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Started By
Message
How much of an emergency fund do I really need?
Posted on 3/4/15 at 9:11 am
Posted on 3/4/15 at 9:11 am
I go back and forth all the time on how to handle my money. I just started working full-time out of college last June, so I'm exxtremely new to this and really don't know what I'm doing. I've got 9k into my Roth IRA, and will soon hit my limit for this year. I can't contribute to my company's 401k until I've been here a year, and I don't even know if I will contribute (Company makes a discretionary contribution each year to each employee regardless of their individual contributions).
I have a heavy cash flow for someone my age. I have no debt, and I live at home rent free. I make $1300 every 2 weeks, and my only bill is car insurance each month, plus groceries and gas. The extra cash, I just put into savings to build a nest egg but it hardly gets any interest.
I'm wondering if I should just keep around 1-2k in savings, and just open a brokerage account to invest the remainder in. A buy-and-hold account. I wouldn't be day-trading or trading often, but buying a bunch of stocks and just holding them to build up a portfolio. It seems risky because basically all my money would be in stocks (as my Roth is 95% stocks also). But with no debt, why wouldn't I do this? I'm asking because I'm young and dumb and sometimes don't see things the way I should due to inexperience.
My philosophy is 1-2k should cover any emergency expenses, and with my current cash flow I can easily readjust and stop putting all my money into stocks. Living so frugally would suck for now but taking advantage of my current situation with little to no expenses and 0 debt, could pay huge dividends later in life when these stocks mature.
And if I go this route, should I invest in individual stocks or mutual funds?
I have a heavy cash flow for someone my age. I have no debt, and I live at home rent free. I make $1300 every 2 weeks, and my only bill is car insurance each month, plus groceries and gas. The extra cash, I just put into savings to build a nest egg but it hardly gets any interest.
I'm wondering if I should just keep around 1-2k in savings, and just open a brokerage account to invest the remainder in. A buy-and-hold account. I wouldn't be day-trading or trading often, but buying a bunch of stocks and just holding them to build up a portfolio. It seems risky because basically all my money would be in stocks (as my Roth is 95% stocks also). But with no debt, why wouldn't I do this? I'm asking because I'm young and dumb and sometimes don't see things the way I should due to inexperience.
My philosophy is 1-2k should cover any emergency expenses, and with my current cash flow I can easily readjust and stop putting all my money into stocks. Living so frugally would suck for now but taking advantage of my current situation with little to no expenses and 0 debt, could pay huge dividends later in life when these stocks mature.
And if I go this route, should I invest in individual stocks or mutual funds?
This post was edited on 3/4/15 at 9:15 am
14
Posted on 3/4/15 at 9:14 am to Tigerfan56
If you're out of college and making a living, how long do you plan on living at home rent free?
Seems like that should be your next financial goal
Seems like that should be your next financial goal
Posted on 3/4/15 at 9:16 am to Croacka
quote:
If you're out of college and making a living, how long do you plan on living at home rent free? Seems like that should be your next financial goal
I can/will move out at any time I want. Just deciding if I want to stay in my current location right now, so no need for a lease.
ETA: I could rent in my area for cheap (around 500-600$/month for rent and bills). I'd still have excess cash flow to invest, just not as much. The same principals would apply.
This post was edited on 3/4/15 at 9:18 am
Posted on 3/4/15 at 9:16 am to Croacka
6 months living expenses at a minimum.
Posted on 3/4/15 at 9:20 am to bawbarn
yes to the 6 mo living expenses, but please seriously reconsider your vague idea NOT to contribute to your 401K. go do some reading so you understand the tax advantages of contributing to said account.
if you're dying to start building a portfolio, go ahead. but don't make it a priority over a 6 mos emergency fund, an IRA contribution, and a 401K contrib. you can fund it with your "play" money, then it won't break your heart if/when the market undergoes a big correction.
if you're dying to start building a portfolio, go ahead. but don't make it a priority over a 6 mos emergency fund, an IRA contribution, and a 401K contrib. you can fund it with your "play" money, then it won't break your heart if/when the market undergoes a big correction.
Posted on 3/4/15 at 9:21 am to Tigerfan56
You should always keep at least 1K cash on hand. Being that you do not have hardly any bills, 2K is more than enough.
The quicker you get money gaining interest, the better.
My advice would be to get a financial calculator and calculate how much you want to have in X years. Put in a good (average) rate of return, your starting balance, and see what you end up with. It will tell you about how much to need to stock away NOW.
After that, take what is left over and decide what your 5 year goal is. Owing a home? etc.
The quicker you get money gaining interest, the better.
My advice would be to get a financial calculator and calculate how much you want to have in X years. Put in a good (average) rate of return, your starting balance, and see what you end up with. It will tell you about how much to need to stock away NOW.
After that, take what is left over and decide what your 5 year goal is. Owing a home? etc.
This post was edited on 3/4/15 at 9:23 am
Posted on 3/4/15 at 9:39 am to Tigerfan56
I've always had the feeling that the goal should be to have an emergency fund with 3-6 months in expenses (not income). You have few expenses, so that amount might be really low for you.
But it won't be like that forever. I'm assuming at some point you are going to want to move out, start a life, get married, etc.
After you max out your Roth, definetly put money into your 401K before you start playing around with retail investments.
But it won't be like that forever. I'm assuming at some point you are going to want to move out, start a life, get married, etc.
After you max out your Roth, definetly put money into your 401K before you start playing around with retail investments.
Posted on 3/4/15 at 9:47 am to Tigerfan56
Do you have any goal of buying a house in the near or not to near future? might want to put some money in a less risky option as you build up a down payment.
even if just planning to rent for a while you will incur costs with that like security deposits etc that would really put a dent in a 1-2k savings account.
What shape is your car in? what if your a/c goes out and its a 1k fix?
stuff pops up at bad times and if your stocks are down and you don't want to liquidate having a little extra cash available wouldn't be a bad thing.
even if just planning to rent for a while you will incur costs with that like security deposits etc that would really put a dent in a 1-2k savings account.
What shape is your car in? what if your a/c goes out and its a 1k fix?
stuff pops up at bad times and if your stocks are down and you don't want to liquidate having a little extra cash available wouldn't be a bad thing.
Posted on 3/4/15 at 9:49 am to Tigerfan56
I don't think you will have much more money laying around once you start contributing to your 401K, paying rent and paying a car payment.
Posted on 3/4/15 at 9:56 am to hiltacular
shite will add up like a mo-fo when you move out.
Even renting at $500-$600 a month puts a massive dent in your pay check. Plus utilities, plus TV and internet etc etc.
It's really sad and shocking, be prepared and save as much as you possibly can while you live at home. Then create a spreadsheet style budget and follow it until you're making enough to comfortably not be so anal.
I wasted about 2 years living in LA after graduation, working for a big CPG and not having a decent budget. I saved pretty solid in my 401K, but my cash savings were pretty pathetic. I have since moved to STL, have a lot more free money and focus a lot more on savings. But even in an affordable market, living on your own and paying for everything will destroy a solid paycheck pretty quickly.
Even renting at $500-$600 a month puts a massive dent in your pay check. Plus utilities, plus TV and internet etc etc.
It's really sad and shocking, be prepared and save as much as you possibly can while you live at home. Then create a spreadsheet style budget and follow it until you're making enough to comfortably not be so anal.
I wasted about 2 years living in LA after graduation, working for a big CPG and not having a decent budget. I saved pretty solid in my 401K, but my cash savings were pretty pathetic. I have since moved to STL, have a lot more free money and focus a lot more on savings. But even in an affordable market, living on your own and paying for everything will destroy a solid paycheck pretty quickly.
This post was edited on 3/4/15 at 9:57 am
Posted on 3/4/15 at 10:02 am to hiltacular
It also depends on your profession. If you are in Construction management or chase oil, you will have boom and bust years so putting away more is a good idea. If you are an accountant, there is always, always a job waiting for you so it is less important.
Posted on 3/4/15 at 10:12 am to Tigerfan56
quote:
I can't contribute to my company's 401k until I've been here a year, and I don't even know if I will contribute (Company makes a discretionary contribution each year to each employee regardless of their individual contributions).
Contribute. It grows tax free. Investing money outside of a 401k means you have to make back what you lost in taxes first before you can't outpreform your 401k.
Posted on 3/4/15 at 10:15 am to Tigerfan56
Currently, I have 1k in the bank, and access to around 20k of <5% interest credit.
By year's end, I want there to be around 3k and eventually get it to about 10k.
By year's end, I want there to be around 3k and eventually get it to about 10k.
Posted on 3/4/15 at 10:43 am to Tigerfan56
10k is what I use. Depends on your expenses and for how long you expect emergency to last.
If I need more I use Roth IRA.
if I need more I use heloc.
If I need more I can dip into my reserves for vacancies and maintenance on my RE.
I like different levels of protection.
AND So on and so forth.
If I need more I use Roth IRA.
if I need more I use heloc.
If I need more I can dip into my reserves for vacancies and maintenance on my RE.
I like different levels of protection.
AND So on and so forth.
Posted on 3/4/15 at 11:04 am to Tigerfan56
Yet you are pissing away 1k on the bucs on the MSB. Lmfao. Sounds like you have money management issues son.
Posted on 3/4/15 at 11:34 am to barry
quote:
Investing money outside of a 401k means you have to make back what you lost in taxes first before you can't outpreform your 401k.
As I understand it, the difference is in taxable events that occur after the initial contribution, not the initial one.
You'll see the difference 10-20 years down the road more than you will in the short term.
It doesn't get an initial head start because it is taxed on the back end.
10000 Gross taxed account at 25%
10000 taxed to 7500, grows annually for 10 years at 8% to 16,191
10000 tax deferred grows to 21,589, taxed at 25% to 16,191
There are big benefits to a 401k, but the idea that taxable investments have to play catchup to the pretax investments isn't one.
Posted on 3/4/15 at 12:15 pm to Volvagia
If you're in a low tax bracket now... Roth. High tax bracket, any avenue available. (Back door an HSA for instance).
Posted on 3/4/15 at 12:18 pm to Tigerfan56
I'm in your exact same situation. While I've yet to start a Roth IRA, I plan to max out my 401 as quick as I can in June. After that my plan is to just put as much away in my savings as I can for the next year-ish and hopefully build up enough cash to get out and buy my own place.
I keep flirting with the stock market but at this point it's all about getting out of your parents house. I'd focus on that first and foremost.
I keep flirting with the stock market but at this point it's all about getting out of your parents house. I'd focus on that first and foremost.
Posted on 3/4/15 at 1:25 pm to Volvagia
This is way too simplistic. People on this board keep forgetting about marginal vs average tax rates. You are avoiding taxes at your marginal rate, and paying them later at an average tax rate.
Posted on 3/4/15 at 1:47 pm to geauxbears08
Did you miss where I said that there were lots of big benefits to a 401k?
It was simplistic because I didn't attempt to talk about broad implications or try to explain about all facets of all ramifications in a several line post.
I repeatedly said I was expressly talking about the notion that putting money in a tax deferred account confers an immediate advantage compared to taxable...insinuating that the taxable balance must grow in returns to match the starting deferred balance as a step in "catching up."
It was simplistic because I didn't attempt to talk about broad implications or try to explain about all facets of all ramifications in a several line post.
I repeatedly said I was expressly talking about the notion that putting money in a tax deferred account confers an immediate advantage compared to taxable...insinuating that the taxable balance must grow in returns to match the starting deferred balance as a step in "catching up."
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