In search of some intermediate financial advice.
February 20, 2014 10:50 AM   Subscribe

MeFites have always been pretty good at giving basic financial advice, like how to start saving, building a budget, getting out of debt, etc. I'm there already. I find myself in the surprising situation of being comfortable these days, and I'd like to know: what's next?

This is all pretty bewildering to me as I was broke as hell only two short years ago, with $500 bucks to my name and zero income. Thanks to now having a good job and a rabid desire to never be desperately broke again, I have ticked off all the boxes for getting my financial house in order.

Now that I have a good baseline, I'm interested in guidance, either from MeFites or repsected online/book resources, of what I should be doing next. Googling for this kind of thing brings up a lot of "Getting Started" stuff, which is great but not what I need. I don't feel I'm at the place where seeing an IRL financial planner is worth it. (And I'm the kind of person who really likes fussing over this kind of stuff, so I want GOALS.)

Here's where I currently stand:

Base salary: $50,000 (expected about $10K bonus on top of that)
Emergency savings: $12,000
Other savings: $1,500 (just opened this account, it's now getting regular direct deposit amounts from my paycheck)
Checking: $5,000
Roth IRA: approx $6,700

I pay off my credit cards in full every month and have about $3,000 remaining in student loan debt that has an interest rate far lower than my savings accounts (so I'm happy to pay that off slowly). My savings accounts are all "high yield" between .85 and 1%. I have no other debt. I rent my apartment and own my car.

I also have another $13K in savings and $12K in a brokerage account that are technically mine but for family reasons I have promised not to touch.

My work doesn't have a 401k plan yet, but it's coming soon, and I intend to contribute 5% to get the employer match.

I live below my means in a large city. In the last 6 months I've finally gotten comfortable with spending money for nonessentials, but I'm a pretty low-need person. I'm single, have no plans in the near future for a family, have no desire to travel, and am happy renting for the forseeable future.

So I ask of you, hive mind: what should my next set of financial goals be?
posted by anonymous to Work & Money (13 answers total) 21 users marked this as a favorite
Well, what are your goals? Like, your life goals? Can money help with any of them? That's a good place to start.
posted by mskyle at 10:57 AM on February 20, 2014 [1 favorite]

1. Get completely out of debt (student loan)?
2. A good emergency savings account. By "good," I mean 3-6 months' living expenses?
3. A retirement fund that you're aggressively adding to?
4. Investment accounts that can give you some passive income?

Also, do you have any material goals? Travel? A house? Saving for the time you want to start a family? Those can be more powerful motivators than financial-only goals.
posted by xingcat at 11:08 AM on February 20, 2014

Seems like you're on track. Once you're funding your retirement, and you have no debt and you have an emergency fund, you're golden.

What about charitable contributions? Perhaps work out a percentage of your income to pledge to worthy causes. That will make you feel warm and fuzzy.

How about saving for potential future expenses. Enough for a wedding and honeymoon. I agree, renting is the way to go these days, so I won't advocate saving up for a house.

What makes your heart go pitter pat? Do you like sports cars? Sailboats? Nice shoes?

If you're a person with simple needs, just save up to have an amazing Fuck You fund. This is a pile of cash that makes you feel secure enough to tell any asshole boss to fuck himself. $12,000 is a start, but how about enough not to have to work for two years?

If in doubt, save more. Money will always be in style.
posted by Ruthless Bunny at 11:09 AM on February 20, 2014 [4 favorites]

How about working toward financial independence? Start reading two blogs: Mr. Money Mustache and JLCollinsnh.

I make what you make and am in a similar financial position, except I don't have student loans. Using what I have learned on those two blogs I should be able to retire by age 43 (I didn't start working towards this goal until age 32).
posted by jacindahb at 11:13 AM on February 20, 2014 [7 favorites]

You'll want to contribute more than 5% to retirement.
posted by politikitty at 11:35 AM on February 20, 2014 [9 favorites]

One thing that might help you is a little bit easier cash/savings/investment management. Here is what my SO and I do.

Start the month with some baseline balance in your checking account. We use $3,000 which is about one month's expenses. The credit card gets used for just about all of our purchases other than the monthly bills (internet, auto insurance, mortgage, etc.).

At the end of the month, I pay off the credit card and transfer fund in or out (almost always out) of the checking account to bring the balance back to $3,000. Since we only have a few deposits in any given month, it's pretty easy to figure out what our expenses were. I just add up the deposits then subtract whatever amount the transfer was and that's how much we spent. We're good enough at evaluating purchase decisions at the time we make them and we're financially secure enough that we don't ever feel the need to look at out budget in more detail than that unless the savings transfer was especially small or negative.

Then, rather than just rack up a huge savings balance on funds that we won't likely use, we expand the concept there too. Once the savings account exceeds a pre-determined balance (I'm using $10k), I transfer funds out to bring the balance back down to $6k so that, between the checking and savings accounts we always have three months expenses available right now. The extra funds go into an investment account and invested in a fund that gets a little better return than the savings account but carries a little bit of risk but is still really safe. It might take a few days to turn it into cash in my checking account but between it and the bank accounts, we keep at least 6-months expenses on hand. Once that investment hits a pre-determined balance, funds go up to an investment with a little more risk and a little more return. But this is money that we probably won't need to use for at least a year or more so a bit of risk is fine. You can take another step or two or three and each time you're adding a little more risk, a little more return, and are planning on not touching those funds for a longer and longer period of time. until you're dumping money into you're regular investment portfolio that you manage for the long term (10+ years).

The amounts and the timing are all arbitrary but it makes things pretty easy and you never have this question of, "Man, there is a lot of money in that account, what should I do with it?"

Don't wait for your employer to offer a 401k, if you're not already, you should be making IRA contributions (Roth, traditional, or both). Even after you have a 401k, you'll want to keep making IRA contributions.
posted by VTX at 11:40 AM on February 20, 2014 [3 favorites]

I understand you are happy renting for the forseeable future and that is totally cool. I think it's worth having the ability to buy a home as a goal, though -- without wiping out all your other savings. You are young and that is groovy, but paying rent when you are on a more fixed income in retirement is potentially less awesome. Having a paid off home, rent or mortgage free, is the cornerstone of many people's retirement planning.

In the US, if you can put down 20% or more when you buy a home, you won't have to pay PMI and will save an average of $125 per month. (Life is even more awesome if you can just pay cash and have no rent or mortgage at all.) So I'd create a House Fund and hey if you never want to buy a house, you can buy other things with that too :)
posted by DarlingBri at 11:40 AM on February 20, 2014

Paying rent when you are on a more fixed income in retirement is potentially less awesome

I'm going to politely disagree with this statement.

A house doesn't guarantee a fixed expense in retirement. There are millions of old people in houses that are costing them fortunes to heat and cool, to maintain and repair and in taxes.

Renting may not offer a specific fixed rate, but, it can take out a lot of unpredicability that owning can't. If the A/C goes out, I'd much rather call the office, than have to worry about ponying up for a new unit. Better it should be their headache.

My MIL owned her house outright and the damn thing kept her poor. It was falling apart and finally she signed it over to a friend, and all of us celebrated because it was an albatross.

Now instead of $400 in utilities in her house, she pays about $75 per month. Instead of fixing the roof, or the siding, or worrying about the 30 year old furnace, she's happy as a clam in her rented place. She also doesn't miss mowing the acre of yard around her house either.

In the US we're all a little mental about "the American Dream." But homeownership may not be right for everyone, and I'm becoming more and more convinced that in retirement, we want to be be MORE mobile and more able to easily downsize as our budgets and abilities change.

There are tons of apartments out there for low income seniors that have special services for their residents.

I'm going to be a geezer with a pink flamingo in a pot on my terrace.

Can you tell I've given this some serious thought?
posted by Ruthless Bunny at 12:00 PM on February 20, 2014 [9 favorites]

*The suggested total retirement savings is 15% to 20% of income. So save more.
*Buy a house or condo. Use the lowest down payment possible, and the shortest mortgage term available. The monthly nut may be a higher out of pocket, but until Congress totally loses their minds you'll be able to write off the interest. You'll be leveraging that down payment as an investment.
The goal is X dollars at age Y. Or in other words having enough money or resources to stop working and live for however many years you will. CAUTION: It is a moving target. A couple of years ago I thought I could retire at age 55. A job change and a change in the reality of healthcare costs after age 55 will probably put that off for a few years.
posted by Gungho at 12:42 PM on February 20, 2014

Definitely start focusing on your retirement savings. A fun way to think about it is to work out how much you need to save for each year in retirement. So, start with ages 65-90 -- how much do you need to save today to fund that portion? There are a ton of calculators out there to help you with this analysis. Once you reach that funding level, figure out how much you need for each preceding year. Let's say your 65+ retirement is funded, and you save another $20K (random number), well, now you get to retire at 64! With each dollar you're putting away now, you get to retire that many minutes, hours, days sooner!

If you can max out your accounts, do it.

One thing to take note of is the plan/fund you're invested in and the associated fees. You might want to take greater control of your account and not use, for example, a higher-fee target date fund. If you're relatively young, you may want to use something like the Vanguard S&P fund.

Here's the Bogleheads start-up investing kit. Worth a read.

Also think about your long-term goals -- do you want to buy a house someday (primary residence, vacation home, investment property?), have a semi large wedding someday, have kids someday? Those are things to start saving for now. However, prioritize your retirement -- you can rent for life, get married at city hall, and your kids can take out student loans; you can't (comfortably) borrow your way through retirement.
posted by melissasaurus at 12:44 PM on February 20, 2014

Good advice above on saving for retirement and possibly buying a house. I switched at age 42 from "I'm going to rent 'til I die" to "I want to buy a house for my partner and me in six months". I was able to do it because the funds were there.

However, assuming that you make progress toward those two, there's something else I wish I'd done when I hit the point you are at now. This is an opportunity to think through your values a little bit, and decide what you think is worth spending on. You used to only spend what you had to; now you can spend on what you choose to; and you want to avoid spending just because you can. But that middle part isn't quite as easy as it sounds when you've spent 15-20 years scrimping along. It's easy (if you have a certain risk-averse mindset like I did) to keep living like you're 22 and making minimum wage, at which point why are you busting your butt at that good job?

So what is out there that is worth some of your hard-earned money? Charity, political contributions, hobbies, nice clothes, fine dining, more living space, a fancy car? You can do all of these (except the fancy car, I guess) incrementally - so try it out to see how much satisfaction you get from, say, one night at a four-star hotel. Just keep it to a manageable part of your budget, one that you only fund when all the higher priorities are taken care of, so that you can enjoy spending it without guilt.
posted by five toed sloth at 1:27 PM on February 20, 2014 [2 favorites]

Use the Roth IRA to buy speculative stocks. With your $6700 now, and if you move $5500 of other money into the Roth for 2013 by April 15, then another $5500 for 2014, you'll have $17,700.

If you buy two stocks in a row that each go up 10x, for a 100x total return, you have $1,770,000 and you are done. That is four decisions, buy, sell, buy, sell, that must be made correctly on the first try. It could well take 20 years to make those 4 decisions.

Choosing stocks is very personal, but here are a couple strategies:

1) Look around, see what the hot thing is that everyone is buying, figure out what company makes it, and buy that.

2) Buy stocks that are no-brainers. Don't mess around trying to "balance your portfolio" or find the right mix of stocks and bonds or admiring the beauty of index funds. Wait until you see a no-brainer stock, which could involve waiting for 5 years, then put your whole $17,700 on that.

Examples of stocks that have increased 10x: Google, Apple, Cisco, eBay. Many stocks, such as Ford, increased 10x after Obama told everyone March 5 2009 that stocks were too low and we should buy now.

Last year solar companies were popular, and many went up 4x over the year.

This year the new things are legal marijuana and the ACA. There will be companies connected to these things that increase 10x.

A Roth IRA is the right account for speculative investing because you do not pay taxes on your returns. Prepare for the possibility of success by making your potentially most successful investments where they will not be taxed.
posted by kadonoishi at 11:44 PM on February 20, 2014

OMG Please do not do anything like waiting for a No-brainer stock. If it was that easy we'd all be Warren Buffet. The key to long term growth is a steady stream of savings. Dollar cost averaging in a mix of mutual funds that for now balance towards being aggressive considering your age.
posted by Gungho at 12:18 PM on February 21, 2014 [5 favorites]

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