
|
#
?
May 21, 2015 06:01
|
|
|
I was assuming it was mostly from an inheritance or other windfall.
|
|
#
?
May 21, 2015 06:06
|
|
|
pig slut lisa posted:
No, I actually do, my bad! Edited to include it. I do have a small amount in my 401k -- I have been putting in up to my employer's match, which is 2% of income. I've sort of been preferencing having more liquidity over putting money in the 401k, in the event of one of the aforementioned larger upcoming expenses like investing more actively earlier. Cicero posted:I was assuming it was mostly from an inheritance or other windfall. Right, by "lucky employment choices in college" I mean randomly being involved with a soon-to-be acquired startup at the right time. It was pretty much like winning the lottery through no fault of my own, and gave a big boost to savings.
|
|
#
?
May 21, 2015 07:44
|
|
|
Good on you for maintaining such a healthy financial attitude so far! At your income and savings level, maxing out your 401k and a ROTH IRA is a no-brainer -- it wouldn't really put much of a dent in your savings, and lets you leverage your greatest asset (your youth) into tax-free growth. I wouldn't really suggest this to anyone without the massive amount of money stores (for your age) that you have, but have you thought about buying some real estate? With rates as low as they currently are, it would make a decent hedge against inflation, and could potentially provide you with an alternative revenue stream via renting. Of course, being a homeowner/landlord comes with a lot of its own problems, so I would recommend doing a LOT of reading up on the subject before you consider this option.
|
|
#
?
May 21, 2015 13:10
|
|
|
I'd recommend investing to get capital gains and improved income from your large savings. Property won't make much sense at your age even though it would be a good time to buy. If you do consider buying a house don't buy more house than what you need. If you invest your current savings well and keep up your current savings rate then you should be in really good financial shape by the time you are 30.
|
|
#
?
May 21, 2015 21:38
|
|
|
Hell yeah max out a Roth IRA every year with that amount of savings if you aren't already. You also might consider redirecting some of that massive savings rate to start maxing out your 401k as well by increasing your contribution rate, which would lower your taxable income too. Unless like the fund choices you have in there are just abysmal or something. That's what I'd do anyhow. Even doing all that you're still probably not even going to have to pull any money out of your taxable accounts to do that, you can probably do it by just not putting as much into Vanguard or Wealthfront. Add personally, I'd have a couple more grand in my savings account just in case, but I'm pretty conservative when it comes to my emergency fund.
|
|
#
?
May 21, 2015 22:38
|
|
|
Max out your 401(k), yo. Since it's an above-the-line tax deduction, ignoring the employee match, the $18,000 you put into the 401(k) will only cost you ~$13,500. That's an immediate 33% ROI. And I believe that you are allowed to tap that at any time--even if you retire early--as long as you do so through a regular periodic distribution, over a certain period of time (several years; five? three, maybe?). Same goes for a Roth IRA after at least five years have elapsed, and while that's taxable going in, it's not taxable going out. Max out the Roth IRA, too (which is only $5,500). I mention the periodic distributions because with the kind of money you've got on-hand, you're likely to be retiring well before 59.5. You may want to ask in the long-term investing threads for some better ideas of what to do with the rest of that money, but the Roth IRA and 401(k) are no-brainers.
|
|
#
?
May 21, 2015 22:42
|
|
|
Thanatosian posted:Max out your 401(k), yo. Since it's an above-the-line tax deduction, ignoring the employee match, the $18,000 you put into the 401(k) will only cost you ~$13,500. That's an immediate 33% ROI. And I believe that you are allowed to tap that at any time--even if you retire early--as long as you do so through a regular periodic distribution, over a certain period of time (several years; five? three, maybe?). Same goes for a Roth IRA after at least five years have elapsed, and while that's taxable going in, it's not taxable going out. Max out the Roth IRA, too (which is only $5,500). ... I was under the impression that the 401k distributions were taxed at your current income when they start, meaning they'd be taxed at a likely higher income that I would have later in life? If so, I'm a little concerned about sticking something away until ~60 in the event that I want to draw on it earlier. If I actually can start drawing down on it earlier without a big hit then yeah totally makes sense! Or even if the hit is at least substantially larger than the taxes would have been... Is the benefit of the Roth basically that you are taxed on it only once, at your tax rate at the time, and then don't have to pay capital gains when it comes out? Not a Children posted:... Devian666 posted:... Property won't make much sense at your age even though it would be a good time to buy. If you do consider buying a house don't buy more house than what you need. It does seem like a ton of people are very into rental properties here, but I don't quite get the economics. A friend is currently looking at rental properties in the area, and most of the places she is finding will give around ~5% in returns. Even with the value of the equity appreciating, this doesn't necessarily seem like it beats the stock market, especially with the transaction costs of buying and selling the house. So, I feel like I might be missing something here... I definitely don't want to get a house for me to live in at the moment -- I am not sure where I want to live, but am sure I want to move around before deciding. E: also to 100 HOGS question, the 401k is just vanguard index funds, so it is solid options.
|
|
#
?
May 22, 2015 02:27
|
|
|
Fusion Restaurant posted:It does seem like a ton of people are very into rental properties here, but I don't quite get the economics. A friend is currently looking at rental properties in the area, and most of the places she is finding will give around ~5% in returns. Even with the value of the equity appreciating, this doesn't necessarily seem like it beats the stock market, especially with the transaction costs of buying and selling the house. So, I feel like I might be missing something here... There's some psychology in it as well, it's a lot easier to spend money on a house because it's there, it's a real physical thing you can touch and feel, and that helps a lot in people putting confidence in it. Stocks these days basically boil down to just being numbers on a screen that doesn't have that same physical presence.
|
|
#
?
May 22, 2015 02:39
|
|
|
Fusion Restaurant posted:It does seem like a ton of people are very into rental properties here, but I don't quite get the economics. A friend is currently looking at rental properties in the area, and most of the places she is finding will give around ~5% in returns. Even with the value of the equity appreciating, this doesn't necessarily seem like it beats the stock market, especially with the transaction costs of buying and selling the house. So, I feel like I might be missing something here... I am mostly anti-rental property. I have family with millions in rental properties. What you buy with a rental property is a business that takes up a lot of time. Both in finding/managing tenants and cleaning up after people move out. The 5% return makes some sense if you never pay for maintenance (expect your rental to deteriorate) and hoping for capital gains which has some merit if you live in New Zealand/Australia. My preference is to invest the money and get returns without having to spend large amounts of valuable time managing them and actually accumulate income and capital gains. I also have a house for myself but that has the benefit of capital gain and eventually a rent/interest free future. Whatever you invest in make sure you diversify. From your OP there is the underlying question of what your financial plan is. We're telling you the best how but not the why. My view on investing is that all investing is for retirement, whether at 70 or 30 years of age. It's all a matter of what lifestyle you would like to lead, the things you would like to do and how much that lifestyle would cost to maintain. The option is there with enough money invested to reduce or remove your hours working, although not everyone wants to do that (and just being financially independent is a good enough feeling). Travel and angel investing are good options but there are others, and there's no need to rush to figure out the why.
|
|
#
?
May 22, 2015 03:18
|
|
|
Fusion Restaurant posted:I was under the impression that the 401k distributions were taxed at your current income when they start, meaning they'd be taxed at a likely higher income that I would have later in life? If so, I'm a little concerned about sticking something away until ~60 in the event that I want to draw on it earlier. If I actually can start drawing down on it earlier without a big hit then yeah totally makes sense! Or even if the hit is at least substantially larger than the taxes would have been... The idea is that you'd be "retired" when you decide to start drawing your 401k, so your tax rate coming out would be less than it was going in because you only withdraw a fraction of your original paycheck. Considering the assets you have already, it's quite possible that your taxable income in retirement from investments might be quite a bit larger than your wage is now. So you're right, you could end up in a higher tax bracket at retirement than you are in now. If that's the case, look into Roth 401ks. They are basically after-tax 401ks that have most of the benefits of a Roth IRA with the high cap of a 401k.
|
|
#
?
May 22, 2015 03:20
|
|
|
oRenj9 posted:The idea is that you'd be "retired" when you decide to start drawing your 401k, so your tax rate coming out would be less than it was going in because you only withdraw a fraction of your original paycheck. Considering the assets you have already, it's quite possible that your taxable income in retirement from investments might be quite a bit larger than your wage is now. So you're right, you could end up in a higher tax bracket at retirement than you are in now. Rudager posted:There's some psychology in it as well, it's a lot easier to spend money on a house because it's there, it's a real physical thing you can touch and feel, and that helps a lot in people putting confidence in it. Stocks these days basically boil down to just being numbers on a screen that doesn't have that same physical presence. Devian666 posted:I am mostly anti-rental property. I have family with millions in rental properties. What you buy with a rental property is a business that takes up a lot of time. Both in finding/managing tenants and cleaning up after people move out. The 5% return makes some sense if you never pay for maintenance (expect your rental to deteriorate) and hoping for capital gains which has some merit if you live in New Zealand/Australia. That's a good way of putting things! I guess the way I'll think about it is: (1) I will need some amount of money later on, but (2) I should invest in vehicles which keep my options open on retirement age. I will be looking into Roth 401ks etc. Thanks for everyone's input so far, this has already been incredibly helpful!
|
|
#
?
May 24, 2015 00:49
|
|
|
|
| # ? Apr 26, 2024 19:17 |
|
|
Fusion Restaurant posted:I was under the impression that the 401k distributions were taxed at your current income when they start, meaning they'd be taxed at a likely higher income that I would have later in life? If so, I'm a little concerned about sticking something away until ~60 in the event that I want to draw on it earlier. If I actually can start drawing down on it earlier without a big hit then yeah totally makes sense! Or even if the hit is at least substantially larger than the taxes would have been... For illustrative purposes let's assume the tax code doesn't change, and you retire in fifteen years. Say you manage a 5% annual ROI. We've got $13,500 to work with. Assuming you don't realize any gains, you're going to have $28,065 with a brokerage account (5% compounded annually over 15 years). Assuming you're in the 25% income tax bracket, there's going to be a 15% tax hit on the $14,565 worth of gains, leaving you with $25,880. Now, if we put that $13,500 into a 401(k), instead, it immediately turns into $18,000. Assuming the same interest rate, you're going to have $37,420. Assume the same income tax rate, and you're left with $28,065. If we assume you're drawing less than $40,000 a year in income (and since your Roth IRA won't count, this is possible), you're going to end up with a smaller difference ($28,065 vs. $31,807), but still a significant one. And yeah, you'll have to take your 401(k) withdrawals as an annuity so it does limit your liquidity considerably... but that's a pretty big difference, that only becomes more pronounced over time. I can see not wanting to end up with all of that money locked into a 401(k), but with the tax advantages, you want to lock up at least some of it. quote:Is the benefit of the Roth basically that you are taxed on it only once, at your tax rate at the time, and then don't have to pay capital gains when it comes out? Regarding the Roth 401(k): it will only be an option if your employer offers it, and not a ton of employers are, yet. It certainly wouldn't be a terrible choice for you, but make sure you check into the withdrawal limitations if you're concerned about liquidity.
|
|
#
?
May 27, 2015 19:43
|
|