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I am about to turn 30 years old and I wanted to get a financial check from my peers.
Before I post my stuff, my main questions are:
Am I on track to have a healthy retirement?
Is my Emergency Fund enough?
I live in LA and I don’t know how long I’ll live here. Should I look into buying a small condo or just keep renting and stashing $1500/month away?
What would YOU be doing differently, if you were me?
My money looks like this:
Emergency Fund (cash): $8000
Retirement: $55,502
TAG Mutual Funds: $51,500
Aggressive Mutual Funds: $38,000 (a lot more volatile)
I don’t have any debt and make about $65k/year, living in Los Angeles, $8k would last me about 4 months, if I had to cut my lifestyle back (due to a illness or job loss).
I’ve been toying around with the idea of taking out some of my mutual funds and buying some land or something… I just don’t know what I should be doing with my money at this point…
One question I have is why don't you have more in your retirement fund?
Granted when I was your age I was making roughly 40% more than you in annual wages before bonuses, but I still had twice your retirement savings at your age in my 401(k).
That said, I had no money in taxable accounts
I withdraw that comment if your employer doesn't have a 401(k) or similar plan and just would then say ensure you max out the IRA and open a Roth as well to maximize your capital gains and tax deferral future income.
A very general rule of thumb for folks turning 30 is to ensure they have 1 year's wages saved up as retirement in Roth IRA, Traditional IRA, 401k or equivalent, etc.
Another general rule of thumb is following this process for retirement savings:
0) Save 3-6 months of emergency savings
0.5) Get rid of consumer debt.
1) Max out the 401k or equivalent
2) Max out the Traditional IRA and/or Roth IRA next
3) In your taxable account through a discount brokerage invest in low-cost index funds or mutual funds. At your age don't worry about transferring money to dividend stocks
Assuming you're already doing that, good job, you're on a good track. Just make sure you save up that emergency fund (and put it into a high yield money market account or something) and make sure you follow this formula; I'm particularly concerned about your retirement fund.
Again assuming you're already doing that, I'd take a little trip somewhere in the world. It's OK to live life too occassionally I'm going to Hawaii and Japan on a monthlong vacation soon for my wedding anniversary. Yeah it'll cost a pretty penny but I'll be OK from it and earn a bazillion miles at the same time.
One question I have is why don't you have more in your retirement fund?
Granted when I was your age I was making roughly 40% more than you in annual wages before bonuses, but I still had twice your retirement savings at your age in my 401(k).
That said, I had no money in taxable accounts
I withdraw that comment if your employer doesn't have a 401(k) or similar plan and just would then say ensure you max out the IRA and open a Roth as well to maximize your capital gains and tax deferral future income.
A very general rule of thumb for folks turning 30 is to ensure they have 1 year's wages saved up as retirement in Roth IRA, Traditional IRA, 401k or equivalent, etc.
Another general rule of thumb is following this process for retirement savings:
0) Save 3-6 months of emergency savings
0.5) Get rid of consumer debt.
1) Max out the 401k or equivalent
2) Max out the Traditional IRA and/or Roth IRA next
3) In your taxable account through a discount brokerage invest in low-cost index funds or mutual funds. At your age don't worry about transferring money to dividend stocks
Assuming you're already doing that, good job, you're on a good track. Just make sure you save up that emergency fund (and put it into a high yield money market account or something) and make sure you follow this formula; I'm particularly concerned about your retirement fund.
Again assuming you're already doing that, I'd take a little trip somewhere in the world. It's OK to live life too occassionally I'm going to Hawaii and Japan on a monthlong vacation soon for my wedding anniversary. Yeah it'll cost a pretty penny but I'll be OK from it and earn a bazillion miles at the same time.
Okay, I admit I'm an ignorant newbie at this stuff. Could you please explain why you're "concerned"? Am I reading right the OP has nearly 150K in savings? Sounds pretty good to me for someone not even 30 yet. Enlighten me?
Thanks!
If you're thinking of moving I definitely would not buy property. It sounds like you're doing pretty good otherwise though except I do agree with others about increasing your emergency fund if possible.
Okay, I admit I'm an ignorant newbie at this stuff. Could you please explain why you're "concerned"? Am I reading right the OP has nearly 150K in savings? Sounds pretty good to me for someone not even 30 yet. Enlighten me?
Thanks!
He is concerned because the 401k should be maxed out each year before investing money in taxable accounts like Etrade.
Normally we want to max the 401k fully, $17.5k, per year, then max out ROTH IRA, before sending money to taxable accounts. Normally someone 30 years old want have extra money for taxable accounts after maxing 401k and ROTH IRA.
I like his style going into taxable; contributing beyond an employer-match is not necessary.
For most people, it is wise to max out. But there's a huge catch to qualified retirement accounts in that the withdrawals are taxed as, and contribute to, ordinary income. Do not underestimate that. Taxable accounts do not add to ordinary income, are taxed at lower dividend and capital gains rates, and are able to loss-harvest. Done shrewdly, the right mix of taxable and tax deferred accounts can absolutely slash your tax rates and payables.
This is typically too complicated for the average saver, but is nonetheless a potent scheme.
If it were me, I'd put a little more into the emergency fund, and I'd take some $30k or $40k out from the other funds and buy a property overseas, someplace like Buenos Aires where you can get a decent apartment outright for that amount.
It would be nice to buy in the states, but you won't be able to do anything with $40k, except maybe certain depressed areas where it would be difficult to rent it out.
He is concerned because the 401k should be maxed out each year before investing money in taxable accounts like Etrade.
Normally we want to max the 401k fully, $17.5k, per year, then max out ROTH IRA, before sending money to taxable accounts. Normally someone 30 years old want have extra money for taxable accounts after maxing 401k and ROTH IRA.
Exactly.
Quote:
I like his style going into taxable; contributing beyond an employer-match is not necessary.
For most people, it is wise to max out. But there's a huge catch to qualified retirement accounts in that the withdrawals are taxed as, and contribute to, ordinary income. Do not underestimate that. Taxable accounts do not add to ordinary income, are taxed at lower dividend and capital gains rates, and are able to loss-harvest. Done shrewdly, the right mix of taxable and tax deferred accounts can absolutely slash your tax rates and payables.
This is typically too complicated for the average saver, but is nonetheless a potent scheme.
Oh definitely doing it the right way can slash your taxes in the future, if done right. Right now I'd say the OP doesn't have a good mix of taxable & tax deferred.
He should definitely be maxing out his Roth first before going into the taxable accounts, because then the capital gains will be tax-free (unless Congress wants to get their grubby paws on it). And when he does go into taxable accounts, he should investigate investing in funds which have a significant percentage of their portfolio in municipal tax-exempt investments. However, I think the timing is poor for that though, as rates can only go up from here and when rates go up bond values go down.
And, at least typically, people should max out their tax-deferred because in the past 30 years taxes have only gone down for the middle class. They likely will go up incrementally in the future but I don't see large step changes coming. Now this advice changes if he will become a high net worth individual eventually and will put him in a higher tax bracket; then he should do other means of investing, but given the profile he gave there's no indication this will be the case. Unlike this thread in investing recently, where a foreign person with very high net worth parents were going to invest in the USA and asking about MMMF's and muni tax-exempt investing and so forth.
He is concerned because the 401k should be maxed out each year before investing money in taxable accounts like Etrade.
Normally we want to max the 401k fully, $17.5k, per year, then max out ROTH IRA, before sending money to taxable accounts. Normally someone 30 years old want have extra money for taxable accounts after maxing 401k and ROTH IRA.
I have been maxing out my ROTH IRA since 2006 and the majority of my retirement is in that. I do have about $7k in a 401k, but I feel pretty comfortable with my retirement. According to my calculations, if I keep maxing out my ROTH IRA until I’m 65, I’ll have close to 2.6 million, in just that 1 account.
The reason why I haven’t been putting more into a 401k, is because I can’t touch that money until much later, and my thought with the taxable accounts, such as the mutual funds I have now, is that I can use that money in 5 – 10 years down the road once I’m ready to buy. Hopefully I could be close to buying a property back in the Midwest, for cash.
I have roughly $2k/month to invest. Right now, I’m putting $1500 into mutual funds and $500 into my Roth IRA. Should I be putting more in my 401k, instead?
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I'm going to Hawaii and Japan on a monthlong vacation soon for my wedding anniversary. Yeah it'll cost a pretty penny but I'll be OK from it and earn a bazillion miles at the same time.
Enlighten me? 
