31 Years Old, Need Advice

[dsp0725]

Gulp. This has got to be job 1 for you. If you don't know where it is going, how can you control it? Agree with slow but steady that you should divert $$ to investment right off the top (which the 401k does do for you), but you need to get a handle on your spending.

I've used quicken for many (too many!) years to track everything we spend outside of small cash expenditures--everything noteworthy is via credit card or direct from bank account, which makes it easy. Others swear by YNAB, various forms of envelope systems, and the old reliable spreadsheet. [and, duh, Mint.com] I don't think it makes any difference which method you use, but nail the outflow down.

With that income in Austin, you are in a fantastic position; you just need to figure out how to take advantage of it. This might be a very useful endeavor for you and your gal to do together so that you have a course charted before the wedding.

(AND, three cheers for your plans for Roth and 401k maxing--that is a very good thing.)

Edited to add....

Setting up Mint today.

 

[dsp0725]

Definitely agreed on this point especially since by next year, both of you will probably have to do backdoor Roth contributions (hopefully, Obama doesn't close that loophole).


With your level of income and very reasonable mortgage, definitely pay off the IRS and student loan debt and then set aside a huge chunk towards investments (taxable, tax-deferred and Roth). You should be able to easily max out your 401k and then some.

Also, as others have mentioned either track spending or develop a budget. Personally, my budget consists of fixed expenses + big percentage for savings + large goals (e.g. vacation). The savings are automatically transferred on payday so I never see it in the checking account. Whatever's left, I just spend as I like.

Paying off student loan and IRS tomorrow!

 

[2017ish]

So if I'm maxing out my Roth IRA and solo 401k every year, what do you suggest as an investment account here in 2015? Please specify.

I wasn't the one to whom you directed this, but just a regular investment account at Vanguard, fidelity, schwab or the like. At any of those, you can get your pick of low cost index funds to start an investment foundation. (Many folks here, including me in my lucky younger days, also do individual stocks--but probably a good idea to get an index foundation first.)

And, second/third the upthread comments about making sure you allocate some of your income/time for fun. Theoretically, if we hadn't had children, stuck with a merely large house, drank only cheap wines, and hadn't taken all the exotic dive trips, we would have been retired 10 years ago. But (for us, at least) the detours on the journey were worth worth it.

 

[dsp0725]

Thanks for all the advice so far! This forum is clearly a great wealth of knowledge and experience.

I'm seeing a lot of common things in the comments to far, I appreciate it!

Current question for everyone.... OTHER THAN maxing out my Roth IRA and solo401k what can be done to make make cash savings grow and grow?? I'm sitting on cash, and it's not doing much!

Also, without an employee match 401k option, is there any aggressive plan I can look into? Hitting 7 figure is a must these days!

 

[ivinsfan]

Roughly 2 years of high income. I was saving for my down payment on my house, and didn't want to pay my huge income tax bill in one lump sum. I could pay off in full today if I wanted. As mentioned 0% interest in current IRS payment plan.

I do pay for the house and bills. She doesn't contribute more than a few things here and there.

The IRS doesn't make a habit of lending 0% money, this whole story is odd. Are you telling us they levied no underpayment fines at all? Do you think mortgage lenders want to see an IRS tax lien? More important, what is your mindset that you think not paying taxes is a way to "save" down payment money.

Track your spending, that is, your discretionary spending..this is where you can make legitimate savings happen.

 

[dsp0725]

The IRS doesn't make a habit of lending 0% money, this whole story is odd. Are you telling us they levied no underpayment fines at all? Do you think mortgage lenders want to see an IRS tax lien? More important, what is your mindset that you think not paying taxes is a way to "save" down payment money.

Track your spending, that is, your discretionary spending..this is where you can make legitimate savings happen.

Let's not get side tracked with this IRS topic... My situation is a payment/ installment plan. I recall asking what the interest was, and they told me over the phone 0%. Not sure what else to tell y'all. I wasn't going to argue it!

Correct, there were no underpayment fines, I've seen the statement of accounts. I was keeping all my cash liquid for the down payment, that's why I didn't pay the IRS in a 1 lump sum. One thing to note the tax liability came from my LLC down to my Schedule K on my personal. Maybe (not a tax pro) that's why there was 0% interest! Not sure and don't really care at this point.

 

[dsp0725]

 

[Standard Staples]

Thanks for all the advice so far! This forum is clearly a great wealth of knowledge and experience.

I'm seeing a lot of common things in the comments to far, I appreciate it!

Current question for everyone.... OTHER THAN maxing out my Roth IRA and solo401k what can be done to make make cash savings grow and grow?? I'm sitting on cash, and it's not doing much!

Also, without an employee match 401k option, is there any aggressive plan I can look into? Hitting 7 figure is a must these days!

Before digging in to other methods for investment, how are your Roth and 401k invested? Index funds? Individual stocks? Bonds? That will help guide the advice for where excess money can and should go. It's always good to diversify and spread the risk.

That being said, did you say your wife is maxing out her Roth allocation? If not, you may look in to helping her do that.

 

[Standard Staples]

What time period is this showing? "Shopping" is pretty generic and somewhat alarming. Do you recall where that $15,000+ went?

 

[dsp0725]

From May 2015 to October 2015

 

[Standard Staples]

From May 2015 to October 2015

Okay, so next step is to dig a little deeper. Most of these categories aren't really telling the whole story, and I bet there's plenty of easy cuts.

1) What is included in Shopping? This is definitely the elephant in the room, and I feel confident there is significant savings to be had in this category.
2) What is Business Services? Is this work related/work reimbursed?
3) Nice housing number. Is rent really that low?
4) Why $3,000 in taxes? You may want to modify your W-4.
5) Is Food & Dining for you, or both of you? There's definitely savings available there without major sacrifice.
6) Let's try to Categorize that other $1,000. Possibly more savings there.

 

[dsp0725]

Before digging in to other methods for investment, how are your Roth and 401k invested? Index funds? Individual stocks? Bonds? That will help guide the advice for where excess money can and should go. It's always good to diversify and spread the risk.

That being said, did you say your wife is maxing out her Roth allocation? If not, you may look in to helping her do that.

Attached is my 401k screen shot so you can see allocation. My Roth IRA is all in VANGUARD RUSSELL 3000 INDEX FD ETF SHARES

My wife to be will be opening her roth ira soon!

 

[dsp0725]

Okay, so next step is to dig a little deeper. Most of these categories aren't really telling the whole story, and I bet there's plenty of easy cuts.

1) What is included in Shopping? This is definitely the elephant in the room, and I feel confident there is significant savings to be had in this category.
2) What is Business Services? Is this work related/work reimbursed?
3) Nice housing number. Is rent really that low?
4) Why $3,000 in taxes? You may want to modify your W-4.
5) Is Food & Dining for you, or both of you? There's definitely savings available there without major sacrifice.
6) Let's try to Categorize that other $1,000. Possibly more savings there.

1 - engagement ring is in there...
2- My LLC's expenses, including marketing, ads, etc.
3 - I owe my home so that "home" cat is probably home store, furnishings?
4 - 3k taxes, probably business taxes, i'll look into this
5 - I eat out once in a while. We go on dates as a couple roughly 4 times a month
6 - on it!

 

[Standard Staples]

1 - engagement ring is in there...
2- My LLC's expenses, including marketing, ads, etc.
3 - I owe my home so that "home" cat is probably home store, furnishings?
4 - 3k taxes, probably business taxes, i'll look into this
5 - I eat out once in a while. We go on dates as a couple roughly 4 times a month
6 - on it!

Fair enough. I actually think you're in pretty good shape for just starting to budget/monitor. As you continue to monitor, you'll easily find areas to chip away without diminishing your lifestyle.

Obviously the engagement ring is a big one time purchase, and I'm assuming it was $10K+, so the Shopping category isn't as scary as it first looked. That being said, others may disagree with me, but it may be worthwhile to get a ring insurance policy. My wife's ring is appraised in that range, and her policy runs about $115/year. Your call, but that's a high enough sum to justify some inexpensive insurance. I'd insure a $10K car, might as well do the same for an easily lost/damaged ring.

Assuming the LLC expenses are more than covered by income from the LLC, I'd consider those expenses a relative wash.

Like someone else said, you've got to enjoy your money. If dates are how you and your fiancee choose to enjoy and build your relationship, go for it. You aren't blowing your budget with that sum.

 

[ivinsfan]

Yes, if you have paid off the IRS, that's great. Actually I was just curious about the circumstances of your 0% figure. Maybe the IRS is getting more lenient as long as they get their money. Sounds as though you accidentally came up short on your taxes and they gave you a good repayment deal.

So, you don't consider real estate taxes, insurance, and mortgage interest part of your housing expenses? You can't get a real picture of your cash flow until you put in everything you spend. You need to know where your money is going and right now you are the one spending it, it will be harder when you have 2 people's spending to track. Were you able to pay cash for the engagement ring?

 

[YeahNo]

You are missing an HSA, definitely look into that if you if have an HSA applicable health insurance plan.

 

[Surewhitey]

I'm late to the party, but 31, we were combined making 125k in 2001, living in Dallas. Living on one salary and saving the other. We made appx. the same, so we did this for 2 reasons. Living on one hedged our lifestyle if one of us lost employment...never happened. Secondly, we were able to pay off our home in 2003 and max out both 401k's every year.

Fast forward to 2007-11, we were able to save / grow by about $10k / month, comp. defer $75k, build a $15k HSA and took a few years off to sow some oats.

Back to w*rk and saving / growing again and have a 5 year time horizon to make it permanent...

We're 44 & 50 now...

 

[dsp0725]

Fair enough. I actually think you're in pretty good shape for just starting to budget/monitor. As you continue to monitor, you'll easily find areas to chip away without diminishing your lifestyle.

Obviously the engagement ring is a big one time purchase, and I'm assuming it was $10K+, so the Shopping category isn't as scary as it first looked. That being said, others may disagree with me, but it may be worthwhile to get a ring insurance policy. My wife's ring is appraised in that range, and her policy runs about $115/year. Your call, but that's a high enough sum to justify some inexpensive insurance. I'd insure a $10K car, might as well do the same for an easily lost/damaged ring.

Assuming the LLC expenses are more than covered by income from the LLC, I'd consider those expenses a relative wash.

Like someone else said, you've got to enjoy your money. If dates are how you and your fiancee choose to enjoy and build your relationship, go for it. You aren't blowing your budget with that sum.

Yes sir! That ring got insured right away!

Thanks for the reply.

 

[Markola]

After years of totally separate checking accounts, unequal incomes and all the confusion that entails for a couple, DW and I finally arrived at a system that works for us:

Max the 401Ks so we never see that money. All remaining joint income goes into one checking account, which I happily manage daily with YNAB according to their simple rules and only bother DW with once/month for a summary discussion.

Crucial for us: Each of us has our own checking accounts into which AN EQUAL and standard amount of spending money goes each month. We are NOT accountable to each other for how our respective "blow it" money is spent. If I want to save 60% of mine while she wants to have her toes done regularly with hers, that is A-OK.

That system avoids waste so well for us that we have a lot left over to build up taxable investments. Our system in a nutshell and YMMV. Good luck!


Sent from my iPad using Early Retirement Forum

 

[dsp0725]

Yes, if you have paid off the IRS, that's great. Actually I was just curious about the circumstances of your 0% figure. Maybe the IRS is getting more lenient as long as they get their money. Sounds as though you accidentally came up short on your taxes and they gave you a good repayment deal.

So, you don't consider real estate taxes, insurance, and mortgage interest part of your housing expenses? You can't get a real picture of your cash flow until you put in everything you spend. You need to know where your money is going and right now you are the one spending it, it will be harder when you have 2 people's spending to track. Were you able to pay cash for the engagement ring?

I think I still need to dig into Mint deeper to make sure the items you mentioned are categorized properly. Property tax, insurance should be in the Home field.

Yes, the ring was paid with cash. My wife to be and I have $0 credit card debt.

 

[dsp0725]

I'm late to the party, but 31, we were combined making 125k in 2001, living in Dallas. Living on one salary and saving the other. We made appx. the same, so we did this for 2 reasons. Living on one hedged our lifestyle if one of us lost employment...never happened. Secondly, we were able to pay off our home in 2003 and max out both 401k's every year.

Fast forward to 2007-11, we were able to save / grow by about $10k / month, comp. defer $75k, build a $15k HSA and took a few years off to sow some oats.

Back to w*rk and saving / growing again and have a 5 year time horizon to make it permanent...

We're 44 & 50 now...

I know NOTHING about HSAs. What are the top benefits, sir?

 

[dsp0725]

Update: Student Loan paid off. $12,636.40 @ 3.125%

 

[ivinsfan]

I think I still need to dig into Mint deeper to make sure the items you mentioned are categorized properly. Property tax, insurance should be in the Home field.

Yes, the ring was paid with cash. My wife to be and I have $0 credit card debt.

Good going on the ring...

Actually P and I on the house payment should be entered somewhere as an expense as well, for cash flow purposes. You need to know what % of your income is going to all of the housing expenses.

 

[Standard Staples]

1 - engagement ring is in there...
2- My LLC's expenses, including marketing, ads, etc.
3 - I owe my home so that "home" cat is probably home store, furnishings?
4 - 3k taxes, probably business taxes, i'll look into this
5 - I eat out once in a while. We go on dates as a couple roughly 4 times a month
6 - on it!

Wait, I missed something on #3. When I first read it, I thought you meant to type "own" in place of "owe," but I see from your OP you owe $308K.

So, this really isn't painting a complete picture. From May-October, you probably have another $10-12K in P&I/Prop Tax, yes?

Please feel free to post another Mint update when you're able to fully populate the fields. That's when you'll get the advice you need.

 

[Standard Staples]

Update: Student Loan paid off. $12,636.40 @ 3.125%

Awesome! That must feel great.