I am officially debt-free. I just made the last payment on my car loan, and I paid off my student loans last week. With Veeky Forums advice I was advised to pay off my debt first because it was relatively high interest consumer debt (4.5% student loans, 6.5% auto). I had $12,500 saved beforehand, but I used $2,500 to snowball my debt and make a big dent up-front.
I'm now sitting with >No debt >$10,000 savings >$650 in Roth IRA >$2,000 in checking (bills, etc)
My question is, what do I do next? I'd like to save about $25,000 in cash/savings so that I'd be able to cover my bills for at least 1-year if anything goes wrong, but I'm also leaning towards putting more into my Roth IRA. I'm 26 and married with a young child, and I don't plan on traveling or making any large purchases besides a house in the next 5 years.
You steered me right on the debt repayment, so what do you do next when you are debt-free?
gamble your way to a 4 months emergency plan, then gamble harder for
Ryder Rodriguez
What's your plan for housing? This is probably your single largest expense so optimizing this will be the next move.
Asher Young
Right now we are renting an apartment. I generally have $1,500 per month left to do whatever I want with after covering all of my expenses. I plan to buy a house soon, but I really can't say when because the real estate market is way overpriced right now. I would guess within the next 5 years but it might be before that and it might be well after that.
Landon Lee
If you're in the US, it's probably not overpriced. One way to tell is to compare the monthly mortgage payment of a house with what you'll pay to rent an equivalent home. If they are the same or if owning is lower, the prices are fair
Thomas King
Cocaine and whores, duh. Did you really need to ask?
Christopher Flores
Usual order of operations is: -Build small emergency fund (~$1000) -Pay off expensive debts (>~6%) -Build large emergency fund (6+ months living expenses) -401k / 403b / TSP up to employer match -IRA (including backdoor roth, if it applies and you swing that way) -401k / 403b / TSP max out -HSA -529 plan for the kids or you want to get more education later. -Mega backdoor Roth, if offered. -Pay off cheap debts -Stick the rest in a regular taxable brokerage account.
You might also want to create buckets for new car purchases and the house purchase. In that case, find an online bank offering >1% interest (rates are horrible right now), or create your brokerage account and stick the money in something that's lower risk like bond funds or gov't T-bills.
You've got a kid. If you get killed you'll want to compensate your income for it and your wife until the kid is considered an adult. Get term life insurance from a reputable company (ie, not TV ads) for 18 years. Insurers will round it up to 20 years. Up the value and add more years if/when you have another kid. Whole life and universal life are scams, stay away from them. Lift and get fit before you go in for your physical exam.
Jeremiah Smith
Congrats user :) I've got about 6k to go, and I just started a new job with a 25% pay raise (about 9k per year) that will go straight into paying it off, I can see it in the horizon
Hunter Bailey
>My path to financial independence
>Married and has one kid
William Wood
Get directly back into debt.
Buy a duplex and rent half.
Liam Davis
Try and do $5,500 into your ROTH IRA a year, that's basically a debt snow-ball but working for you.
Blake Davis
Don't do this.
Brayden Nelson
>debt snowball what does this mean?
Julian Mitchell
Build up your savings. You have a family to provide for, for fuck's sake. Look into increasing your credit limits on existing cards and applying for new ones. Don't actually max out these cards, just use them to build credit and a have a shit-hitting-the-fan backup plan. If you're planning on buying a home, you need to build credit.
Kayden Ortiz
Kill yourself faggot.
Hudson Smith
That is cool, would you have something similar for the UK / European as well?
Sorry just lurking, OP you are doing great so far. Good luck mate.
Asher Bell
My area is very overpriced and is often referenced as a shit real estate market because of how volatile prices are.
This is good, thank you. Looks like I get to skip a few steps and shoot directly for >Larger emergency fund ($25K is my goal) >Max out Roth IRA >Build up regular brokerage accounts
I opened the Roth as a tax-free way to gift money to my kid or to cover her college expenses, I'm not a big fan of the college savings accounts because they tend to be scammy. You can legally gift them $14K/y tax free or I can make payments directly to a loan provider or college for her.
I will look into life insurance, I'm not too familiar with it but I understand the basics and think it is worth the minimal cost.
Congrats bruv. It feels great knowing that I don't owe anybody any money and that my money isn't spend before it is earned.
I have a 794 credit score and over $40,000 in available credit. Thanks for the tip but that one is something I started when I turned 18 ;-)
Elijah Rivera
>Married >Kid
You're already dead bro.
Brody Bell
Contributing Roth money to your accounts (IRA/401k/etc) is pretty cool, but not always optimal. Deciding on Roth vs traditional/pretax is a gamble of "is my top fed+state tax rate cheaper now" versus "is my top tax rate cheaper when I retire and need to replace my income out of this accout". In other words, do you want to take the tax hit now or later? Typically, if you're in the fed 0-15% tax bracket a Roth is better. At 25%+, traditional becomes a better deal since it is more likely you'll drop tax brackets below the 25%-threshold and pull less than $37,650/yr (today's dollars, number will be higher in 30 years) from that account when you say goodbye to your last job.
Also, consider the following. For these accounts, max Roth contribution limit is the same as max pretax. To fill a Roth, you'll need to earn ~7300 before taxes (assuming 25% tax). The pretax you'll need 5500. The difference is $1800, taxed to (let's say) 1350. Would you be able to grow that money better if the difference was put into a brokerage?
This is all stuff you need to sit down and figure out for yourself. There's no 100% right answer. Tax brackets are not guaranteed, and will go up and down in the next 30 years. Personally, I do a lot of Roth because of the "no minimum distributions" rule, which further builds into a inherited-from-grandparent IRA with the potential to turn into millions. Read up on Stretch/Extended IRAs.
Caleb Fisher
You are correct about the tax-free gift figure. As far as the Roth IRA used for education--you can only withdraw the amount you contributed. Taking out gains will be penalized. Plus, you really need the retirement account for yourself. The kid can take loans for school, you can't take loans for retirement.
529s aren't terrible, but your state may have a crappy investment contractor. I think after a year you can move it to another state. NY and NV both use Vanguard, which is pretty good. A 529 will also count against you when calculating parental contribution. Best way to get around it is to have a grandparent or uncle create it and name themselves as beneficiary until it is needed, so the money grubbers can't use it against you. The cool thing about a 529 is that it grows like any other investment account, so sticking it all in a S&P 500 fund over 15 years can build into a nice sum. Later on, you can repurpose it for other family members including grandkids. The account can also be inherited, so the money's never really lost.
Term is better for most people. Consider: After the kids are grown and independent, who are you insuring for? After the kids are grown, the rest of your investments should be able to carry your wife through the rest of her life. So, Whole/Universal isn't directly a scam, it's just you could do better with term + personal investing. By the way, with any insurance the payout is usually immediate and in a large sum, rather than as a salary replacement over time. You need to train your wife to not blow the entire payout on year 1. Have her put it in bonds in your brokerage.
Austin Cox
I'm not familiar with how things work outside the US, but there's one pre-made chart for the UK: imgur.com/a/CeXc5 I haven't heard of anything for continental Europe.
Julian Anderson
You can't save money in this keynesian debt economy.
