Comments on: Where Should You Be Focusing Your Money

By: Ken

Ken — Thu, 14 Jan 2010 03:04:32 +0000

I would make emergency fund priority 1..minimum of 1 months expenses. I would then match 401K and take the remainder to knock out consumer debt.

By: J. Money

J. Money — Thu, 14 Jan 2010 01:29:10 +0000

Love the graph, son! Reminds me of the good ol’ days when I met you

By: Jeremy

Jeremy — Tue, 12 Jan 2010 21:04:19 +0000

Thanks for your thoughts Brian–much appreciated. Keep up the good work, Jeremy

By: Brian

Brian — Tue, 12 Jan 2010 20:18:08 +0000

@ Jeremy – In a low cost area of the country, the buying of a house may make more sense than it would in a place like DC (where i live). So i really can’t give you solid advice on that front. What i would say though is that you are missing some opportunities by not investing in a Roth. That 15K (unmatched in your 401K) may be nice at tax time, but i think you are missing the opportunity to take advantage of tax free growth for the next 30+ years with a Roth. I get that the debt is annoying, but its not BAD debt. Investing in the market and its average 8% returns will likely greater benefit your net worth over time compared to paying down the debt. Also, one thing people forget about, your ability to put money into a Roth will greatly decrease over time. It sounds like you and your wife are both highly educated, which is likely to lead you to a 6 figure salary eventually. With that in mind, you only have a small window of opportunity to put money into a tax-free growth account. As for the 24K, if you don’t think you will be buying a house, i would likely put a chunk of that in the market. Think if you would have timed the market back in March or April when it couldn’t really get any worse. That 24K could now be 32K or so in just 8 months. Again, if i were in your shoes i would go – $2K 401K match, 5K Roth IRA, (sounds like your emergency fund is ok with that 24K), then its a toss up between paying down the debt vs. maxing your 401K. Just depends on if you can live knowing you will be paying down debt for the next 10 years. The economist in me says, put the money in the market before paying the debt. Sorry for this book of a response, but i hope this helps.

@CoffeeCents – I like schwab a lot. There not the cheapest out there, but their customer service is great, and they make it very easy to deposit my cash back rewards from my schwab invest first visa into my brokerage account. I agree about the 6 months E-fund, but unless you own a home, i really feel that you can get by on 1-3 months.

By: Jeremy

Jeremy — Tue, 12 Jan 2010 19:11:54 +0000

Would your advice change if you had the following circumstances: My wife (26) and I (30) combined make about 100K gross a year. No cc debt, car payments, etc. other than the student loans which are $71K at 6%, $31K at 6% and $41K at 2.3 (variable.) Currently we pay about 1350/month toward our loans–about 300 over the min. Our rent is 750.month all included. We are putting about 15K (no match) in my 401K, and another 2K in hers to get the full match. No Roth, and we have about 24K just sitting in a low interest saving account. We were saving for a house downpayment, but aren’t sure that that would be the best use of the money considering we have so much in debt. Pursuant to our budget, we put about 1300 in savings a month. Any thoughts? I keep going back and forth between investing harder, paying down debt, or buying a house. We live in a really low cost area of the country.

By: CoffeeCents

CoffeeCents — Tue, 12 Jan 2010 17:07:47 +0000

Brian,

How good of a deal is Schwab compared to the other discount brokers?

I’d also say that for many young folks first in the market, establishing the emergency funds trumps the 401k as a priority as sometimes psychology > math. Once you have a buffer, then one can start investing, because I’ve seen friends put money into a 401k and then lose their job or run into an emergency with 0 cash savings.

The limit on the emergency fund (and goal) should be 6 months.

By: Brian

Brian — Tue, 12 Jan 2010 15:27:15 +0000

A lot of people will go with the emergency fund first… i am lucky that i have about a month’s worth of expenses in there now and am slowly growing it (it used to be 3 months… but thats for a future blog post).

At our young age, i would say once you have 2-3 months in the E-fund, you should start looking at doing the Roth IRA (btw, i assume when you say IRA, you mean Roth IRA). Now is the time to take advantage of it.

I go through Vanguard’s 2050 fund, and that has a $3000 minimum investment. However, when i first started my Roth, i went with Vanguard’s STAR fund. That only has a $1000 min investment. Then you can shift it over to the 2050 fund if you want. Performances aren’t bad for either.

By: Justin

Justin — Tue, 12 Jan 2010 14:55:46 +0000

Sadly, my priorities are forced to be much different. With a low income from a company that doesn’t offer a 401(k), plus next to nothing in savings for emergencies, I’m setting this as my 2010 priority list:

1. Emergency fund (2 or 3 months worth)
2. ALL debts (not too much to pay off, thankfully)
3. MORE emergency fund (5 or 6 months)
4. Savings for an initial IRA investment…

…and I have a question about that: the IRA I’m looking at requires a $3k minimum investment. Is this typical? Can I not get into a decent plan for less? It’s conceivable it could take me until next year to save enough to get started, and I’m not getting any younger.