I'm 30 and this is my current plan (open to suggestions)

[ZombieSS]

This is my first post on here so take it easy on the FNG.

I'm currently 30 years old, single, will never have kids, rent a house and have gotten serious about saving. Right now the current plan involves me living below my means and bank the difference. My only debt at this point is my car which has $22k and 5 years to go (I own my other car but it is a 900hp weekend toy, fast cars are my savings kryptonite). I spent the last 1.5 years getting rid of all debt and the reward has been huge. I'm scared of having my money in non liquid accounts so at the moment my savings is being divided up between a Wamu savings (3.75%) and my ING account (3.0%). I only have $10k saved up right now but I just started saving in november of 07 with a balance of zero. I have not been contributing any of my own money to my 401K for the last 3 years (when it started), but my company has been contributing 2.5-3k / year just for me having it open WOOT!

Anyways, my current plan is as follows. Save between 15-20k (35-45% of my post tax income) after tax per year. Guestimate my interest earnings and have that subtraced from my pretax income into my 401k. i.e. if i make $1000 in interest this year I'll contribute $1000 in pretax money to my 401k. This lets me keep my money liquid and still make some contributions to my 401k.

Speaking of my 401k, since my company is giving me money on my 401k plan for just having it open, is there a better place to put the interest i'm earning or is my plan good since I can shelter some of it from taxes? It looks like every $1 I contribute to my 401k is worth $1.33, but the tax man still needs to get paid at a later date. Goal is retirement by 55 at the latest.

There is the possibility I'll buy a house in 1.5-4 years, but i'm unsure of what I'm going to do at this point. Your input is appreciated

 

[Sarah in SC]

Hi Zombie and welcome.
I think that you should reconsider the low amount you are putting into the 401k. For young savers, the 401k offers a pretty good deal. Most of our forum members max out their 401ks, max out their Roths (if they qualify to fund one) and do additional savings after-tax.

If you are planning retirement at 55, then I think you should work through your fears about keeping money liquid. Just like you had to learn how to get out of debt, now is the time to learn about investing. No one can take advantage of you (like a broker or insurance guy) if you are knowledgeable about the basics of investing.
You can learn a lot from the folks on this forum about investing, there are loads of books at the library (Four Pillars is thrown around a lot, I confess to not having read it myself), and you can start with some basics, like index funds at Vanguard.
I'll say this--if your weakness is fast cars, and you have a bunch of cash available--you're gonna find another nice car to spend it on!

When you are more sure about the house, then earmark a good savings account for your house downpayment. Doing a budget, which probably worked for you in paying off your debt, will help you earmark your after tax savings dollars.

Good luck!
PS: It was one year ago today that we paid off our home mortgage, so I know how great it feels to be out of debt!

 

[Midpack]

Maybe I'm missing something, but your real return is essentially zero (actual return minus inflation). Your holdings may keep pace with inflation but that's about it, so after 30 years your money will have the same purchasing power is has today. You've made a lot of smart choices already and you're young, but you've chosen the most conservative and therefore most difficult route to get to your goal. No risk, but you will retire later and/or with less than someone who is willing to take on some risk with more aggressive investments and a real return. There's a whole spectrum of choices at various risk levels, some amount of money in savings accounts are necessary, but there are other choices, I'd also recommend some reading. If Four Pillars is too much for you, maybe the Coffeehouse Investor. Best of luck...

 

[bankaround]

You are relatively young, and definitely want to stick money in some mutual fund or at least index fund so that your money has a chance to grow and not just keep the same purchasing power. Inflation is probably only going to get worse.

 

[rs0460a]

I'm currently 30 years old, single, will never have kids...

"Because things are the way they are, things will not stay the way they are." ~Bertold Brecht

Being at least twice your age I would really like to see if your plan remains the same in the future. Not to say you should not plan your future, but the word "never" has a strange habit of fooling you (it did, me )...

- Ron

 

[novaman]

you need to max out your 401k and put your money in a diversified portfolio. You are young so a heavy allocation in equities would be good.

 

[FIREd]

Hi Zombie,

I am 34 and to me maxing out 401Ks and IRAs is an absolute priority at this point. We are in a high tax bracket and since we have no kids and few deductions, our 401K/IRA contributions are essential to lower our tax liability. In addition to maxing out retirement accounts we add money to taxable accounts each month. We used to keep a substantial amount in savings accounts ($50,000) but we realized 2 things: 1) we really don't need to have such a large amount of cash on hands for emergencies. 2) if retiring early was our goal, we couldn't afford to be so conservative with our money.

 

[crazy connie]

OK you do not care to tie it up in the 401k as it it is not liquid. FUND A ROTH TO THE MAX every year. If you ever NEED to you can get your contributions out without penalty. It all grows free of taxes. 25 years of growth and can be a power tool to get to early retirement. When you buy your home take the steps to see it is paid off by the time you want to retire with a shorter term mtg or regular additional payments. Retirement costs a lot less when housing is not an ongoing expense.

Also, WELCOME to the Forum. Hopefully you can conquer the fears of investing. Congrats on getting rid of debt and understanding the need to save. Make moderatly good choices on saving & investing and your goal to retire at 55 will be a reality!

 

[ZombieSS]

Since i'm in the early stages I guess a maxxed out Roth IRA over the next few years is going to be my best bet at this point. I'll still contribute a small amount to my 401k and continue to increase it as I reach my comfort zone. I personally feel that I need a large savings due to past experiences with unemployment over long periods of time. I never want to be in a situation where I have to touch my investments. Hopefully in 3-5 years I will be maxxing my 401k, but the next few years are too uncertain for me at the moment. I've figured out I only need 20k-25k in the bank as my emergency fund. My current situation would allow me to live off of that for about 12 mos depending on the situation. Longer if I got rid of my current car payment.

"Because things are the way they are, things will not stay the way they are." ~Bertold Brecht

Being at least twice your age I would really like to see if your plan remains the same in the future. Not to say you should not plan your future, but the word "never" has a strange habit of fooling you (it did, me )...

I've been down the marriage road before and don't think I'll go there again (can't say never to this one), but I'm unable to father children, so barring an act of God or the decision to adopt, I can say never. I'd say the same thing to someone like me though.

Hi Zombie and welcome.
I'll say this--if your weakness is fast cars, and you have a bunch of cash available--you're gonna find another nice car to spend it on!

When you are more sure about the house, then earmark a good savings account for your house downpayment. Doing a budget, which probably worked for you in paying off your debt, will help you earmark your after tax savings dollars.

Good luck!
PS: It was one year ago today that we paid off our home mortgage, so I know how great it feels to be out of debt!

Yeah, a future car purchase would be a bad move and I know it. Luckily I own my #1 dream car and am part owner of my #2 dream car (bank owns most of it though). Hopefully I'll be set on cars for the next 10 years minimum since I have what I want. The good news is I buy other peoples toys and let them take the depreciation hit and I get them at 50% off of the new price (i'm cheap and proud of it ) I don't think I've ever had a car note longer than 3 years since I hate paying someone else interest.

As for the house, I'm undecided and that is why my current money is in a savings account. Congrats on paying off your house, that must be an awesome feeling.

 

[crazy connie]

Cash in the bank helps a lot when the issues of life erupt and they do that to everyone! That is why we establish an emergency fund that can tide us over the rough spots. To get the rerirement income generator set up requires earning more than simple savings can pull down. Inflation can not be coped with when you earn only 3-4% annually and then pay taxes on that in addition to the taxes paid on your income. Learn about investing for the long haul and you can win over time by keeping the goal in front of you. Never put all your eggs in one fragile basket.

Should the unemployment monster come back, remember some income is better than no income. Honest work provides some income and your emergency fund lasts a lot longer allowing you to make good decisions vs being forced into knee jerk decisions. With modest expenses it is much easier to get by. That is what the LBYM is all about. When your emergency fund is big enough then look at short term CD's for part of it. CD's frequently pay a couple % more than the savings account. If you were to ladder them in modest amounts you would never be more than a few months from penalty free access.

 

[ZombieSS]

Crazy Connie, I already have plans for doing a CD ladder for my savings, but can't find higher interest rates on them than what I am currently earning in my bank accounts (which is a pitiful %) feel free to suggest some . I have the $8.5K of my 401k invested conservatively right now because I don't feel overly positive about the stock market short term based off history and bubble aftermaths. I also have very few choices on where I can invest it which is another reason i'm hesitant to contribute a lot.

I will be doing some self directed stock investing in the future as I have been pretty good at it over the last two years playing with the simulators. I follow the markets every day and the violent instability lately really doesnt coincide with the investment strategy I'd like to use. I've been making a killing with my simulated accounts swing/momentum/day trading (up 80% in 9 months), but I would never trade that way with my life savings, only a very small portion of play/gambling money.

Anyone have suggestions on where to open a roth at? I currently have a sharebuilder trading account.

 

[simple girl]

Crazy Connie, I already have plans for doing a CD ladder for my savings, but can't find higher interest rates on them than what I am currently earning in my bank accounts (which is a pitiful %) feel free to suggest some .

See this thread for some suggestions: http://www.early-retirement.org/forums/f28/question-cd-ladders-37528.html

 

[crazy connie]

Zombie,
Most of the folks here appear to love Vangaurd or Fidelity. I use Schwab and am content with them. I am using a 72T and they handle it well. Because I do a fair amount of trading the majority of my transactions are running $8.95 to get in and $8.95 to exit.

Keeping your expense ratios and fees low is crucial. Better for you to get that 1 to 3% compounding in your favor than in the Mutual Fund or Trading Houses pockets. I really do not want to pay for Wall Streets obscene compensation packages which is a reverse Robin Hood!

For CD rates check weekly on www.bankrate.com and I also like www.bankingmyway.com they have some current CD rates of up to 10% (Michigan only folks). It appears bankingmyway is finding HIGH yields in targeted geographies needing cash. If FDIC insured that is fine by me! Also, check into the requirements for www.penfed.org. There is a back door into membership there and they frequently have some smoking deals.

 

[jIMOh]

You need to think about two things

1) inflation
2) growth of the money you have set aside.

You appear to be willing to see money grow at around 3-4% annually. Many here get twice that and some here might get 3X that growth.

The reason people want growth is the cost of good goes up (did you think gas would be $4.5/ gallon 12 or 18 months ago? You want your savings to keep pace with price increases.

 

[ZombieSS]

You appear to be willing to see money grow at around 3-4% annually. Many here get twice that and some here might get 3X that growth.

I'm nowhere near happy with 3-4%, that is a pathetic return on any investment and isn't even keeping pace with inflation. Right now i'm in the phase of building my safety net. I won't be getting serious about investing in my 401k until I have closer to $25k saved up which should be a year from now if all goes as planned. I will have a Roth IRA and have it maxxed out by the end of this year though.

If I don't purchase a house in the next 4 years I will be maxing out my 401k and Roth IRA. A lot can happen between now and 4 years from now though wich is my short term concern. I want to make sure I can have a great retirement, but don't what to short change myself in the immediate future. In my early 20's I had started investing and had to pull it all out due to life situations. It was a real bummer.

Thanks for the advice everyone, time for some more research. I wish they would have taught financial planning in school. Out of all my friends only one of them has a plan and he retired at 30.

 

[haha]

I'm nowhere near happy with 3-4%, that is a pathetic return on any investment and isn't even keeping pace with inflation. Right now i'm in the phase of building my safety net.
Thanks for the advice everyone, time for some more research. I wish they would have taught financial planning in school. Out of all my friends only one of them has a plan and he retired at 30.

I'll make you a deal. I'll share financial knowledge, if you will tell me how the undead get out of those burial vaults to roam the earth at night. It must have been much easier in the old days.

Ha

 

[Frugality_of_Apathy]

I'll make you a deal. I'll share financial knowledge, if you will tell me how the undead get out of those burial vaults to roam the earth at night. It must have been much easier in the old days.

Ha

Sometimes they put a lock on the inside of mausoleums because relatives get upset when they go to add a fresh body and find the last one has left scratch marks and piled its self against the door.

 

[Milton]

I don't want to be discouraging, but since you've confessed to having (i) a history of lengthy periods of unemployment and debt, (ii) a very modest current net worth, (iii) no desire to contribute towards your own 401k, (iv) a strong preference for very conversative investments, (v) a love of expensive toys, (vi) a vague desire to purchase a home (approximate value unspecified) within the next few years, (vii) a belief in market-timing, and (viii) a reluctance to "short change (your)self in the immediate future", you will likely face significant challenges achieving FIRE.



If you're seriously interested in retiring by age 55, you should know that compromises and sacrifices will be required. As a start, you might consider:

• changing careers to one that is more stable and pays better;
• eliminating all of the 'dream car' stuff and taking up a cheaper hobby;
• plowing as much money as reasonably possible into a broad market index fund with low fees;
• fully funding your 401k, so that compounding has a reasonable opportunity to work its magic.

My only debt at this point is my car which has $22k and 5 years to go.... I don't think I've ever had a car note longer than 3 years since I hate paying someone else interest.

Huh?

 

[ZombieSS]

Milton,
I currently have a 5 year loan on my car, but I'll most likely pay it off early like I have every other loan I've ever had; because I hate paying interest to someone else. Hopefully that statement is a little clearer.

I won't be making significant contributions to my 401k for 2-3 year.
I already own my hobby car and plan to for a long time, barely spend any $$ on it except for insurance and gas.

I opened up a Roth IRA this week