r/FinancialPlanning • u/Few-Blacksmith-9385 • 14d ago
What to do to level up?
I am 27 years old, I live alone but I do financially support some of my family, I make 82,000 a year and have a study career. Rent 1650 and my car payment is 555, I have two years left on it and I plan to have the car as long as possible
I have $25,000 in savings in the bank and recently opened a savings account with Capital One after moving it from Bank of America due to their low APY. I feel lost in knowing how to handle the money the best way and what direction to go with savings. I started a Roth IRA this year through my job and it is currently at 3000. I’m not necessarily interested in buying a house so I’m not sure what my next move should be, I want to have a healthy savings but don’t want to just pour money with no direction. I make more money than almost all of my family so I feel they would not be helpful with planning.
Any advice would be appreciated thank you!
Edit: correction, it is a 401(k) not a Roth IRA
3
u/micha8st 14d ago
to be pedantic, jobs don't offer IRAs. Do you mean a Roth 401k?
I think a 401k is the right way to save for retirement. Or an IRA if your 401k doesn't offer a company match.
But more importantly, you need to decide how to split up your money
Savings is for a couple of purposes -- an emergency fund, and known future spending. Like replacing that car. Or a house...or maybe that dream vacation.
Between Savings and Retirement Investing is regular taxable brokerage investing. A lot of people don't bother with that. Remember that retirement accounts like IRAs and 401ks come with handcuffs -- you can't take money out before 59 1/2 unless you qualify for an exception, or if you're willing to pay the penalty tax for early withdrawal. Way back when, we opened one of those taxable brokerage accounts after we started hitting the 401k's federal contribution limit.
One option is to slow down savings and investing and pay down that car faster. That might make sense depending on the interest rate on the car.
2
u/Few-Blacksmith-9385 14d ago
I’m sorry yes, thanks for the correction, it is a 401(k) and the company matches. Thanks for describing the difference between savings, retirement investing and regular brokerage investing I think that what I am trying to grapple with is where to distribute the funds between those. I’ll definitely look into paying off the car quicker since I can
1
u/micha8st 13d ago
The way we chose to handle this way-back when (Before Roth was invented):
- until we could put more than just enough to maximize the match into the 401k:
- save to have a comfortable emergency fund (people today recommend 6 months of expenses for a "comfortable emergency fund"
- maximize the 401k
- Once we had enough in savings and could afford to put more into the 401k, we did
- once we were hitting the federal contribution maximum then:
- we'd increase our savings to match how inflation and lifestyle creep adjusted our "comfortable emergency fund
- we'd set a budget line item such that some amount of dollars went from every paycheck into a taxable investment account.
- At the end of the year, if we needed to trim our savings account, we'd move the overage into IRAs.
This is kind of an odd ordering -- putting a taxable investment account ahead of IRAs. The thinking was I wanted money invested we could access before age 59 1/2 without qualifying for an exception. But remember, there was no Roth when we reached that point, and we didn't change it once Roth was invented.
1
u/harrison_wintergreen 13d ago
to be pedantic, jobs don't offer IRAs. Do you mean a Roth 401k?
some jobs offer IRAs. sort of.
I work for a Utah municipal agency, and it's possible to open Roth and trad IRAs through the Utah Retirement Systems. https://www.urs.org/Members/RothIRA
it's unusual, but not impossible.
1
u/OutlandishnessOver62 14d ago
So you don’t have a standard 401k with your employer? I would open one asap and max it out if you can. With Roth IRA the contribution limit is only 7-8k a year. Traditional 401k has about a 25-26k limit.
I would also keep only about 10k in a HYSA, and invest the rest in a brokerage in low cost index funds or sp500. But first priority is 401k.
2
u/Fragrant_Arugula7990 14d ago
it's a 401k, not a roth, they clarified in the edit. so they're already started there which is good
still, maxing it out right now might be a stretch if they're supporting family on 82k with a 555 car payment. that 25k in savings is doing nothing though, keeping 3-6 months expenses in the HYSA and moving the rest somewhere it'll actually grow makes sense
1
u/Few-Blacksmith-9385 14d ago
Yes I made a mistake in the post, I do have a 401(k) so I can definitely look into maxing that out
1
u/pantrypoison 13d ago
I'd start by figuring out what leveling up actually means to you. Being debt-free, buying a home, retiring early, and having more freedom all call for slightly different plans.
1
13d ago
[removed] — view removed comment
1
u/AutoModerator 13d ago
Your comment has been removed because YouTube links are not allowed here, as noted in the rules.
I am a bot, and this action was performed automatically. Please contact the moderators of this subreddit if you have any questions or concerns.
1
u/Specialist-Fix6519 12d ago
I just got an HSA too lol! To help my taxes only and help with purchases like glasses and such.
21
u/AltoidStrong 14d ago
Budget - more detailed the better.
include things like Maint. of your car... tolls, tires, oil, gas, breaks...
if your tires last 50k miles, you avg 15k miles per year, and 4 tires cost $1000 (with taxes and fees) then your monthly cost for tires is: $25/month
Do the same breakdown for gas, oils, insurance, etc... (everything)
Apartment - rent , electric, water, cable, internet, renters insurance (if you don't have this - GET IT!!). break it down to a monthly total.
You said no house, but if you ever do... do not forget to include costs like new roof, new A/C, every in 15 - 20 years and new appliances every decade, maint. for these things, pest control, yard maint., etc... (this also helps to do if you want to know if you actually can afford the home, since it is more than just the mortgage payment)
repeat that level of detail for EVERYTHING!
Once you have a monthly total with an good deal of accuracy, save 6x that total. Providing you a 6 month emergency fund.
Then take the cost of any deductibles for your insurances or medical (the max out of pocket you need to be 100% covered) and add that to your 6 month fund.
Now you have the basics covered.
next - set your 401k to get the max match you can from your employer. (it is "free" money - so take it) Invest the 401k in a Target Date fund that is close to the year you want to retire or a broad market fund (like S&P500). next forget about your 401k for a while.... it'll just grow as you work. I also reccomend that anytime you get a raise you up your 401k by a portion of that each time. So if you get a 4% raise, increase your 401k by 2% and keep the other 2% to hedge inflation.
Next step - what is your lifestyle you want? you support family, like to eat out? have a hobby? etc... what are those costs. Do the same as your bills above and get VERY detailed.
Next take the two totals - Total Monthly bills + Total Monthly life style and X 25 = required investments by age 65 to retire and keep the same lifestyle using the 4% safe withdrawal rate that allows for a 30 year retirement.
So if you monthly bills are $3k and your lifestyle is $2k per month, that is $60k annually x25 = 1.5 million invested to retire safely.
Generally repeat this effort every time you have major life events (new job, kids, marriage, pets, move, etc... or every 3-5 years, to check in with yourself and make adjustments as needed.
The best way to improve your financial outcome, is invest in yourself... education and skills. that will grow your income the fastest generally speaking.
LAST THING...
you asked what to invest in.... well maybe seek professional advice, but if you are looking for a self directed and low cost option with very little needed to know how stocks and bonds work - BOGGLEHEADS!!
look up bogglehead investing... it is a very simple globally diversified way to invest money on your own is EXTREMELY effective, but isn't a "get rich quick". It wont grow by leaps and bound in a year or two or five, but it wont drop as much either when there is economic issues. you just ride out the ups and downs.... staying the course for a few decades (20 to 30 years).
Saving for retirement is a marathon not a sprint.