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re: How is my financial state at 26? Thanks for the input.
Posted on 2/14/14 at 4:36 pm to Oenophile Brah
Posted on 2/14/14 at 4:36 pm to Oenophile Brah
quote:
It's good to be dumping into retirement accounts like you suggest but that leaves him less liquid.
Not necessarily.
At the very least, he should dump into the ROTH in a money market within the ROTH. He can't get back those years where he doesn't contribute, so he might as well get it into the account. He can decide how much he takes from that MM to put into less liquid investments in the ROTH from there.
Getting money out of the ROTH where the money is only in a money market takes two, maybe 3 days. I'm sure any emergency that may arise can be taken care of without much in the way of ill effects after 48 hours.
That's what I did just now in fact, I had about $5,000 in cash and bumped it up to $10,000 in my ROTH. Didn't invest any of it from there. When I get more cash I'll slowly convert some of that into investments within the account, but the important part is I maxed my contribution for 2013.
BTW OP, marry someone with a career. Your financial future gets a lot easier without dead weight.
This post was edited on 2/14/14 at 4:42 pm
1
Posted on 2/14/14 at 5:02 pm to Herb484
quote:
I'm 26, single and my salary is 51K. Thank you for all the input. Much appreciated!
-No credit card debt at all. I pay it off monthly.
Good. Keep this up. I also assume a Rewards Card or some other bonus system.
-$219 a month in student loan payments
Doesn't seem too bad. My wife had about 20k in debt, and was around $125/mo. Depending on interest rate, maybe try to pay these down. The interest is tax deductible, so keep that in mind. If really high interest rates, considering consolidating down.
-$293 car payment
Feel like this is normal. Is it reliable/new-ish? Low interest rate? If so, I wouldn't worry too much about trying to accelerate payoff. Biggest concern is how long you plan to keep it. Financially, the longer the better.
-Typical cell phone, cable, car ins, elec. bills
-The current balance in my 401K is $12,151. I just increased my contribution to 9% and my employer matches 5% and I started my contribution exactly two years ago.
This 401k balances seems a little low. The jump up to 9% should help a lot. Try to keep this up, and maybe creep it up over time. Opening a Roth account also seems like a smart idea for you at this salary range.
-Apartment Rent is $850 (includes water bill)
As mentioned, think carefully about purchasing a home. It may seem like you're throwing money away, but mobility and family concerns could make renting a much better option.
-My savings account balance is currently $5,800.
This isn't bad, depending on what your "operating" account sits at. It doesn't seem like much to cover unexpected expenses and could cause you to dip into retirement accounts or loans. Job security also plays into this a little. A Roth is a good option/alternative, but I'd personally suggest splitting the contributions, or at least keep some flowing into this account.
I'm 27 and would have to think you're doing okay or above average for your age. I'm not sure your profession, but for that salary your numbers seem okay. You have little debt, seem responsible, have upped 401k contribution, and don't seem to live outlandishly (assumption here). All this points that you should be fine if you continue your current ways.
This post was edited on 2/14/14 at 5:05 pm
Posted on 2/14/14 at 6:12 pm to Teddy Ruxpin
quote:
That's what I did just now in fact, I had about $5,000 in cash and bumped it up to $10,000 in my ROTH. Didn't invest any of it from there. When I get more cash I'll slowly convert some of that into investments within the account, but the important part is I maxed my contribution for 2013.
That's funny TR, I just did the exact same thing myself.
Following the advice of some on this board, I put about 1/4 of my "emergency savings" into my Roth(opened in Sept.) to max out 2013.
I'm already on pace to max out 2014 but can do so while rebuilding my "emergency savings" again.
That being said, I still feel having an open mind to RE as an investment(especially a first home). I believe having the liquidity to make that move is worthy of consideration. Certainly it's a personal decision if one would even want to pursue rental property. My short term experience is very positive, and I wish I would have decided on it earlier.
Posted on 2/14/14 at 6:25 pm to Herb484
Not doing too bad. I'd suggest lowering your 401k to where you are taking advantage of the company match, but not putting in extra. Knock out the student loan and the car debt and get cash in the 10-15K range.
Posted on 2/14/14 at 6:41 pm to Herb484
A few rough calculations make it seem like you are living off approximately $1k/month after rent, loan payments, utilities, etc. I assume you are squeezing a couple of hundred dollars a month out of that to put in your savings account. I'm not sure what lifestyle you're accustomed to, but that seems pretty fair for a 26 year old. I was pretty close to that when I was single and around the same salary, but I was fortunate to have no student loan debt and a cheaper car payment so I could save a little bit more than you.
My question would be:
What are the rates on the two loans? If they are higher than 6-7%, I would consider dropping your 401k contribution down to 5% of salary and paying off your loans faster. If they are lower than 6%, then I'd stick with putting it to retirement.
I tend to agree that "cash is king" at this age and you might be better putting that extra 4% of your salary in a different account, whether it be a Roth IRA or a savings account. As someone else said, I would lean towards a Roth IRA because you can always withdraw the contributions if needed, but you can never go back 2 years and contribute your $5500.
Congrats on not having credit card debt and having a 50k+ salary. I would imagine its safe to say that those 2 factors alone put you better off than the majority of your peers.
My question would be:
What are the rates on the two loans? If they are higher than 6-7%, I would consider dropping your 401k contribution down to 5% of salary and paying off your loans faster. If they are lower than 6%, then I'd stick with putting it to retirement.
I tend to agree that "cash is king" at this age and you might be better putting that extra 4% of your salary in a different account, whether it be a Roth IRA or a savings account. As someone else said, I would lean towards a Roth IRA because you can always withdraw the contributions if needed, but you can never go back 2 years and contribute your $5500.
Congrats on not having credit card debt and having a 50k+ salary. I would imagine its safe to say that those 2 factors alone put you better off than the majority of your peers.
Posted on 2/14/14 at 8:30 pm to kennypowers816
quote:
Congrats on not having credit card debt and having a 50k+ salary. I would imagine its safe to say that those 2 factors alone put you better off than the majority of your peers.
Not trying to be an OT showoff, but what do yal think the current average salary for a 26 year-old college educated graduate is? I just assumed it would be higher.
As far as the OP, you're definitely doing better than most. I'd say <10% of my friends have any 401K contributions and they're in the same age range. I'd look into starting some drip contributions into a Vanguard account with blue chip dividend stocks or index funds as well.
Posted on 2/14/14 at 9:08 pm to Herb484
You're doing well. Do you have any raises on the horizon? It's a lot easier to squeeze blood from a turnip when you have a larger turnip.
As far as buying a place, it sounds good until you realize the property tax rate in Texas, and more importantly, the lack of a pool and the females at the pool in the summertime. One of the advantages of living in an apartment in Dallas.
As far as buying a place, it sounds good until you realize the property tax rate in Texas, and more importantly, the lack of a pool and the females at the pool in the summertime. One of the advantages of living in an apartment in Dallas.
Posted on 2/14/14 at 10:42 pm to Herb484
IMHO you're looking fairly decent for someone 26 and single. The main focus should be to increase your income, it's hard to save properly without extra cash. But it seems you're doing well with what you have so far.
Posted on 2/15/14 at 7:07 am to Broke
quote:
You could be saving more. Get your savings account up to 10 large.
Yeah - while not leaving any matching money on the table, I might even bump down the retirement savings until the debt is gone, and the emergency fund is up to around $10k to $12k or so.
Then, go to 15% on your retirement - avoid consumer debt and car loans and you'll be independently wealthy in your 40s.
Great start - but don't make a bad decision that overwhelms your many good ones.
Posted on 2/15/14 at 7:56 am to FootballNostradamus
I would argue if you had a technical college degree or an MBA, then perhaps the average 26 year old's salary is greater than $50k. But I have a hard time believing the average salary for a college educated 26 year old is $50k or greater. I would say the OP is doing very good so far, especially considering he has an awareness of his current situation and is making an effort for improvement.
Posted on 2/15/14 at 8:10 am to Herb484
You don't seem to have much of an emergency fund.
You'll find into two camps here, both with highly credible members.
One will say you need to beef up your liquid savings for emergencies.
The other will say you are fine where you are, especially if you have a decent limit on your credit cards. Start building an emergency fund in a Roth (contributions can be withdrawn at any time tax and penalty free, without any paperwork). The logic being that your current liquid savings and credit will be able to last you for emergent situations that can last for the 3-5 days for money to move from the Roth to your bank account. But instead of having that money sitting there doing nothing for you (and you will to shoot for AT LEAST 26k for any emergency fund worth its name), it can be capital building wealth.
Also, if put into a balanced fund and start in advance of needing it (by 3-5 years+), contributions can grow so that you won't sustain a loss even if you need to withdraw in a market downturn.
Time in market as well as the fact that it takes time to build (only ~5k per year in contributions), means you'll want to start ASAP.
I personally recommend using Vanguard STAR in a Roth for an emergency vehicle.
You'll find into two camps here, both with highly credible members.
One will say you need to beef up your liquid savings for emergencies.
The other will say you are fine where you are, especially if you have a decent limit on your credit cards. Start building an emergency fund in a Roth (contributions can be withdrawn at any time tax and penalty free, without any paperwork). The logic being that your current liquid savings and credit will be able to last you for emergent situations that can last for the 3-5 days for money to move from the Roth to your bank account. But instead of having that money sitting there doing nothing for you (and you will to shoot for AT LEAST 26k for any emergency fund worth its name), it can be capital building wealth.
Also, if put into a balanced fund and start in advance of needing it (by 3-5 years+), contributions can grow so that you won't sustain a loss even if you need to withdraw in a market downturn.
Time in market as well as the fact that it takes time to build (only ~5k per year in contributions), means you'll want to start ASAP.
I personally recommend using Vanguard STAR in a Roth for an emergency vehicle.
This post was edited on 2/15/14 at 8:14 am
Posted on 2/15/14 at 9:50 am to FootballNostradamus
quote:
but what do yal think the current average salary for a 26 year-old college educated graduate is? I just assumed it would be higher.
It isn't.
Many college "educated" 26 yr olds don't even have jobs.
I would say your assumption is off significantly.
The OP is off to a solid start, just need to keep learning.
Posted on 2/15/14 at 10:29 am to Herb484
What's the interest rate on your loans?
I would take the extra 4% in non matching 401K contributions and put it into a Roth IRA. It will give you better blend of taxable/non-taxed retirement. In addition, you also have more control of your investments in a Roth IRA compared to a 401K. Once you get the Roth maxed out, I would consider contributing additional money to a 401K. Considering your age and tax bracket, I would do my best to max out the Roth IRA.
That being said, interest rates on the loans really are a determining factor in how you invest. When I graduated, my loans were at 3.25%. I expected better returns in the market, so I did not pay my loans off initially and contributed more to my retirement.
I would take the extra 4% in non matching 401K contributions and put it into a Roth IRA. It will give you better blend of taxable/non-taxed retirement. In addition, you also have more control of your investments in a Roth IRA compared to a 401K. Once you get the Roth maxed out, I would consider contributing additional money to a 401K. Considering your age and tax bracket, I would do my best to max out the Roth IRA.
That being said, interest rates on the loans really are a determining factor in how you invest. When I graduated, my loans were at 3.25%. I expected better returns in the market, so I did not pay my loans off initially and contributed more to my retirement.
Posted on 2/15/14 at 10:41 am to chauncey1
I will look into putting that extra 4% into something else, solid advice there. Makes plenty of sense since that 4% isn't being matched.
I have three student loans with the highest interest rate being 6.5%, which I don't think it bad.
Thank you for the continued advice!
I have three student loans with the highest interest rate being 6.5%, which I don't think it bad.
Thank you for the continued advice!
Posted on 2/15/14 at 12:37 pm to FootballNostradamus
quote:
Not trying to be an OT showoff, but what do yal think the current average salary for a 26 year-old college educated graduate is?
What is your field? You want to compare apples with apples.
I would think that when comparing only college grads, this is about average.
Posted on 2/15/14 at 12:43 pm to Herb484
quote:
I have three student loans with the highest interest rate being 6.5%, which I don't think it bad.
There's only 1 reason not to retire the SL balances: if you project eligibility for some sort of loan forgiveness that is more advantageous than outright payment. The money used to be regarded as fairly cheap, but 6.5% - while not "expensive" isn't exactly cheap either.
And, there are only narrow instances of discharge through bankruptcy or other debtor protection mechanisms. AND they can use the IRS as their collection agent, and on and on.
So, I would retire those, perhaps even before the car or consumer debt for that reason (although if you had a couple of thousand at 10 to 12% on a card, or other consumer debt in the teens or greater, my analysis might change.)
But, continuing a stream of money into investment vehicles is an excellent habit and one you should consider continuing. Avoiding/reducing debt, particularly debt that will not make you any money down the line, is another habit to continue - wealth is built upon those 2 habits, along with a solid work ethic, particularly for the middle class. These habits work relatively indepentently from talent, job skills or social status at birth.
This post was edited on 2/15/14 at 12:44 pm
Posted on 2/15/14 at 1:22 pm to LSUregit
quote:
Posted by LSUregit work towards purchasing a house before 30
Why? Terrible advice. Don't buy a house until you get married and maybe not until you have kids.
Posted on 2/15/14 at 3:27 pm to FootballNostradamus
quote:
Not trying to be an OT showoff, but what do yal think the current average salary for a 26 year-old college educated graduate is? I just assumed it would be higher.
Average salary for individual's 25 or older who have a bachelor's degree is just over 50k. Being that he's only 26 and at that level, I'd say he's doing pretty well. Granted there are jobs that pay much better, but there are also jobs that pay less.
Posted on 2/15/14 at 4:02 pm to Epic Cajun
quote:
Average salary for individual's 25 or older who have a bachelor's degree is just over 50k.
I think this indicates he's doing average.
Posted on 2/15/14 at 4:08 pm to cwill
Really? He's doing average but he doesn't have average experience, so I'd say he's doing above average for his age. Does this not make sense? The stat was based off off age of 25+, so it includes new graduates as well as people with 20+ years of expereince. Would you argue that experience is irrelevant in terms of salary?
ETA: people with a bachelor's degree who are between 25-34 average a little less than 45k salary, therefore he is about 10% above average, while still being on the low end of experience in that age range.
ETA: people with a bachelor's degree who are between 25-34 average a little less than 45k salary, therefore he is about 10% above average, while still being on the low end of experience in that age range.
This post was edited on 2/15/14 at 4:12 pm
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