what can I improve?

[Mike jay]

-26y/o
-Newborn this month.
-Rent my in laws house.
-Income is 130k-150k depending on how much OT I work that year.
-Live in the bay area.
-Max out 401k every year.
-Can't contribute to roth because income limitations.
-Just paid off CC'S recently
-2500 in expenses per month
-Get a big discount on rent so would rather buy a rental than a home to live in.
-Putting most of my money in savings and brokerage account currently.


401K:167k
Roth:4k
Brokerage:6k
P2P lending:2.5k
Savings:6k
Pension:26k

Debts
Car loan:15k
401k loan 8k

 

[RISP]

Hi Mike, welcome to the forum. Overall, I'd say you are doing great! Also, congratulations on having your first child.

Here's three points that I noticed:
- Personally, I would want to have a much bigger emergency fund. At least 3-6 months of ALL expenses would be the minimum for me. I assume the 2,500$/month expenses you mentioned do not include rent?
- You do not mention what your wife will be doing work-wise - I assume she will be a stay-at-home mom for at least a while. Has she been working and contributing to the family income previously? If yes, you will have higher expenses very soon as the sole breadwinner. That, plus all the costs associated with a child.
- I would pay off the debt before saving any, but that may depend on the interest rates you pay.

For any deeper analysis, I feel you will have to share some more details, like interest rates on debt, family income situation, etc.

 

[EastWest Gal]

You have a newborn. Do you have term life insurance?


Sent from my iPhone using Early Retirement Forum

 

[RunningBum]

Where is the take home pay really going? You say you make at least $130K. Take out about 40% for fed/state/FICA taxes and $17K for 401K should leave you with about $60K, is that right? You say your expenses are $30K. That leaves $30K extra, but you only have $6K in a brokerage? I realize you're young but since you have $167K in a 401K you must've been making decent money for awhile. There's nothing wrong with having higher expenses, but the first step is to be honest to yourself about your finances. If your expenses are more like $50K, then call it that. Otherwise, when you get to where you think you are close to retiring but are basing it on wishful rather than actual budgeting, you could run into serious problems in retirement.

That said, a nearly $200K net worth at age 26 is awesome.

I also realize there could be very valid explanations for your situation, like your current pay is only recent and maybe with a lower wage and still maxing out the 401K you had very little left over, so don't take offense if I was off base with my first remark.

In any case, looking forward, you have a lot of room to save if that $2500/month is legit with a young child. I would consider paying off those debts and adding to your brokerage account. I don't know much about rental real estate in the bay area so I can't advise on whether that's a good idea.

 

[FreeBear]

Hi Mike,

Congratulations on such a strong income and savings at a young age. I also recommend a bigger emergency fund, say 3-6 months, and detailed expense tracking. Have you accounted for car and car replacement costs? What about increased costs associated with your new child?

Long term, I think managing lifestyle and child expenses are important to achieving financial independence, regardless of when you plan to retire. However, a strong relationship with your wife/significant other is probably the most critical aspect of your happiness and financial strength! Divorce and unhappiness are expensive...

It's great that you are working hard and saving strong!

 

[RunningBum]

Hope I didn't scare off the OP. Wasn't my intent, and I thought I allowed for my assumptions to be wrong. It took him nearly 3 years to make his first post, hope it's not that long til his second!

 

[ivinsfan]

Since you rent, curious about the loan from your 401K...generally speaking a 401 is not the best place to borrow money from, especially for consumer items.

 

[cooch96]

This forum convinced me in earlier posts that P2P lending has such a high risk, it's not a sound investment. Doubly unsound if you don't have it in a tax-sheltered account. I would advise not reinvesting as it/they mature and using the money to pay off the 401k loan.

 

[pjm-7]

Open a 529 plan for child's future education expenses. Check out www.savingforcollege.com for education planning. TIAA-CREF is the administrator for the California plan. Stay away from any brokerage firm trying to sell you a sales loaded plan.

 

[Standard Staples]

Hope I didn't scare off the OP. Wasn't my intent, and I thought I allowed for my assumptions to be wrong. It took him nearly 3 years to make his first post, hope it's not that long til his second!

I'm sure he'll be back, but this comment really made me laugh.

 

[Options]

...a nearly $200K net worth at age 26 is awesome...

+1
Welcome.

 

[nerdyJON]

Where is the take home pay really going? You say you make at least $130K. Take out about 40% for fed/state/FICA taxes and $17K for 401K should leave you with about $60K, is that right? You say your expenses are $30K. That leaves $30K extra, but you only have $6K in a brokerage? I realize you're young but since you have $167K in a 401K you must've been making decent money for awhile. There's nothing wrong with having higher expenses, but the first step is to be honest to yourself about your finances. If your expenses are more like $50K, then call it that. Otherwise, when you get to where you think you are close to retiring but are basing it on wishful rather than actual budgeting, you could run into serious problems in retirement.

That said, a nearly $200K net worth at age 26 is awesome.

I also realize there could be very valid explanations for your situation, like your current pay is only recent and maybe with a lower wage and still maxing out the 401K you had very little left over, so don't take offense if I was off base with my first remark.

In any case, looking forward, you have a lot of room to save if that $2500/month is legit with a young child. I would consider paying off those debts and adding to your brokerage account. I don't know much about rental real estate in the bay area so I can't advise on whether that's a good idea.

I would agree. Your 401K is impressive and understand that you qualify for ROTH IRA, but if I were you I would invest more in other forms of taxable income and savings to bridge until you can take out of your 401k.

Congrats on the 401K! You could put in the minimum to get the match and then coast from there.

 

[pb4uski]

I would agree. Your 401K is impressive and understand that you qualify for ROTH IRA, but if I were you I would invest more in other forms of taxable income and savings to bridge until you can take out of your 401k.

Congrats on the 401K! You could put in the minimum to get the match and then coast from there.

Agree except I think his income is too high to contribute to a Roth but since he does not have a tIRA he could do non-deductible tIRA contributions and a backdoor Roth.