New job, new budget, yay!/halp?
February 14, 2015 12:27 PM   Subscribe

I'm about to make more money than I ever have before. Help me figuring out saving and investing.

OK, not the big dollars, more like the medium dollars. But after taxes, rent, food, and other regular expenses, I should have about $4000/month to play with. How much should go to shorter-term savings (like, to buy a home someday) vs 401K vs Roth IRA vs heeelllllllp?? I just don't know anything about that stuff!

Me: mid-30s, single, no debt, but no savings either, except for a wee tiny bit of a 401K. (And please, no lectures about how I should have started saving for retirement when I was 12. There were student loans and tiny paychecks for a long time.)

In short, where should I put this money?
posted by sockity sock to Work & Money (8 answers total) 14 users marked this as a favorite
Where do you live? What is home buying likely to cost you in the area that you live in? What kind of income would you like to try to have monthly when you retire? Anything else coming up in the nearish future that you're going to need to save up for, like car repairs or replacement, friend is getting married halfway around the world, anything like that? Do you have a 6 month (or year, preferably) emergency fund somewhere fluid but not so accessible that you're tempted to dig into it all the time?
posted by joycehealy at 12:41 PM on February 14, 2015

IANA Financial Advisor, but this is what I did:

1) Make sure you pay into 401k enough to get any company match that is available. Not doing this is giving away money.
2) Make an emergency fund so if something happens, you can pay your normal bills for a couple months. Size depends on your comfort and whether you have other safety nets like parents or whatever if you absolutely get hammered.
3) If you are under the income limt, max your personal ROTH IRA
4) If you have short term goals like a house or a car, take out some regular size and make it get automatically folded away. Depending on your savvy, a money market account or if you're more comfortable a better (but riskier) appropriate investment vehicle (index mutual funds if your goal is a ways off for example).
5) Max out your 401k. I forget what the max is. 15% or something.
6) If you still have money left, put more into 4 or have more money to raise your quality of life.
posted by cmm at 12:41 PM on February 14, 2015 [2 favorites]

I am in the same boat (yay for us!) and was going to hire a financial planner to help me with some of this. You might want to look into that as well.
posted by sockermom at 12:44 PM on February 14, 2015 [1 favorite]

Best answer: Was typing basically what cmm said.

You've got $48k/year to play with, so you should be able to max out a Roth IRA and a 401k if you're not over the max income for the IRA.

$5,500 into Roth IRA
$17,500 into 401k

Either use a target date fund for your estimated retirement date or do an allocation of an S&P500 index fund, a bond index fund, and an international stock market fund where the % of the bond fund is roughly your current age and there's twice as much in the S&P as the international fund. (i.e. 35% bond fund, 21% international, 44% S&P500 fund if you're 35). More about 3-fund portfolios here.

That leaves $25k/year. Put whatever of that you need away for 3-6 months of emergency fund, depending on how stable your job and situation is. It doesn't need to fund 3-6 months of decadent living, just how you'd live if you lost your job.

Once you've got that put away, start saving for a down payment on a house or car, depending on housing prices in your area that will determine what's necessary. That should go in a high-interest savings account, a money market account, or CDs/I-bonds (1 year term) might be an option if you're not buying immediately. If you want to buy sooner you could lower your 401k contributions a little, but don't forgo company matching or underfund the IRA.
posted by JauntyFedora at 1:00 PM on February 14, 2015 [7 favorites]

cmm & JauntyFedora have it covered, but the new limit for 2015 for a 401k is actually $18,000, so max that out if you can!
posted by jabes at 1:01 PM on February 14, 2015

Best answer: The book I Will Teach You To Be Rich has a dumb title but is basically written exactly for you. It'll show you how to get started saving and investing and makes it super easy and automated.

Also, congrats on getting out of debt!
posted by squasher at 1:40 PM on February 14, 2015 [2 favorites]

I think you can take money out of some retirement accounts to purchase a primary residence.

That link was just the first I found.
posted by mareli at 1:42 PM on February 14, 2015

Another fan of the three-fund portfolio here, though mine is four funds: I added a REIT. But low-fee indexed funds are the way to go, I've come to believe. (The bogleheads forum might be intimidating at first, because discussions can get technical, but don't get bogged down. Just read what applies to you, and you'll find your interests broadening quickly.)

The Early Retirement Extreme forum might also be of interest. It's a support community of people focused on achieving FIRE (financial independence/early retirement). It's less about investing than it's about budgeting and frugal living, balanced against quality of life. There are lots of contributing members in your age bracket.
posted by Short Attention Sp at 3:57 PM on February 14, 2015

« Older Do you think this is enough for a Valentine's Day...   |   Water park physics Newer »
This thread is closed to new comments.