Psychological hang ups around investing
March 11, 2021 9:17 AM   Subscribe

I grew up working class/working poor and got my first professional job a few years ago. I have no idea what to do with my money. Investing feels scary, and yet I know keeping money in my savings account is a big no no. Please help.

I’ll break down my current financials:

I’m 30 years old, living in Silicon Valley (tech adjacent job). “Normal” early-career low 6 figure salary (trust me, I know how abnormal this is in the real world, this job more than quintupled my previous pre-professional salary).

* Roughly 140k in student loans, with an average interest rate of about 4% (currently paused due to pandemic executive orders)
* About ~120k in my 401k. I contribute the max each year with matching. No other investments.
* After rent, etc. I have about $3500/month to do... anything with. Prior to the pandemic I was aggressively paying down my student loans. Not sure that was the right choice (or will be once COVID is “done.”). I also periodically sell off my vesting stock, which is a good chunk of change each year, in the tens of thousands. Currently that goes directly into my savings. I also offer a lot of financial support to my father and sister, but this is sporadic and variable.
* There is about $90k sitting in my various checking/savings accounts. I have so far justified this by saying “what if I want to buy a house, I need liquid cash,” but realistically I’m not planning to buy a house any time soon, and if I do it would be at least 2-3 years from now, maybe more like 4-5. Mostly I just have a hang up about investing.
* Prior to now I was aggressively paying off a huge bolus of credit card debt. Now that that’s done, I’m in my current uncertain position.

I have a few specific questions, but really any generalized advice would help. Questions:

1) How much of that 90k should not be sitting around in a savings account? If I calculate my rent + additional expenses it’s probably about $35k for 12 months of expenses, so I’m way oversaving. (Plus, if I lost my job, I’d probably relocate somewhere cheaper if I couldn’t find a job relatively fast.) Like I said, some of it might realistically go toward a house, but not for probably 2-5 years. Should I pretend a house isn’t even a thing and start buying index funds?

2) ... or, if not index funds, should I pay off big chunks of my student debt? This is what I’d really like to do, I think I’d feel much freer without it. But it might be a dumb choice financially. I’ve seen a realistic rate of return for index funds estimated at about 4%, so that makes loans vs. index funds about a wash. If it were a clear one or another I’d just do that, but it seems like an arbitrary decision.

3) I feel like I simultaneously have too much cash and not enough. To wit, early on in this job my sister had a crisis where she needed $4000 (it was a real crisis, not a “wouldn’t it be nice.”). I often think, how many $4000 crises am I away from being back at zero? Twenty? Not enough money!! But I think I also just love to see the savings number go up after years and years of being in the red. Knowing all that money is tied to the stock market, after 2008 and the recent COVID crash, is just so scary. I’d feel like... years of sacrifice were for nothing if I lost my savings like that.

4) on that note, probably leading to the black and white thinking, I’m really not very happy in tech and if it weren’t a hot field, I’d be doing something else. But it is. I dream often of working this job for a decade and then wrapping up and leaving. (Of course, who knows what my priorities would be then.) But I really can’t wrap my head around anything other than my super poor previous lifestyle / my current comfortable upper middle class lifestyle. What is “enough”? When would you consider yourself basically comfortable at the level where you could leave a high paying job and feel like your life would be OK? (This is... more a philosophical question, but I just don’t have the instincts for how other people make these decisions.) I feel like I got on the hamster wheel and now if I get off, I might as well have never gotten on. What if I want to move closer to home, where the job market is much suckier? What if I want to switch careers? How will I send my kids to college someday if I have a lot of assets but a much lower income? etc.

5) Should I actually get some kind of financial advisor? Or is there a really great book for these questions? I sense that financial advice usually comes with strings attached. I’ve read a few books, but they basically get to where I am now and just say “jump!!” (i.e., invest), and that’s my major psychological hangup.

Again, general advice is totally welcome, I feel lost and have no one to really turn to. (My cousin is the only other college graduate in my family and she laughingly told us a few years ago she was making all the mistakes that I happen to be now. Unfortunately we’re not close enough for me to chat with her.)
posted by anonymous to Work & Money (40 answers total) 38 users marked this as a favorite
Good problems to have! I would put most of that cash in a couple mutual funds. You can get at that money quickly and easily but it will make far more than in a checking account. The usual rule of thumb is a ration of aggressive to conservative that's opposite to your age - so at 30 you would do 70% more aggressive like an index fund or a growth fund and 30% more conservative stuff like a bond fund. It's a hedge against the market dropping - if stocks are down bonds are more likely up. I would choose one company - Vanguard, Fidelity, Chase or the like and do all of it there for ease of moving between funds. Those companies will all have some advice available on their site. I wouldn't pay for an adviser at this point - read financial advice someplace like the NYT. Put the max you can every year into an IRA - that's tax sheltered retirement on top of your 401K. When the deferral ends post-pandemic definitely pay your student loans down to off while keeping enough savings to deal with catastrophes like job loss or a massive health issue.

Pre-pandemic the advice was to have 3 months of expenses saved. Now I've seen people saying a year is better if one can - and many of us absolutely can't do that.
posted by leslies at 9:33 AM on March 11, 2021 [5 favorites]

I was in your exact position 10 years ago. First, talking to a financial advisor is probably a good idea. But they might confuse you with options because they will assume your goal is to make as much money as possible, which doesn't seem to be yours (it's not mine). It might be good to familiarize yourself with how some of the processes work before you talk to one. Here are some general principles you may not be aware of:

1. There are different types of savings accounts, the one your money is in now may be awful depending on your bank. BankRate keeps an updated list of good current rates, if your bank is way below that you may consider opening one. I have my emergency money sitting in a CIT bank savings account because it's 10x better than my Bank of America savings account, but if you have something like Citibank your rate is fine. Anything less than $250k in a savings account is 100% guaranteed by the government. But yeah you don't need to have 90k in savings because:

2. Transferring money into and out of something like eTrade is very easy and only takes a day or 2. So you could easily put your extra money into something safe like a Vanguard index fund, and be able to take it out fairly quickly (about as easily as an external savings account). I am not necessarily sure that right NOW is a great time to put all of your money into an index fund (I am paranoid about overvaluing right now), but you should definitely make an account somewhere and start getting comfortable with it.

3. Anything you can do to pay of debt is good, and it will make you feel more comfortable. Right now is a super weird time because of the freeze and possible amnesty, so I might wait until the freeze expires (if yours are federal and frozen) and then pay off as much of it as you feel comfortable doing. This is the first thing I did with my extra money, I just started paying off extra principle via the loan website, and then when it was low enough organized a "final pay off" which was a more formal thing they walked me through

4. It's hard to say when you have "enough" money because your expenses and lifestyle are very personal to your situation. What the financial advisor will help you do is figure out how much you would need to support your current lifestyle and other future ones you might want. But it will be a lot of options and still kind of confusing if you don't know exactly what you want to do. That's fine, you'll still be in a better place than you are right now
posted by JZig at 9:40 AM on March 11, 2021 [1 favorite]

Most investment funds will return far higher than 4% on average, but $140k is a lot of student loans (close to the average outstanding home mortgage balance across most of the US - so in a way you have already purchased a home) so a strategy for paying it down while you are a high earner is a good idea.
posted by The_Vegetables at 9:42 AM on March 11, 2021 [5 favorites]

Good advice above. I would also recommend that you peruse the wiki at
posted by jkent at 9:48 AM on March 11, 2021 [8 favorites]

I like the book Get a Financial Life: Personal Finance in your 20s and 30s. I got it at the library.
posted by pinochiette at 9:59 AM on March 11, 2021

Jkent's bogleheads rec is very solid.

If your tech adjacent job is at a big tech company, they may have a free one-time financial counseling perk - I know at least one does this through Ayco. It might be a good low-commitment way to get some personalized advice and specific pointers.

For myself personally - the way I got past this was baby steps. I opened an investment account at Vanguard because that's where my 401k was so it was easy and I felt comfortable with the site. (Turns out it is also a good choice independent of those criteria, I got lucky.) I put $10k in VTSAX (US stock market) and just chilled for a while to get comfortable with the idea. Yes, eventually you probably want to invest more than that. But for me that was what I was initially comfortable with, and that was what got me past my mental hangups.

Wrt house: 2-5 years is a short enough timeframe that if you're super serious about it ("2-5 years because I'm not gonna start a family til I own a house") you should keep the money somewhere more stable than stocks. (CD or high interest savings account.) If you are more flexible about it - "2-5 years but if the market crashed I guess I would just keep renting and that would be fine" then the answer is more flexible I think. Definitely not a financial pro though, take this with a grain of salt.
posted by february at 10:03 AM on March 11, 2021 [3 favorites]

My husband and I talked to an advisor with his retirement plan a few months ago. His advice is that you do not need to feel that savings accounts/cash are "no no"s . Having a cushion of 50K that will still be there if the market crashes isn't a dumb thing. It may not be squeezing every last penny out of your savings, but that is okay. Trying to squeeze it out exposes you to risk and that is not for everyone. Right now you have about 2.5 times your annual expenses in savings, which is not outrageous. Think about what would happen if you were out of work for a year and you only kept a year in savings, then you would be back to zero.

You could keep about 2 years in savings/checking and make sure to check that calculation regularly. Then skim off any extra into investments on a monthly or quarterly basis.
posted by soelo at 10:09 AM on March 11, 2021 [6 favorites]

1) How much of that 90k should not be sitting around in a savings account? If I calculate my rent + additional expenses it’s probably about $35k for 12 months of expenses, so I’m way oversaving. (Plus, if I lost my job, I’d probably relocate somewhere cheaper if I couldn’t find a job relatively fast.) Like I said, some of it might realistically go toward a house, but not for probably 2-5 years. Should I pretend a house isn’t even a thing and start buying index funds?
Traditional wisdom is that any money you need in the next 5 years should not be in stocks. My "I definitely want a house eventually but I don't know when and it won't be four a couple of years" money is in a pretty conservative mutual fund - it earns more than it would in a savings account but it is riskier than a savings account would be.

If I were you I'd have about 25k in cash, a smaller piece in a conservative mutual fund, and the rest in index funds - maybe 80% in stocks and 20% in bonds. (The conservative recommendation is 100 minus your age in stocks, but lots of people say you should go a little bit more aggressive than that because the returns on bonds have been poor lately). You can do a very simple portfolio that gets you enough diversification without overcomplicating things.

You can borrow from your 401k to buy a house. You do have to pay it back with interest, but that may be helpful in getting over the 'what if I decide to buy a house and I don't have enough money?' problem.

It seems like you're on track with your 401k, but since you can get some tax advantages by having an IRA (or a Roth IRA), I would try to fully fund that every year.
4) on that note, probably leading to the black and white thinking, I’m really not very happy in tech and if it weren’t a hot field, I’d be doing something else. But it is. I dream often of working this job for a decade and then wrapping up and leaving. (Of course, who knows what my priorities would be then.) But I really can’t wrap my head around anything other than my super poor previous lifestyle / my current comfortable upper middle class lifestyle. What is “enough”? When would you consider yourself basically comfortable at the level where you could leave a high paying job and feel like your life would be OK? (This is... more a philosophical question, but I just don’t have the instincts for how other people make these decisions.) I feel like I got on the hamster wheel and now if I get off, I might as well have never gotten on. What if I want to move closer to home, where the job market is much suckier? What if I want to switch careers? How will I send my kids to college someday if I have a lot of assets but a much lower income? etc.
There are communities out there who are very much invested in these kinds of questions. (Google 'FIRE' - 'financial independence, retire early.') There are all kinds of calculators you can use to see how much you need to save at what % growth in order to be able to retire at what age with X dollars per year.

You have enough income that you can think about saving really aggressively for the next five or ten years and seeing how it changes your outlook on these questions. You can save up enough to take a six-month sabbatical, or go back to school. Some people want to really grind for fifteen or twenty years and retire early, but maybe 'retirement' looks like a lower-stress job or a lower-paying job or a small business. You kind of have to budget out the life that you want and weigh it against how long it will take to fund that budget out into the future. "Your Money Or Your Life" is a really good book for the psychological/philosophical side of that - the copy I read had some outdated assumptions in it, but there's a fully revised 2018 version that might be better for that.
posted by Jeanne at 10:12 AM on March 11, 2021 [5 favorites]

I recommend, to answer about all your questions, this book (don't be put off by the scammy name -- it is legit). We (spouse & I) used the program back around the same age and situation (from blue-collar backgrounds, so knowing nothing about nothing) you are in. It super helped us put all of this in perspective and plan.
posted by chiefthe at 10:16 AM on March 11, 2021

I make nowhere near what you make, but do make a lot more than I spend, and tend to accumulate a lot of extra money in my checking account. What I did a few months ago was create a Vanguard brokerage account and set up an automatic investment into it -- $500 every Monday into VTSAX. (I do $500 once a week because $2000 is about the leftover slush at the end of the month for me, after expenses, 401k max-out, etc.) And in this way, I'm not depleting my checking/cash savings account, just preventing it from increasing. That might be a good way for you to start and then you don't have to suddenly dump all your cash into something, especially if you might need money for a house down payment.
posted by jabes at 10:25 AM on March 11, 2021 [1 favorite]

should I pay off big chunks of my student debt? This is what I’d really like to do, I think I’d feel much freer without it. But it might be a dumb choice financially.

It is not a dumb choice. Most investment decisions are primarily a risk-reward tradeoff: Safe investments pay very little; current money market rates are well under 1 percent. Stocks have higher average returns but much higher risk. (Your retirement account should be weighted heavily to stocks, because you are young.)

But when you are paying off debt, you are effectively getting a completely safe* return equal to whatever rate the debt is accumulating at - in your case, 4 percent. (*Technically, it's not completely safe, because there's some chance of loan forgiveness that you'd miss out on if you had already paid off the loans. Since President Biden has supported loan forgiveness of $10,000, you might want to keep your balance above that for a couple of years, just in case.)

Aggressively paying down your loans is not unambiguously the "right" strategy, but it's one very reasonable approach, and it comes with the huge benefit of feeling much freer. That's not something that you can quantify in a spreadsheet, but it's still a huge benefit. It's what I would do in your position.
posted by Mr.Know-it-some at 10:28 AM on March 11, 2021 [4 favorites]

Should I actually get some kind of financial advisor? Or is there a really great book for these questions? I sense that financial advice usually comes with strings attached.

Some advisors come with "strings attached". Not all. And the way I figure, they went to university to learn about how to handle money specifically so I didn't have to, so I have no problem working with one.

The key word you want to use is "fee-only" advisors - these are the ones who do not receive commissions for any product they sell, and make their money just by charging their customers. Yes, they may be a little more expensive, but at least you know you can trust their advice - and you may be able to find one willing to work with you on an initial "just set me up and that's it" service, where they help you come up with a long-range plan and get everything set up, and then you can be on your own for the rest of your life if you want. I'm right now working with an advisor on this kind of deal and it's been going pretty good so far.

If you're in a major city, you may also want to check if they have free programs for financial counselling. New York City has this - they're mostly there to help people with debt or low incomes try to figure out a financial strategy, but they happily work with anyone. I signed up for such a program a few years back and it was one of the best moves I ever made - in fact, my financial counselor was the one who talked me into working with a financial advisor, and she was the one who tipped me off to the "fee-only" bit. I still use some of the advice my counselor gave me, and I've recommended her to practically everyone I know (my roommate just started working with her, and I cracked up when he told me about some of the things she said to him - because three years ago, she was saying those things to me).

There are people out there whose job it is to think about this kind of thing for you, and there are ways to find ones who won't be shady about it. If you can afford to hire them, go for it.
posted by EmpressCallipygos at 10:29 AM on March 11, 2021 [3 favorites]

The thing about the stock market is that your gains and losses are all on paper until you sell. Just like a house you might buy. For long term investing, the best approach is a sensible mix of investments which you check regularly but infrequently. What matters is the long term trend, but what makes people panic is short term dips. There will definitely be a day when your investments will be valued at a lower price than they were the day before. But the assumption that over a 15+ year time horizon money invested in sensibly will be worth at least as much as a savings account and probably more is a reasonable one.

Sensible investing, especially if you are risk averse, means using things like index funds and other mutual funds rather than buying shares directly because you are spreading your risk among lots of companies. You may not get spectacular gains, but you are less likely to tank worse than average.

Selling off vested stock should also be a good strategy for the risk averse. Your main source of income is directly tied to the success of your company, so it's better to spread the risk to your capital around.

You could optimise better, but in your position, paying down your student loans aggressively is ok. I think jabes approach to investing is a really good one, you don't have to go all in at once. I also think you'd get a lot of value from a financial planner, but it would be helpful to think about your goals and how comfortable you really want to be with risk ahead of time.
posted by plonkee at 10:33 AM on March 11, 2021 [1 favorite]

You are getting lots of good advice on the HOW - the ways that you can invest or manage your money. However, I think it is good to take a step back and focus first on the WHAT and WHY.
  1. What are you planning to do with your life in the next 2, 5, 10 years?
  2. Why do you want to achieve those things by those certain points in time?
In other words: get clear about your goals, your time horizon, and the emotional underpinnings of those same goals.

Most people don't have to think that much about this, as there is a standard template laid out: get your degree, get a job, get married, buy a house, have kids, pay down your mortgage while saving for kids' education and your retirement, and then retire at 65. But if your life goals deviate from the standard template, then you must define it first before anyone can come up with any meaningful plan that you can follow. I'm hearing it already, that you may not want to stay in your particular career path or location for very long, and that sort of thing will factor into what you should do with your money right now.
posted by tinydancer at 10:51 AM on March 11, 2021 [3 favorites]

Find an advisor that is a fiduciary. They are required to look out for your best interests and not sell you what ever product will get them he highest commission.
posted by tman99 at 11:03 AM on March 11, 2021 [1 favorite]

If you do decide you want a financial advisor, feel free to DM me and I'll happily recommend mine. She was great at working through all kinds of (financial and existential!) scenarios with me and helping me invest in a way that felt safe and achievable for me. Plus she's fee-based so there really weren't strings at all, just working together to plan for the future, in all its possible iterations.
posted by stellaluna at 11:03 AM on March 11, 2021

Check out the /r/personalfinance 'prime directive' flow chart. It's super straight forward, and a really excellent path to good finances.

My gut takes are: you're doing great! Keep at it! -- Stay out of stocks or any other sort of equity unless your networth climbs into hundreds of thousands, pay off your student (and all other) debt relatively aggressively, and there's really no need for a financial advisor, they're not going to give you better advice than that flowchart (until you have sticky tax issues and a high net worth), but they might give you worse advice!
posted by so fucking future at 12:03 PM on March 11, 2021 [7 favorites]

If you are nervous about investing, the absolute best investment you can make right now is pay down your student debt. That's a guaranteed investment return of 4% per year and you can't lose. That's an investment return far better than any other right now without taking on significant risk.

First, keep enough cash in savings to handle an emergency, say, 6 months spending.

Next, put at least enough into your 401(k) to get the company matching. That free money.

Next, put $5,500 into a Roth IRA. Your income is probably too high for a deductible IRA but probably eligible for a Roth, after you have taken your 401(k) deductions. You've already paid taxes on this money so you may as well put it into a tax-exempt Roth account.

(There's a sort of loophole called the "backdoor Roth" that allows you to put non-deductible money into a traditional IRA and then the next day roll it into a Roth IRA, but that's an advanced topic that might not be necessary for you.)

Next, consider putting the maximum into your 401(k) after matching, up to $19,500. Being single with a six-figure income puts you in a pretty high tax bracket so the tax deduction is worth a lot. It also reduces your income which helps with Roth IRA eligibility.

Finally start dumping as much cash as possible into paying down your debt. That's the investment portion of the plan. You earn 4% each year forever on every dollar you use to pay off debt. You might delay until the end of loan forbearance in September, but that's just 6 months away and keeping $90K cash in a savings account isn't giving you much interest anyway.

Once you get your student loan debt whittled away, then you can come back and start thinking about a taxable stock investment account. Meanwhile, you can invest in a stock index fund in your 401(k) and IRA.

That $140,000 debt will eat into any home loan you might qualify for, so you may as well get that out of the way now.
posted by JackFlash at 12:30 PM on March 11, 2021 [5 favorites]

William Bernstein has a great primer here called If You Can.. an investing guide for millennials. His book Four Pillars of Investing is also highly recommended. In particular he gives good advice regarding the psychology of crowds. People can get really blindsided, especially now when markets are "hot". One thing to figure out is your risk tolerance. How would you feel if the markets tanked by 50%? Those type of events happen regularly but many if not most investors suddenly discover they aren't that risk tolerant after the fact.

p.s. I would also pay down the student debt first :) and yes, you are doing well!
posted by storybored at 12:39 PM on March 11, 2021 [3 favorites]

I hear you. I had little idea how to think about money until my late 20s when my career was starting to bear financial fruit & it became clear that sitting with $100k in a savings account was perhaps a bit daft.

> How much cash should not be sitting around in a savings account? [...] $35k for 12 months of expenses
> how many $4000 crises am I away from being back at zero? Twenty?
> if I lost my job, I’d probably relocate somewhere cheaper if I couldn’t find a job relatively fast
> I also offer a lot of financial support to my father and sister, but this is sporadic and variable

One way to think about how much cash you need to keep at hand could be thinking through the different uses for the cash:

1. cash required to cover expenses if an "emergency" occurs (e.g. job loss and you cannot quickly find another job)
2. cash required to assist for family emergencies
3. cash required for down payment on house (if that is a concrete goal that you have)

For covering your own emergency fund, perhaps 12 months expenses + a bit extra to cover estimated relocation costs if you needed to relocate. So if your annual expenses are about $35k, maybe $40k would suffice. For cash to assist your family, maybe you could explicitly reserve some extra cash for this. You mentioned $4k, so maybe another $5k buffer or so. So perhaps around $45k would suffice for uses 1 + 2 + 3.

The amount really depends what you are comfortable with. If you are unable to sleep at night with only $50k cash in the bank, but you can sleep soundly with $80k cash in the bank, then keeping that extra $30k in the bank is a sound investment in increasing your quality of life!

For sake of argument suppose you're comfortable with $60k in the bank, so there's a question of what to do with the remaining $30k and additional $3.5k / month surplus as it comes in. You're considering between (a) paying off more of your 4% student loan, (b) investing into index funds, and (c) saving for a down payment on a house.

If you use cash to pay off your loans, then you reduce your liquidity -- you cannot get that cash back if you want it for a down payment on a house. But on another hand, if you use cash to pay off your loans, you permanently reduce your cost of living by reducing the drag of that recurring 4% interest expense.

If you invest the cash into the stock market -- in a low fee fund that passively invests in US or world equities, for example -- you might expect to get a 6% nominal return (before inflation) or a 6% - 2% = 4% real return (after inflation). This is a little better than paying off the loans. But this return is "on average" over a time horizon of 10-20 years, say. Stock returns are volatile. There's a fair chance that if you invested money into the stock market now and then needed to withdraw the money in 2025, that stock market prices might have crashed to be 30% lower than they are now, so if you were forced to withdraw the money (to raise cash for a house down payment, for example) then you would take a loss.

Paying off the student loan seems -- to me -- more attractive than investing in the stock market. But both paying off the loan and investing in the stock market reduce your ability to raise a bunch of liquid cash to use for a house down payment. You could try to estimate a budget of how much money you'd need for a down payment and work backwards - e.g. estimate housing prices in areas of interest, multiply by 20% or 30% or something to cover down payment + closing costs + additional expenses to move in. Then work backwards of how much you'd need to save each year to cover that.

If you are reserving cash for a house downpayment, perhaps consider investment grade fixed income to park the money. Slightly better interest than cash. E.g. government bonds. I'd steer clear of longer duration government bonds (e.g. 10 year + US treasuries) as there is a risk that they lose value if interest rates rise in the next 5 years.

> I’ve read a few books, but they basically get to where I am now and just say “jump!!” (i.e., invest), and that’s my major psychological hangup.

I reckon you could start investing a relatively small portion of your money now, in order to force yourself to learn and to start to desensitize yourself to the habit of investment. E.g. of the "surplus" cash you have now and will generate in future each month, how about putting 50% of it toward paying off student loans, 35% reserved toward a house down payment, and the remaining 15% where you force yourself to invest -- where the main goal is learning about investment and getting used to doing it. These percentages are arbitrary, but it probably doesn't matter that much -- it doesn't matter if you don't do things "optimally" as long as you do something kind of reasonable, that you can sleep with, and that you're learning as you go. Then you can revisit what you are doing in a years time, or two years, etc.

I don't live in the US so I don't understand the most tax-optimal way to invest. But a simple way would be to sign up for a taxable investment account with an online broker and then start regularly investing a chunk of cash into a low-fee exchange traded fund that gives you passive exposure to the stock market (e.g. or similar). You should only do this with cash you are comfortable that you will not need to withdraw for 10+ years.
posted by are-coral-made at 1:08 PM on March 11, 2021 [1 favorite]

I often think, how many $4000 crises am I away from being back at zero?

This actually happens to my brother, who is a Dave Ramsey follower. He's never made it beyond 'build an emergency fund' because he keeps having emergencies. He makes way less money than you though. That's your advantage.
posted by The_Vegetables at 1:22 PM on March 11, 2021

Check out the /r/personalfinance 'prime directive' flow chart. It's super straight forward, and a really excellent path to good finances.

Came here to suggest this - it's correct. But, one thing it doesn't mention, is instead of having cash sitting in a savings account, you can put most of your emergency fund into a Vanguard ETF for cheap, and you can get your money out of that in a matter of days.

So, specific steps you could do today:

Increase your 401K contribution to 19,500/year.
Make sure your 401K is in the cheapest S&P 500 index fund. The default allocation is usually high fees. Look at the fees ratios until you find one that's 0.01 or 0.02 fees ratio.
Put $70K of your cash into a Vanguard brokerage ETF account (I use S&P 500). If the 401K contribution makes you cash flow negative, you can slowly pull out of this over time. I'd keep one year expenses in here as your emergency fund.
I paid off my student loans before investing because it gave me more piece of mind. It's kind of like a guaranteed 6.8% investment, or 3.8% after inflation. I think it's more logical to pay into investment accounts, but also 'feels' more risky. It's up to you.

After asking a similar question on the green, someone pointed me to this guy: He gives great financial advice but doesn't manage your funds - just helps you figure out all this stuff. It's $200 for one long session to answer questions.
But again, first step might be to read that /r/personalfinance flowchart. It's really the best advice out there.
posted by bbqturtle at 1:56 PM on March 11, 2021 [2 favorites]

This is the one time I'll agree with Scott Adams. The story goes he wanted to publish a book on investing, but it was only going to be one page long and no publisher wanted to publish a one page book. As he said at the time,
Everything else you may want to do with your money is a bad idea compared to what’s on my one-page summary. You want an annuity? It’s worse. You want a whole life insurance policy? It’s worse. You want to invest in individual stocks? It’s worse. You want a managed mutual fund instead of an index fund? It’s worse. I could go on, but you get the point.
Since he couldn't get it published, he put it on the Internet. Here is the book in full:
  1. Make a will.
  2. Pay off your credit cards.
  3. Get term life insurance if you have a family to support.
  4. Fund your 401k to the maximum.
  5. Fund your IRA to the maximum.
  6. Buy a house if you want to live in a house and can afford it.
  7. Put six months worth of expenses in a money-market account.
  8. Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement.
  9. If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio.
He doesn't cover student loan debt. I would be inclined to let it ride as long as the interest is on hold, and then pay it off at an accelerated rate. I wouldn't pay it off at once because of the possibility of forgiveness that's dangling out there.
posted by Winnie the Proust at 2:00 PM on March 11, 2021 [9 favorites]

Returns from paying off debt are risk free and tax free compared to stock returns
posted by canoehead at 2:39 PM on March 11, 2021 [3 favorites]

tinydancer is right, I get more of a sense that you don't want to do money wrong. But what do you want to do? It's true that when you grow up eating government cheese, in some sense any month you get all the bills paid and have enough left over to go out for McDonald's is a good month. When I was a kid, choosing a sport was easy. I could do basketball or soccer. I think basketball was free, and soccer was $10 for the season, but that included a t-shirt. Sure, some of my friends could go skiing, but it was as likely that my family would take a ski trip as land on the moon. But you have the privilege to choose what you want to do with money, which is after all just a tool. If you could afford to buy a house now, would you? Do you think you want to have kids? Day care for an infant at the school we used is $24K a year, so your expenses would definitely go up. Is it important for you to retire at 65? 55? 45? Move back home? Travel? Sure, having more money is almost always better than having less, but the "right" thing depends a lot on where you want to go. For someone in Silicon Valley your current spending is quite low, which works in your favor.

Maybe you don't know, and that's fine, too. If it were me, I would take all but 6-12 months expenses and use it to pay off the student loans, at least down to $50K, which is the highest number I've seen proposed for any sort of forgiveness. A guaranteed 4% is way better than an average 4% from an index fund. In California I don't think that many people actually save 20%, or even 10% as a down payment on their first house so I wouldn't keep a bunch of cash for that. Keep up the 401(k) saving, and if you have extra and are eligible, set up a Roth IRA at Vanguard with a target date fund. If you do decide to keep cash, you might set up a "CD ladder" to increase your returns (really, to reduce the amount your returns are negative after inflation), because typically the penalty for breaking the CD early is only a period of interest that you don't get.
posted by wnissen at 2:50 PM on March 11, 2021 [1 favorite]

I recommend Get Rich Slowly, blog and books by MeFi's own jdroth and which I read for ages before I knew he was a MeFite. Read other personal finance blogs like Mr. Money Moustache, The Simple Dollar.

Stocks are kind of scary, but you should still put money in a mutual fund that is indexed to the stock market, Fidelity and Vanguard get good marks.

The conventional wisdom is to put money in the stock market, which has historically returned @ 10%, and pay off the loans as they are due, because you make more money.

Set goals. Maybe you want a house, maybe you want a vacation house, or you want to pay off the parents' mortgage, or save enough to take 6 months off and see national parks. They're your goals, it's okay if they change, but they help you decide what to do with your money.
posted by theora55 at 4:11 PM on March 11, 2021 [1 favorite]

I have a few specific questions, but really any generalized advice would help. Questions:

It sounds like you help out your friends and family in an unstructured way. That's great! If you're not already doing this, you should know that you're at the point where you have enough money to automatically donate a percentage of your income to your favorite charities. Investing in a better world.
posted by aniola at 4:59 PM on March 11, 2021

I keep a ton of money in liquid savings, don't invest (also worried about liquidity/a bubble), and keep a balance of student loans despite being able to pay some down. I do this because my psychological comfort is more important than being able to possibly get the "max" return on all of my money and I feel comfortable this way and will until I have a lot, lot more in liquid savings.

Don't believe the hype that the reason people are all not bazillionaires is because we didn't all make the "right" investment decisions or whatever. Especially since the number one thing that would cause me (and possibly you, if you think about it) to lose my job would be a serious economic shock like...a stock market crash. Would I want to be buying now and selling my stock in the equivalent of 2009? No, no I wouldn't. Nor do I want to be looking at a $0.00 student loan balance and a $0.00 savings account balance, or anywhere close -- especially with income protection and payment plans on student loans being so reasonable. Keeping some student debt is a reasonable hedge against future cash crunches and related income drops.

Good luck!
posted by Rock 'em Sock 'em at 5:08 PM on March 11, 2021 [1 favorite]

I have a financial advisor (mom died- settlement chunk of change- inherited her financial advisor to help manage the lot). It is absolutely worth the fee to pay a good financial advisor. I do not worry about managing the money myself and he has already made me more than 10 times the fees in just tax savings alone by strategically managing the funds. He also hooked me up with very affordable attorneys for handling the legal affairs regarding the money and setting up future plans. It would have been much more expensive had I looked for one online instead of using one his firm had worked with and trusted. And he's become a family friend through managing the estate but he's helped me with my job search now that my degree is wrapping up. Talk about networking.
I view it the same as going to the doctor- I may know enough to do first aid, but if I need surgery in finding a professional. Investing for future security requires professional knowledge to get the best possible results- it is possible to do it yourself for sure, especially by locked in index funds with targeted dates you dont touch, but you are likely to miss out on the full benefits of someone who can help you plan for your financial future. I'm still in charge of my own money, I just have someone who can tell me what it's doing and why and if I say "hey man I want to buy a house next year how are we going to make that work?" He will have a straight conversation about what is and isn't possible and how we need to get that to happen.
I have a slush fund of money I still play around with when investing because I find it fun, but it's impossible to make fully logical decisions when it is your own skin on the line. I trust my advisor to fully act in my interests- find one what will do the same.
posted by shesaysgo at 5:16 PM on March 11, 2021 [1 favorite]

As someone who was an analogous professional position to yours ~ten years ago, I say: pay off the student loans. You'll never have full professional flexibility until you do. When I left my private-sector job, my new salary was 20% of what I'd earned there. That ended up being too low to be sustainable, but, point is, I could sustain it long enough to get my foot in the door in that sphere and get a better-paying job (still nowhere near the old job, but more or less liveable) elsewhere. If I'd still had massive loans to service, it wouldn't have been possible. Yes, in theory, you could invest that money and use a lump sum to pay off the debt when you move jobs, but then you're relying on a recession not breaking out just when you want to move.
posted by praemunire at 5:29 PM on March 11, 2021 [2 favorites]

If I'd still had massive loans to service, it wouldn't have been possible.

I sort of agree, but I think it depends on the type of loans and whether you can get long-term income-based repayments that are workable on a lower salary, as well as whether or not you're comfortable having the loans just...sit out there.
posted by Rock 'em Sock 'em at 5:31 PM on March 11, 2021

whether you can get long-term income-based repayments that are workable on a lower salary

I don't know if you've ever had to be on one of those plans. They're better than nothing, but they aren't that great.

Also, when you have north of $100K student loan debt, generally (though not always) you have private loans, too, and they don't offer IDR.
posted by praemunire at 6:18 PM on March 11, 2021 [1 favorite]

I also make quite a bit more than I spend, although not as much as you. My paycheck is automatically deposited into my bank, and then Vanguard automatically withdraws a certain amount every week and puts it into a targeted retirement fund that is a mix of stock and bonds that is automatically adjusted to become more conservative the closer I get to retirement.

I carried my student loans for many, many years because that money was earning more invested than I would have saved by paying them off. But then when I got divorced, I felt like fuck it, I want to start my new life with zero debt. And let me tell you, even if debt forgiveness becomes a reality, I will still have no regrets, because I just didn't realize the emotional burden of carrying that debt. I highly, highly recommend paying them off now. The purpose of money is to make your life better and this made my life so much better than I ever could have imagined.
posted by HotToddy at 6:53 PM on March 11, 2021 [3 favorites]

This isn't really in your questions but if you're getting RSUs (which I assume you are, based on the 'periodically sell off stocks vested' thing), consider holding on to them until you need the money instead of selling them off. Assuming you're in a decent tech company that isn't in any danger of going under, over time those stocks are probably going to increase in value and it saves you the bother of figuring out how to invest that money separately.
posted by Xany at 7:47 PM on March 11, 2021 [1 favorite]

I would recommend getting rid of any private student loan debt, but I do think there is a serious possibility that something will happen with federal debt. Full forgiveness is pie-in-the-sky but there is absolutely executive authority to do something.

Personally, I'm holding off on writing giant checks to student debt until at least 2024. If Republicans win, then fuck-all is happening and I better pay it off.
posted by Hollywood Upstairs Medical College at 11:49 PM on March 11, 2021

Respectfully disagree with Xany on the RSUs (of applicable) - they are too correlated to your job. On the off chance the company goes down, or just has temporary problems and does layoffs, now you have no job *and* no RSUs. Sell them as you get them and put it in an index fund or pay down the student debt.

Especially for someone tech adjacent - bigtech would rather lay off, say, recruiting, than engineers in many cases.

My two cents, YMMV. I have lost money following my own strategy here but I sleep a lot better, and I kinda imagine that in some parallel universe it saved my butt.
posted by february at 3:46 AM on March 12, 2021 [4 favorites]

Small note: if you are investing in mutual funds (which is absolutely what you should be doing - not individual stocks or bonds), you can usually sell the shares and have the money in your account the next day. So, if you are having your third $4,000 emergency in the same month, you can absolutely get your money out quickly.

However, with stock market investments, the markets go up and down. If the market is down then you have less wealth - you invested $10,000 and now you only have $8,000. Second the market tends to go up over time, so if is down 20%, you would tend to want to invest that it will go up next and buy more stocks (or at least keeping what you have so it will be in stocks when the stocks go up) rather than taking your money out. But if you need the money then taking it out and paying your bills is better than the option of unpaid bills or borrowing at 22% on a credit card.

People say don't put money in the stock that you will need in the next 2-5 years because there is a chance that it might not be worth as much as it was when you started. In the long run (and often in the medium run) stocks perform much better than anything else. In the short run they are much more unpredictable. If the market drops 20%, you can still take the remaining $8000 to use for whatever you had planned but you will be wishing that you had put in something less risky so you had at least had the original $10k and maybe just a little more.
posted by metahawk at 10:10 AM on March 12, 2021 [2 favorites]

Regarding company stock: A friend told me that people get rich by taking chances, people stay rich by reducing risk. My husband has worked for many years for a high tech company. If I had been in charge, we would have sold most of the company stock as we acquired it. As luck would have it, the company did very well and the stock that he refused to sell is now worth many, many times more than it would have if we had sold it and invested in a stock index fund. At the same time, there were years (sometimes several in a row) where the stock price dropped by scary amounts if we were counting on it to pay bills.

So, if you like the company and have faith in it, you might want to keep some just so you can participate if the company does great. I was told by an investment advisor that 10% of your net worth in your employers stock is a manageable risk. However, if it is money you really need then it makes so much more sense to diversify - as someone else said, if the company tanks then you lose both the value of the stock and your salary at the same time, a hard hit at the time when you will need a financial buffer.
posted by metahawk at 10:17 AM on March 12, 2021 [1 favorite]

I don't think there's a financial advisor alive who will advise you to keep a significant portion of your assets in a single stock, especially one tied to your job. Single stocks, even a modest "basket" of a dozen, are dramatically riskier than the market as a whole. Yes, the best case is much better, but the worst case is really bad. This goes double for options, which can go from mega payday to worthless almost overnight. I would, personally, sell as soon as I'm allowed and stuff in a CD rather than increase my risk. For every Telsa there's a PG&E.
posted by wnissen at 10:36 AM on March 12, 2021

You've gotten lots of great suggestions above about specific actions you can take. I'd like to respond a little to the psychological concerns - feeling scared and lost.

First, know that LOTS of people have gone through what you're going through. You are not alone, and lots of people have muddled their way from ignorance of financial stuff to feeling confident and comfortable with their choices. (And may I just say, you are far from ignorant - you have a lot of great info right there in your question. You're off to a GREAT start.)

Second, consider picking up some books that will help you explore your feelings about money. I haven't read these, but Mind Over Money by Brad Klontz and Mind Over Money by Claudia Hammond might give you some starting points. (I bet your library has a lot of other options.)

And while you're checking to see whether your employer offers any financial advisor benefits, maybe check your health coverage to see whether you're covered for therapy. Talking with a therapist for a few sessions about your feelings about money could help you feel more confident about your choices.

I think the suggestions about finding a fee-based advisor are great, as are the pointers to (both the wiki and the forums). Definitely consider posting there - they have excellent moderation, and members are very supportive and helpful.

Bogleheads like fee-based advisors (the kind you pay by the hour), and they'll often recommend using the Garrett Network to find one. I know someone who had to learn personal finance in a hurry after decades of avoiding all things financial, and they're really happy to have their Garrett person as a sounding board. (Some fairly standard Bogleheads advice: take the amount of money you DON'T need to have liquid, decide on an asset allocation - maybe 30% bonds, 70% stocks, since you're about 30 - and put your bond money into Vanguard Total Bond fund and your stock money into Vanguard Total Stock. Boom. Done.)

Finally, consider:

You're not actually likely to make huge mistakes. You already have a good grounding in the basics, based on your post - you know about keeping a savings buffer, you know that moving beyond your savings account is probably a good idea, and now you're in "which options are better?" territory.

You ARE likely to make a few small mistakes - or more accurately, choices you might make differently with another ten years of knowledge - but those are highly unlikely to be catastrophic, and they're just part of the learning curve. One of the great things about is reading lots of people going, "yeah, it's great to make an extra $50 on your investments, but seriously, why go to a huge amount of trouble for it?" You're surrounded by people talking about money with serious perspective, who are much more interested in a low-drama, comfortable approach to handling their money than in one-upping each other on who can squeeze the last microcent out of investing.

You're doing great already, and you are going to do JUST FINE as you take your next steps. There's no huge hurry, so take your time, make small changes as they feel comfortable, take a moment to celebrate every action you take that moves you toward your goal of handling your money the way you want to, and maybe think of this as a learning process - and especially as a chance to learn more about yourself, and to consider how you want to live in the world.

I believe in you. You'll do great.
posted by kristi at 11:34 AM on March 16, 2021

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