New member - healthy finances?

[ar_campbell]

Hi all,

I'm starting to take a more proactive approach to savings and personal finance after changing jobs recently. I'm hoping for an outsider's perspective on whether my financial house is in order. In looking over the threads I'm not sure whether that's something for this section or not but here goes:

I'm currently salaried at $70,000 annually, 25 years old. I have really cut down on expenses and have no housing or transportation costs aside from ZipCar membership fees and bike maintainance. Total expenses including student loan payments, food, insurnace, personal care, cell phone, (beer!) etc total $1,500/month. Take home income totals just over $4,300. That leaves me with over $2,700/month in saveable income.

My "assests" currently look like this:

• Cash savings: $10,000
• Rollover CD: $4,250
• New Roth IRA: $5,000 (maxed for 2012, invested in large cap mutual fund)
• HSA Savings Account: $1,500

I feel comfortable with the emergency fund I have saved up. I'm wondering what else I can be doing to make the greatest impact on my financial future. I've maxed my IRA contribution for 2012 and my employer doesn't offer a 401k program. At this point, investments will have to be in a taxable account.

In short- what should I do with my extra $2,700 each month? What would/do you do with your extra income?

Thanks in advance for any input!

[bjl584]

It depends on your goals. Do you want to buy a house and a car someday? If so, you will need to plan and save for it.

If no, then you can put the extra $2700 in a taxable account as you said and invest in some no load funds with low expenses and good track records. You may consider a target fund.

[disneysteve]

Are you continuing to fund the HSA? Remember that it also serves as a tax-shelter. If you don't spend that money, it grows tax-free over time.

Otherwise, I'd agree with a taxable investment account using low cost, tax efficient investments like index funds or ETFs.

[BMEPhDinCO]

With no debt besides the student loans, I'd focus on those too right now. What do you have (amt, interest rate) and go from there.

I would start a house fund, an auto fund, a marriage fund... put $200 a month into each of those.

Then, since 15% of your income is $10,500, you need to invest the other $5,500 for retirement each year in some low index mutual fund type thing (look at vanguard).

So breakdown:

$1500 expenses
$600 savings
$460 mutual funds (for retirement)
$rest to student loans to get rid of them faster

When the new year rolls around, change to $433 to Roths and $rest to loans - or front load the Roth if you want.

[BuckyBadger]

You say that you have no housing expenses. Are you living at home? If so, you should pay rent to your family.

You can afford it, and if you aren't destitute, you should really pay your parents something.

[ar_campbell]

Thanks for the replies, much appreciated.

You say that you have no housing expenses. Are you living at home? If so, you should pay rent to your family.

You can afford it, and if you aren't destitute, you should really pay your parents something.

No, I'm not living with parents. I'm in a situation where housing is provided as part of a job.

[fathappycows]

Sounds like you've got the personal finance part under control. I'd suggest you do some research on investment types. If you can afford a loan, perhaps look at investment properties. Otherwise you might want to do some research into shares. The best investments tend to be the ones that you control yourself, otherwise you are paying fees for someone else to have control of your money.

[BuckyBadger]

Sounds like you've got the personal finance part under control. I'd suggest you do some research on investment types. If you can afford a loan, perhaps look at investment properties. Otherwise you might want to do some research into shares. The best investments tend to be the ones that you control yourself, otherwise you are paying fees for someone else to have control of your money.

I can't disagree with this more. I highly recommend that you get yourself invested, but I suggest you use index funds. You're on the right track with your IRA already!

I'd recommend you look into a three fund lazy portfolio that consists of only three things -- total us stock market, total bond market, and total international stock market. A few rules of thumb: your age in bonds, and after some research, I personally like about 30% of all my stocks to be international. So for me personally, I have 30% bonds and 70% stocks, and of that 70% stocks, 30% of them are international -- leaves me with an overall allocation of 30% bonds, 50% US stocks, and 20% international stocks.

Keep as much in tax-advantaged space as you can, and make sure that all of your bonds are in your tax advantaged space for tax purposes.

With a few minutes devoted to setting it up, and with just a little attention paid to organizing your regular contributions so that you're balancing as you go, you can really have a set-it-and-forget-it setup that will serve you well for the rest of your life!!

Alternately, I would suggest putting everything into target date retirement funds. They will do the balancing for you to make sure that you're not, say, 90% stocks when you're 65, or something equally as crazy.

Although target dated funds have slightly higher fees, we're still talking peanuts -- at least at a place like Vanguard. The fees on their total US stock market fund is 0.6%, I think? Well worth it so that you don't have to worry about it -- and you are invested in the entire market, which is much safer than being invested in a few, or even a few dozen, or even a few hundred companies.

So -- as I think you can tell form this lengthy post -- I think that stock picking is just about the worst thing that you can do. Get yourself invested in something appropriate and then close your eyes and keep dollar cost averaging your money in. Look at your investments once a quarter and rebalance as you see fit.

You're doing great and getting in early is going to do you a world of good!!

Good luck!!

[ar_campbell]

@Bucky- thank you very much for your response, I think you're right on. I'm assuming the bonds should be tax advantaged because they're the most likely to generate ongoing income? I might have to wait until 2013 to set that up as my IRA is maxed for now. I chose the IRA for the mutual fund buy because it has a high turnover so I wanted that in a tax advantaged account to avoid gains every time a portfolio stock is sold. Am I right in assuming that's wise for the time being?

I'm thinking I'll start averaging into some total US and internation market stock indexes and set some money aside for 2013 bond buying in the IRA.

Thanks again, much appreciated.

[TBH]

Then, since 15% of your income is $10,500, you need to invest the other $5,500 for retirement each year in some low index mutual fund type thing (look at vanguard).

I agree that you should be saving more for retirement than your $5,000 Roth contribution. And I agree that you should be trying to knock out some of your student loans while you have a lot of disposable income.

I don't know that you need a marriage fund, but a house fund and a car fund sound good. Housing and transportation are covered by your current job, but you may not stay in this job forever. When you do leave it would be nice to have a sizable downpayment for a house and also enough money to buy a reasonable used car for cash.