Financial planning for the clueless
January 25, 2019 6:27 AM   Subscribe

I need a long-term plan for my personal finances. Retirement, planning to buy a house – things like that. I have no idea where to begin. Is there financial planning software that meets my needs? (And, in general, where do I begin?)

I'm 41 and single. I've been putting money into a 401(k), but I'm behind schedule. I rent, but I'm starting to think that I should buy instead – paying rent every month feels like throwing money away. In general, I need to understand how my current financial choices are going to play out in the long term.

So, I'm hoping to find software that does the following:

1. Asks me about my current financial situation: income, major expenses, retirement accounts, etc.

and then,

2. Allows me to game out various scenarios – buying a home vs. renting; putting $X per month into my 401(k) vs. saving $Y per month toward a downpayment on a house; etc. I want to be able to see "okay, Scenario A would allow to buy a house within 5 years, but I wouldn't be able to retire until age [whatever]", and things of that ilk.

Obviously, to produce meaningful numbers, it should account for income and property tax (at least roughly), since these are significant costs.

Does such software exist? I'm basically asking for a personal financial planner, in software form. I realize that software will never be as good as a real professional. However, I'd like to at least get a handle on things before I invest the money and hassle to talk to a pro.

(Have I mentioned that I have no idea what I'm doing? I need software that holds my hand. I know that Quicken is a thing, and I have a vague sense for what it's about...but I'm not sure that I'd know what to do with it. Maybe I just need Quicken plus some good tutorials?)

More broadly: how the hell do most middle-class Americans approach this kind of planning? Should I have a financial planner that I meet with once a year, or twice a year, or something? I really have no idea how this stuff works. (It kinda gives me impostor syndrome as an adult sometimes.)

Any advice on how to get started will be appreciated. Thanks!
posted by escape from the potato planet to Work & Money (25 answers total) 9 users marked this as a favorite
You should spend time extensively reading the wiki at r/PersonalFinance, where all of your questions are addressed (though not in software form.)
posted by DarlingBri at 6:58 AM on January 25, 2019 [2 favorites]

Response by poster: Sorry, but a torrent of unstructured information is exactly the sort of thing that doesn't help me. My brain doesn't "do" financial stuff. And I really don't want to spend dozens of hours wading through information which may (or may not) apply to me, and may (or may not) even be accurate (I simply don't trust self-appointed Reddit experts).

At any rate, even if I could find and absorb the relevant information, I still need a way to calculate the outcomes of the various scenarios. That's really the meat of my question.
posted by escape from the potato planet at 7:15 AM on January 25, 2019

There is a financial planning function at most of the various robo advisors (Betterment, Vanguard) that will ask you a few questions about what you have now, your age, etc and do a calculation as to what you need to save, and show you a chart with the accumulation and de-accumulation curve. It'll be pretty basic. You may have to give them your email address, but not your investments to use those features.

The New York Times has a great rent vs buy calculator that will game out scenarios for you for a home purchase decision. My view is that the 'rent is waste' comment people sometimes make is one of the most pernicious myths in personal finance. Look at all the Ask.Mefi questions about home maintenance and construction issues people have. Transaction costs are high. rent is the fee you pay for the service of someone else being responsible for all the property management of your home. Add in the fact that your costs to buy and sell a property are very high compared to moving from one rental to another.

A good financial planner will ask you questions you haven't thought to ask. Plus, they will be able to talk to you about tax, insurance, estate issues, and help you implement parts of the plan for you. It's worth finding a fee only planner if you're starting at a low knowledge level, and want some exposure to the things you don't yet know.
posted by thenormshow at 7:22 AM on January 25, 2019 [2 favorites]

I’ve been playing with the New Retirement tool described and promoted by JD at Get Rick Slowly link. It looks pretty interesting so far and seems like a good way to play with scenarios. Plus, working through the info is a nice kick in the pants to get into your accounts and reckon with all of it.

As for a house, I recommend you go talk to a mortgage broker right away. Visit more than one if you like and a bank. They will do a lot of legwork for you in examining your finances and giving you information. Make sure to tell them you are a first time buyer. If you have credit report dings see if they can guide you to fixing them. You can take any numbers or estimates and plug them into the retirement tool or just compare that to your current monthly housing expense. Generally, you will pay more in mortgage than renting but it’s up to you how much more.
posted by amanda at 7:37 AM on January 25, 2019

I like this basic retirement calculator and NerdWallet's rent vs buy calculator. That's a good place to start. I haven't seen a tool that combines everything you're looking for.
posted by pinochiette at 7:42 AM on January 25, 2019

Response by poster: Sorry to threadsit. Things like retirement calculators and NYT's buy-vs-rent calculator are fine, but they only allow me to consider individual parts of the picture in isolation.

They don't allow me to consider opportunity costs. For example, every dollar that I save for retirement is a dollar that I can't put toward a house. I can fumble through a mortgage calculator and see how (for example) spending more aggressively toward paying off a mortgage affects the total cost and payoff date – but that doesn't help me understand whether putting more toward a mortgage is a wise move if that means putting less toward my 401(k) (for example).

I want something that allows me to allocate portions of my monthly income toward multiple goals – "save for retirement"; "buy a house"; etc. – and then see where each scenario leaves me in the long term. A meta-calculator, if you will.

In my wildest dreams, I would be able to save and name each scenario, and then create and compare graphs which plot the relevant numbers (e.g., "Projected 401(k) Balance" or "Projected Equity") from various scenarios over time.

Obviously, I could use the individual calculators to do this manually – but that seems like a huge amount of tedious, confusing, error-prone work.

Is that just what I need to do? Spend hours and hours (and hours) crunching numbers manually in Excel or Quicken or whatever? Is that what normal adults do? I'm sorry if that's a dumb question – but like I said, I really don't know.

If that's the answer, then that's the answer – but if that's what I have to do to ensure that I have food and shelter in my senescence, then maybe food and shelter are overrated. My brain abhors this stuff.

Maybe it's just too complicated a problem to solve in software? It seems like this would exist. This is a problem that everyone has.
posted by escape from the potato planet at 7:57 AM on January 25, 2019 [1 favorite]

Is that just what I need to do? Spend hours and hours (and hours) crunching numbers manually in Excel or Quicken or whatever? Is that what normal adults do? I'm sorry if that's a dumb question – but like I said, I really don't know.

Some do. A lot don't but probably should, at least every once in a while.

It's not a problem to calculate in software because it's not a math problem. It is a values problem. Fundamentally, it is a problem of "what trouble do you want to pay to avoid? What trouble are you okay handling yourself? And how much of the first column can you realistically afford?" Only that third question is math, and until you have the first two questions in shape the math question isn't going to help you particularly.

For instance, you might be handy and not bothered by a lot of the maintenance of owning a house. You might not. There is no way for a piece of software to determine this for you. You could do everything you are asking in excel but you would have to ... spend minutes or hours crunching numbers. You could also hire a financial planner to do this for you, and then they will spend hours of their life crunching numbers according to whatever formula they think appropriate, and you will pay them for that work and bear some risk that they could be wrong and not foreseeing, say, an impending drop in home prices in your area or something like that. And one of the things they will need from you is a sense of your priorities: the kinds of trouble that you will pay to be rid of and that you will tolerate handling yourself.

You could also, if you don't want to work out all of the alternative uses of your money and opportunity costs, make your decisions by some sensible heuristics like "max out your 401k contributions and put them in low-fee index funds and ETFs" "have at least 3 months' living expenses saved up" "pay down your credit card debt as soon as possible, either smallest balance first or highest interest first" and so on. Those things might not, in your specific case, be the absolute best uses of your money, but finding those absolute best uses involves, again, a lot of fiddling with the numbers or paying someone else to do so, and you are saying that you'd rather starve and die of exposure than do that.
posted by gauche at 8:16 AM on January 25, 2019 [15 favorites]

Download the Wealthfront app on your phone. It has a financial planning tool you can use even if you don't invest with them. It will ask about your assets and liabilities - you can input manually or link to the actual online accounts so it can pull the balance automatically. It will show when you can retire depending on how much you save. Since I own a home, it includes home value, mortgage, etc. Not sure if it has rent vs. own analysis but it's a pretty neat tool - worth checking out.
posted by Mallenroh at 10:13 AM on January 25, 2019

Where are you located?

I ask because New York City in particular has a few options for pro bono financial planning advice, and I'm sure other major cities have the same option. Memail me for info about NYC in particular.
posted by EmpressCallipygos at 10:17 AM on January 25, 2019

I can fumble through a mortgage calculator and see how (for example) spending more aggressively toward paying off a mortgage affects the total cost and payoff date – but that doesn't help me understand whether putting more toward a mortgage is a wise move if that means putting less toward my 401(k) (for example).

I understand what you're saying and why you want this, but, at the same time, in addition to what gauche has said, you need to be incredibly conscious of the fact that any such program will rely on speculation about the various rates of return provided by any given instrument. It may be reasonably well-informed speculation that will be within a reasonable range of error in normal circumstances, but no one can actually tell you for sure what the return on your 401(k) investments will be or how housing prices will move in your community, which are things you would absolutely have to know to answer your question with true confidence. I am hammering on this point because you need to be aware of it in using any such calculator and particularly if you turn to any financial advisors--aggressive manipulation of such assumptions in the stock-in-trade of salesmen in this industry, and even a fiduciary advisor will have to choose rates to work with to do any projections, and you need to understand why.
posted by praemunire at 12:19 PM on January 25, 2019 [1 favorite]

Response by poster: I mean, yeah, of course.

Are you saying that it's pointless to attempt this sort of analysis? (That's an honest question.)
posted by escape from the potato planet at 1:33 PM on January 25, 2019

Best answer: So I am mid 40s and recently had some life changes that mean I have some similar decisions to make. I worked with a financial planner with my ex-husband, though, so I know the value they bring. It’s pretty common to have a few meetings at first and do a review of your assets and goals and make some decisions and come up with a plan. And then you might only check in with them occasionally or if something big changes.

Here’s how I’ve been planning to approach this: set up INAB software and enter my expenses and such for a month or two, gather up all my financial docs, and then go make an appointment with a financial planner.

Think of the planner as the software program you want. Because there’s also a bit of conversation/counseling in this, in discussing your goals and aspirations. The local housing market is also relevant, too, as is your health, career prognosis, etc.

Of course, I haven’t done what I wanted to do in INAB yet, so now my plan is to go ahead and make the appointment for a month or so out. Planners’ standard intake forms seem to ask many of the questions you’ve raised.

The alternative seems to be learning enough to get a certificate in financial planning. Who’s got time for that?

You know how some folks clean before the house cleaner comes over because they are embarrassed to have the cleaner see the dirty house? I think you are trying to clean before the cleaner. Just make the appointment with the planner and let them do this thinking for you. The key is to find a fee-based planner who works with people in similar life situations.
posted by bluedaisy at 1:42 PM on January 25, 2019 [4 favorites]

It's not pointless to attempt this sort of analysis, but if you're not willing to do hours of your own research and legwork, yes, it's pointless. People have tried to automate certain aspects of what a financial planner does -- principally, the math-y bits that abstract away values-based comparisons -- but if you're going the DIY route *and* you want to end up with an "optimal" result, you still have to do the research.

tl;dr: You can either become your own financial planner or you can pay someone else to be your financial planner. The "full-featured software that holds your hand through the entire financial planning process" option doesn't exist.
posted by serelliya at 3:00 PM on January 25, 2019 [5 favorites]

Are you saying that it's pointless to attempt this sort of analysis? (That's an honest question.)
Yes, it actually is pointless, unless your interest rate on your mortgage is higher or equivalent than the average long term return in the stock market, about 8% or so.

A 401k will always win over a house (unless you are super rich) because a house locks income in that is basically inaccessible without taking out loans or selling, so paying down the mortgage is a losing proposition. Mortgage rates are currently 3-4%, so it's not even close.
posted by The_Vegetables at 3:23 PM on January 25, 2019 [1 favorite]

Forgot to add: the only way to tilt this equation is by buying and renting out to a room or ADU, such that the returns in real income (cash) on the house are higher than the average long-term stock market return.
posted by The_Vegetables at 3:25 PM on January 25, 2019

Finally, your financial goals do not have to be either/or. The market is kind of choppy now, but you can invest $6000 a year in a ROTH IRA, and take all the money out that you invest at some point in the future (the gains have to stay invested or you will pay a penalty) to pay a downpayment on a house. You can do the same with a taxable investment account, in which you will pay a small amount of dividend taxes yearly, except that the amount you can invest is not limited to $6000 a year. And you can again pull out every dollar you have invested (the gains stay or you may pay capital gains taxes) to pay for a downpayment.

The volatility of the market may mean that you have less than you put in, but chances are just as good that you will be sitting on capital gains and have extra.
posted by The_Vegetables at 3:33 PM on January 25, 2019

It seems like the New Retirement tool and other options mentioned in the GRS blog entry amanda linked to are the closest you'll get to what you want. They are planning tools that let you enter information (current and predicted) and crunch numbers automatically to show you outcomes. Is there some critical feature they don't have that you imagine might exist somewhere else?
posted by whatnotever at 3:58 PM on January 25, 2019

I think there's probably not a market for that kind of detailed software? Certainly it would be possible to make in Excel if you played around with it and like calculations.

Most people have a kind of hierarchy of goals. People who are very personal finance savvy with an existing emergency fund and no debt would tend to prioritise investing for retirement, followed by maybe saving for college for kids depending on personal values, or alternatively housing (so your rent or buy calculation), then I think saving for large desired purchase (cars, regular vacations, new kitchen,...). They are also more likely to be aware of the assumptions and risks. Unless you have a pension, your ability to retire on a certain date is also dependent on stock market returns (usually assumed at 6%-8%) and inflation (usually assumed at 3%). So you can't be absolutely precise about when you will be able to retire.

Finally, for ballparking it might be helpful to share some rules of thumb about personal finance. When you start investing for retirement, you probably need to put in half your age as a percentage of your salary (so, start when you're 22 and its 11%, start when you're 40 and its 20%) to retire at 65 on two-thirds your salary. Housing costs should be no more than 30% of your income (some people say 28%, others 33%). That might start to give you an idea of how much flexibility you have in your choices. Many of us don't have a great deal.
posted by plonkee at 1:01 AM on January 26, 2019

Response by poster: I appreciate that folks are trying to help – but, real talk? I've said repeatedly that I don't know what I'm doing. When you get into the weeds about interest rates and market volatility and specific investment instruments, you immediately lose me. (Moreover, I didn't ask about any of these things.) Sorry to be cranky about it – but this is like the tenth time I've tried to figure this out, and it always ends in frustration, and people's insistence on peppering me with random unsolicited advice that I don't understand (instead of answering the specific question that I've asked) is a huge part of that.

It sounds like the answer to the question that I did ask is "the software you want doesn't exist; just hire a financial advisor". (Which, it's becoming evident, is probably a good idea anyway.)

(But people are also telling me that it's mathematically impossible to find the answers I'm looking for – or, at least, not with any degree of confidence – so...why even bother? If there's no point in running the numbers, and the best I can do is aim in a general direction and hope for the best – well, that's what I'm already doing. That seems inconceivable to me, but hey, I'm the one who doesn't know what I'm doing.)

I guess I'll do some research into financial advisors, and see where that leads me. Thanks.
posted by escape from the potato planet at 4:44 AM on January 26, 2019 [2 favorites]

One of the issues is that what seem like a small number of big questions — Should I buy or rent? Should I pay into pension or mortgage? etc — are actually made up of a large number of increasingly small questions, choices, variables, forecasts and guesses. This is why people end up telling you about things you “didn’t ask about”, because there’s no way to reasonably accurately answer your few big questions without addressing the many smaller ones (that you understandably have little interest in).

This means that any piece of software that’s going to help answer the few big questions has to include the many smaller possibilities somewhere. They might be hidden, which would make everything seem simple, but will also mean your big answers are based on unknown assumptions that might be wrong for you. Or they might be editable, which would mean you’ll likely be annoyed and confused by all these detailed financial variables.

Tools for answering a single big question, such as “what shares, funds, etc should I put my pension money into?”, quickly become a confusing multi-paged, multi-tabbed confusatron of forecast inflation rates, possible market returns, bond returns, historical data, charges, lengths of retirement, appetite for risk, etc, etc. All tedious details, but ones that greatly affect the answer to the one big question.

So, if you have no interest in getting even a little into the details, which is fair enough, then a financial adviser will deal with them, and help you understand the ones you need to come to terms with.

Also, even if you can’t face plouging through accumulated advice on Reddit, it can be a great place to gradually come to understand some common aspects of all this slowly - occasionally dip into topics that seem relevant to your question, that interest you, and you’ll start to feel more comfortable with a little bit of this at a time.
posted by fabius at 7:16 AM on January 26, 2019

Just wanting to pick up on this that you said

"it's mathematically impossible to find the answers I'm looking for – or, at least, not with any degree of confidence"

A financial advisor should be able to work out which things to run for you, and give you answers, and tell you what degree of confidence you can have in those answers. If that's what you want.
posted by plonkee at 7:33 AM on January 26, 2019

No, that kind of software doesn't exist. (I wish it did!) I used to be in the same boat -- clueless and overwhelmed about all this stuff.

Others are right that your options are essentially to learn about personal finance or find a financial advisor you can trust. Because the financial industry has historically been very predatory, I recommend the former. (I work for a large financial services corporation. I've seen how the sausage factory works. I don't trust most advisors.)

Reddit Personal Finance is a great resource. They'll be able to offer guiding principles and recommend good introductory books.

Once you get over the initial learning curve, it's not something that takes up much of your time at all.

Personally, I try to put at least half of what I earn into short term savings and long term investments. I also try to always keep my housing costs lower than 25% of my take home income. I rent, I don't own a car by choice (rent when necessary) and spend lots of money on travel and taking care of the people I love because that's what I value. You're obviously going to have a completely different situation and different values.

It seems overwhelming at first but it's not. You can do it!
posted by Pademelon at 8:08 AM on January 26, 2019

Stating again: There are very likely pro-bono financial planners where you live. If you live in New York City, memail me and I can point you to the specific resources I am personally using.
posted by EmpressCallipygos at 9:53 AM on January 26, 2019

Ok, so the "doesn't exist" part has been covered above. I'm here to push back a little on your "My brain doesn't "do" financial stuff." because I've read your posts and I know you're perfectly smart. I wouldn't bother writing out the following if I didn't think that. And you may still ignore it, but:

What you are asking for is an overlap of financial planner, advisor, and accountant. You can even assemble that team by starting at planner and recruiting others as needed.

Here's the thing: like anything else, you will pay for it. A planner will be $x,000 to do the talk therapy of getting to know your situation and your desires. An advisor will bleed you dry: 1-2% of your assets on a yearly basis (so if your 401k has say, $100k in it, an advisor will cost you $1000/year).

But that's not all (allusion intended). Unless you overcome your barrier of "don't do", you will almost certainly not get the best/terms rate of a mortgage, you will pay more in fees for your investments, you will buy too much house, you'll get suckered into whole life insurance, you will pay more taxes by not understanding which deductions help you, you won't save enough for retirement. And that's just a baseline of how it goes with average advisor/broker/agent advice, where their real motivation is to get you to spend money because that's how they earn it; there's plenty of fraudsters waiting for people who "don't do". That, my friend, is average American, I am sorry to say.

I'm a regular on, where people show up all the time saying "help me figure my shit out" in all sorts of situations. The standard there is that you must create a post in a standardized format that lists all of these things:

1. Asks me about my current financial situation: income, major expenses, retirement accounts, etc.

and then we help you figure out a strategy for what to put where. There are people who will absolutely help you figure out whether or how to save for a house whilst still contributing to your 401k. There are others who focus on the "when can I retire?" question.

The task of putting together that first post is not trivial at all. But it's an important lesson of assembling, on one page, an idea of what you have and what you want. And the truth is that no one can or will do that anywhere near as well as you will. You can pay someone to do a crappy job, but ... this is your life. You need to put "don't do" aside for a little while, and dig in.
posted by Dashy at 5:15 PM on January 26, 2019 [5 favorites]

Unless you are super wealthy, then investing is very simple. And by 'wealthy', I mean many millions, not 1. There are like 3-4 strategies you should follow. You don't need an accountant (other than to do your normal yearly taxes). It's especially true now that the recent tax changes completely blew up all the tax advantages of small-time investing.

You really don't need an advisor because all you do is fill out a few online forms and mail some checks. Then you pay it just like a bill for the next 20-40 years. At some point in there, through the power of compounding, your small amount of money will get larger.

You don't need to run any formulas or scenarios or follow the market; you barely even need to have concrete goals.
posted by The_Vegetables at 7:38 AM on January 28, 2019

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