31 Years Old, Need Advice

[dsp0725]

Howdy!

31 years old, late to the ball game of investing and saving. Here's what we're working with.

~47k in cash
~17k in 401K (individual setup, no employee match)
~5300 in Roth IRA

Income is roughly 185k a year.

Debt is ~308k house, ~8k IRS (0% interest), $11k student loans.

I'll be getting married Fall 2016, she makes about 30k a year and has zero debt, roughly 20k saved up. I'm trying to get her to fund a Roth IRA ASAP, she's 27!

So my question is, what would you guys do if you were me? I am thinking about paying off the IRS debt and Student Loan debt any day now.

But as far as investing and creating more cash, what would you guys do?

Thanks for the advice and looking forward to hearing from everyone on this forum!

 

[2017ish]

You aren't that late to the game; I'm likely not the only one on this board who didn't have much more than that at 31 (and we had two in diapers and another on the way....)

Questions for you: What is your budget/spending? Do you and your 2bDW live together now? If not, what will spending/budget be with the two of you together? Any children thoughts? what is interest rate on the Mtg. and student loans? How secure is your income/job (i.e., how much emergency fund should you have)?

After addressing those, you can get to the next level with more information to draw from. (And 0% interest to IRS? Wow.)

 

[dsp0725]

I forgot to mention, I plan on maxing out my Roth IRA and solo401k year after year.

Budget/spending... i do not know!
Yes, we live together but don't share a bank account.
She wants kids after we get married.
Mortgage is 4.625%
Not sure on SL.

My job is pretty secure right now, but the company I'm with MIGHT sell in about 5 years. When it sells, I MIGHT get a lump of cash from the CEO. I'm the VP, but not part founder. I assume that's how it'll go. Who knows really...

 

[Slow But Steady]

One very important habit, and one that I can't emphasize enough, is to set up an investment account that will pull a significant amount from your paycheck every month. At your age, this could be invested in 80/20 stocks and bonds. The big brokerage houses all have index funds that have low expenses.

As you become more experienced, you may want to choose a more complex asset allocation strategy, but the important thing is to get the money going in there automatically, so that you won't miss it. As you get pay raises, dedicate ahlf of them to your investment account.

Without a company match, it's going to be harder for you to get to a million (2015) dollars in your 401K, and with your income, you should be able to save a lot in addition to maxing out your 401K.

 

[ivinsfan]

How long have you had this high income. What circumstance lead to you owing the IRS 8000 dollars?

You won't make much progress if you don't figure where your money is going. Your wife-to-be is in better money shape then you are with savings of 20K, unless you pay all the household bills and she doesn't contribute anything.

 

[2017ish]

...

Budget/spending... i do not know!
...

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....

 

[aida2003]

I think we started saving at your age, had lower income than you and plans for starting 'baby work' . We didn't do budgeting (and still don't), but started tracking spending 7 years later. The good thing is that we both never enjoyed shopping, so we didn't/don't really need a budget, IMO. We wouldn't know how to follow a set budget, but we're LBYM by nature, so it works in our case. Hopefully both our children will learn something good from our LBYM lifestyle. We could save much more but having good food and traveling to Europe and in the States are very important to us.
It all depends on your personality and philosophy towards money. If you buy stuff/toys to show your status/salary in the society then good luck, it will be hard. We could easily save 40-50% ($18,500*2 in 401k, $11K in Roth + the rest in taxable) of your current total income of 2 persons minus the mortgage payment in our area. We could push for a higher percentage but experiences for the kids and us are more important. Not sure how that compares to your area and lifestyle.

 

[Big_Hitter]

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

Edited to add....

Agreed, max the 401k, and keep Austin 170 miles away .....

 

[2017ish]

.. We didn't do budgeting (and still don't), but started tracking spending 7 years later. The good thing is that we both never enjoyed shopping, so we didn't/don't really need a budget, IMO. We wouldn't know how to follow a set budget, but we're LBYM by nature, so it works in our case. ...

This actually is the case for us as well. We've never made a "budget" (although trying to do something for retirement planning). But because we track our spending so closely, and luckily have enough income to LBYM despite some of our spending, it works out. Still, I think you need to have a reasonably good idea of where the funds are going--even if it is in the rearview mirror.

Guessing that OP would benefit greatly from knowing, even on a retrospective basis, where the $$ are going from his darn good income.

 

[hnzw_rui]

I'll be getting married Fall 2016, she makes about 30k a year and has zero debt, roughly 20k saved up. I'm trying to get her to fund a Roth IRA ASAP, she's 27!

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).

So my question is, what would you guys do if you were me? I am thinking about paying off the IRS debt and Student Loan debt any day now.

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.

 

[sunsnow]

We never were ones for budgeting with a spreadsheet. What we did and still do is to decide how much we wanted to spend on a weekly basis on non-recurring, day-to-day, discretional expenses. This includes clothes, entertainment, groceries, gifts, etc. We take out this amount in cash each week, and when it's gone it's gone. We've been doing this for 15 years or so and it has really helped us save.

 

[pb4uski]

Get Quicken and get it set up for yourself to track your spending. I simply import all my credit card and bank transactions and categorize them. Once you have done it for a short while it should take 5 minutes a week at most. Then use Quicken Lifetime Planner to see how your savings will grow and support the lifestyle you want later in life.

Save regularly and invest in no-load, low-cost equity mutual funds (like Vanguard). At your young age, 100% equities is fine as you have a long time horizon and income but have $10k or so in an emergency fund you can access quickly if necessary.

Be cognizant of the tax savings of 401k savings, Roths, etc... but beware having the tax tail wag the savings and investing dog... it is fine to have taxable investment accounts (for college and for early retirement).

 

[aaronc879]

Income is roughly 185k a year.

I'll be getting married Fall 2016, she makes about 30k a year and has zero debt, roughly 20k saved up.

So my question is, what would you guys do if you were me?

Get a prenup!

Live like you make closer to $85K/yr and save the rest.

 

[Katiek]

As others have mentioned, starting at 31 is still a very good start and you have enough income coming in that you'll have lots of options.

Step 1 for me would definitely be tracking spending. You can decide how much you actually budget and restrict spending (or not), but knowing the info is incredibly value. It enables you to make informed choices about smart spending and help differentiate between voluntary spending that really brings you joy and just mindless spending.

Getting married brings some additional costs just from the marriage (spending on the wedding or related activities) as well as some increased pressure for lifestyle creep. Although it's nice to have a special wedding day, be wary of accumulating bills that you'll spend a long time paying off. And tracking and evaluating spending will also help avoid mindless lifestyle creep.

An automated savings plan is also a great idea. Avoid investments with big fees and pay attention to investment costs as well as how you invest.

You're in good shape, but a few little steps can hep improve it even more.

 

[Totoro]

So my question is, what would you guys do if you were me?

Do you have a good handle on outgoing funds? If not, build that first. Try to get to 30%+ savings rate as a start (on an after-tax basis). See if you can remove high cost/low value spend.

Start dollar cost averaging into equities. Slowly, just to get into the habit of seeing fluctuating savings.

Pay off any debt that has an interest rate >2%, leave the rest alone.

 

[YeahNo]

I'm just a couple years older than you (34 as of last week) and can tell you that you still have time. I did start when I was younger than you but did not, at the time, pull in the income that you are now.

My advice would be to not over complicate it.

My quick tips:
Focus on your savings rate and reach for 40-60% (Priority #1)

Absolutely max out your retirement accounts at that income level as your tax rate is starting to get a bit higher. Get a HSA health plan if you can and fully fund it as well.

We've never had a budget per say. I don't like the thought process of "I maxed out my restaurant spending this month so I will now feel guilty if I go out to eat a few more times". What we do is just closely track our spending each month so we know what it is. When I feel like our overall spending is too much (IE, our savings rate is too low), I just consciously tighten up my overall spending.

You can have fun toys/hobbies but buy them smartly. My wife and I LOVE boating and I was able to own a boat for 5 years and sell it for very close to what I paid for it.

Fully understand that $1 spent now is $XXX dollars lost in 20 years and buy things with this always in the back of your mind.

Don't be a cheap ass, take the girl of yours out to nice restaurants occasionally for date nights. Financial success is just one piece of the puzzle.

 

[Willers]

Howdy!

31 years old, late to the ball game of investing and saving. Here's what we're working with.

~47k in cash
~17k in 401K (individual setup, no employee match)
~5300 in Roth IRA

You are definitely not late to the game. This might encourage you:
At your age my NW was <$50K. Twenty years later I have 40X expenses and will retire at the end of the year. The fact that you are thinking about it now is great. One word of advice: SAVE. You'll smile all the way to retirement!

 

[Standard Staples]

Mint.com is a terrific tool to quickly and easily keep an eye on all of your accounts, and I use it daily, in conjunction with a more comprehensive Excel sheet I've created and fine-tuned over the years.

However, before you jump on Mint, I'd probably take the long road first. Carve out several hours on a weekend, print all of your statements from all of your accounts for this year, and add the numbers up. Once you know where the money is going, you'll know where you stand, what you need to trim, etc. If you have a lot of ATM cash withdrawals, you'll have to guess on where that money went. Mint can help with this in the future, as you can punch in exactly where the cash went. If you have decent credit and strong aversion to debt, I'd recommend sticking to credit cards that offer rewards and pay the balance in full each month. Cash withdrawals earn nothing, so why bother unless it's required by a merchant? Go get some bonuses.

After you have a better picture of where you are, load all the accounts in to Mint and start tracking closely. Once you start tracking, you'll probably wonder why you never did before. It really helps with confidence to see the numbers shifting in your favor over time.

 

[Standard Staples]

Income is roughly 185k a year.

Debt is ~308k house, ~8k IRS (0% interest), $11k student loans.

So my question is, what would you guys do if you were me? I am thinking about paying off the IRS debt and Student Loan debt any day now.

The IRS loan is 0%, and the student loan is probably 5-7%, so neither is killing you on interest. Generally speaking, low interest debt isn't bad. However, I think there's some intangible value to consider in your situation. If you keep other spending in checking, you could knock both out well before the wedding. I'd imagine it would feel pretty good to have nothing but the mortgage hanging over your head when you officially start your life together. Then the two of you can go full steam ahead with investing, saving and in due time, FIRE.

 

[phil1ben]

I do not want to hijack the topic and congratulations on your upcoming marriage.

But why and how does someone get a 0% interest loan from the IRS?

Forget about working for a company and getting a buyout in five years but sell that formula.

All the Best.

 

[FreeBear]

Congratulations, both on your upcoming marriage, as well as your strong income & wife with savings. Now the trick is to keep focus, you'll have time.

Suggestions:

- Aim for FI (financial independence) for your early 50's. Note that I don't say ER, or early retirement. FI will allow flexibility and margin for error/trouble; ER is a separate decision. You'll sleep & live better. Don't assume you'll keep on making good money well into your 50's and beyond; don't assume you won't hate your j*b or working in general by then. Things change in "only 20 year"; they did for me and I FIRED at 45.

- Strongly agree with recommendation to save VERY heavily. I'm guessing 20% or more of your gross, maybe 40% of after taxes. Even better, you can run "what if" scenarios in a retirement planning tool like Firecalc to guesstimate what it would take to retire in "x" years. I wish I had access to such tools & knowledge when I was your age.

- Avoid marital conflict; invest in your marriage. Avoiding divorce hastened my ER by 5 to 10 years.

- Avoid financial advisors who charge a "percentage of assets under management" (most of them). Avoiding such a FA hasted ER by at least 5 years.

- Minimize lifestyle creep start with your saving goal, per above, based on roughly when you want FI. Some time in your 50's seems realistic with aggressive savings, but still living a life. Count the cost of having kids. I'm not saying don't have kids, but do at least some rough planning. Not having kids hastened our ER by at least 5 years.

- Track expenses, maybe even budget. But it's important to live your life with the rest! Just need to know where the money is going, then only you can decide if it's worth it; your know

- Despite my enthusiasm for FI and ER, live and w*rk well now. I'm concerned about some others who obsess about FI and ER when in their 20's and early 30's. It's an amazing gift to yourself, but don't rob the present in hope of a better future. You just don't know what 20-30 years in the future will bring. So save some money (pay yourself first), then love and be loved now on whatever is left!

 

[hnzw_rui]

- Despite my enthusiasm for FI and ER, live and w*rk well now. I'm concerned about some others who obsess about FI and ER when in their 20's and early 30's. It's an amazing gift to yourself, but don't rob the present in hope of a better future. You just don't know what 20-30 years in the future will bring. So save some money (pay yourself first), then love and be loved now on whatever is left!

This is what I like most about this forum. Other websites take the savings thing to the extreme and would have you subsist on a daily diet of ramen.

At least members here know the value of moderation.

 

[YeahNo]

This is what I like most about this forum. Other websites take the savings thing to the extreme and would have you subsist on a daily diet of ramen.

At least members here know the value of moderation.

Agreed, same here. I have been visiting this forum much more these days because of this exact reason. ER.org and Bogleheads seem to have a better ratio of pleasure/savings.

 

[dsp0725]

One very important habit, and one that I can't emphasize enough, is to set up an investment account that will pull a significant amount from your paycheck every month. At your age, this could be invested in 80/20 stocks and bonds. The big brokerage houses all have index funds that have low expenses.

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.

 

[dsp0725]

How long have you had this high income. What circumstance lead to you owing the IRS 8000 dollars?

You won't make much progress if you don't figure where your money is going. Your wife-to-be is in better money shape then you are with savings of 20K, unless you pay all the household bills and she doesn't contribute anything.

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.