Almost done saving for emergency fund...now what?

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elin09
Posts: 4
Joined: Tue May 16, 2017 1:57 pm

Almost done saving for emergency fund...now what?

Post by elin09 » Tue May 16, 2017 2:28 pm

I am currently 26 years old, and will be done putting money towards my emergency fund next month. I'm keeping my emergency fund in an online savings accounting with 1.05% interest rate. At the same time, I am on track to max out my Roth IRA account (which I just opened last year), and have invested 100% in VTSMX and hope to convert it to VTSAX by the end of this year. I'm wondering how I should invest the rest of my savings, after I complete my emergency fund? Some options I'm considering:

- investing in real estate (out-of-state rental properties)
> done a lot of research (through books, blogs, seminars, friends, etc...but haven't taken the plunge :(
- investing in another type of investment account (not sure which one would be better)

For more details about me/my goals/future plans:
- My goal is to have the option to quit my 9-5 job and live off of passive income within the next 10 years
- I'm currently saving about $1,500 - $2000/month, and am splitting it between my emergency fund and Roth IRA
- I'm currently earning about $2900/month (after-tax) as a temp, but will be switching to a contract position in July 2017 earning about $8K/month (pre-tax). I'm estimating this to be about $5K/month (after-tax); this doesn't include added expenses (e.g. health insurance, dental, etc.).
- I'm planning on becoming a permanent, full-time employee by the end of this year 2017. My income is unknown but I estimate it to be around $70K/year.
- With the increase income, I plan on increasing my savings. Hopefully saving between 70-80% of my income.

Alto Astral
Posts: 675
Joined: Thu Oct 08, 2009 10:47 am

Re: Almost done saving for emergency fund...now what?

Post by Alto Astral » Tue May 16, 2017 4:39 pm

Saving 70% on a $70K income is $49k. This would be $490k over 10 years. You would need to get one or more rental properties and rent it out. If its out-if-state rentals, you would need to hire a managements company. This would reduce your rental income. Your rental income would meed to be $4k/month to replace your 9-5 income. Did you run any numbers on this?

elin09
Posts: 4
Joined: Tue May 16, 2017 1:57 pm

Re: Almost done saving for emergency fund...now what?

Post by elin09 » Tue May 16, 2017 4:49 pm

Alto Astral wrote:Saving 70% on a $70K income is $49k. This would be $490k over 10 years. You would need to get one or more rental properties and rent it out. If its out-if-state rentals, you would need to hire a managements company. This would reduce your rental income. Your rental income would meed to be $4k/month to replace your 9-5 income. Did you run any numbers on this?


Hi Alto, thanks for replying!

Yes, if I were to invest in any kind of real estate, whether it be local or out-of-state, I would work with a property management company. I've analyzed some properties (really focusing on Washington, Colorado, Texas, and Florida), and have included property management expenses in my analyses. One of my criteria would be to cash flow at least $200/month (per unit). Using this as a standard, I would need about 20 properties (or less), in order to quit my 9-5. However, my end goal would be to go beyond that.

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ruralavalon
Posts: 11287
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Almost done saving for emergency fund...now what?

Post by ruralavalon » Tue May 16, 2017 6:01 pm

Welcome to the forum :) .

You have an excellent savings rate. Keep it up.

elin09 wrote:I am currently 26 years old, and will be done putting money towards my emergency fund next month. I'm keeping my emergency fund in an online savings accounting with 1.05% interest rate. At the same time, I am on track to max out my Roth IRA account (which I just opened last year), and have invested 100% in VTSMX and hope to convert it to VTSAX by the end of this year. I'm wondering how I should invest the rest of my savings, after I complete my emergency fund? Some options I'm considering:

- investing in real estate (out-of-state rental properties)
> done a lot of research (through books, blogs, seminars, friends, etc...but haven't taken the plunge :(
- investing in another type of investment account (not sure which one would be better)

For more details about me/my goals/future plans:
- My goal is to have the option to quit my 9-5 job and live off of passive income within the next 10 years
- I'm currently saving about $1,500 - $2000/month, and am splitting it between my emergency fund and Roth IRA = $18-24k/yr
- I'm currently earning about $2900/month (after-tax) as a temp = $34.8k/yr, but will be switching to a contract position in July 2017 earning about $8K/month (pre-tax) = $96k/yr. I'm estimating this to be about $5K/month (after-tax) $60k/yr; this doesn't include added expenses (e.g. health insurance, dental, etc.).
- I'm planning on becoming a permanent, full-time employee by the end of this year 2017. My income is unknown but I estimate it to be around $70K/year.
- With the increase income, I plan on increasing my savings. Hopefully saving between 70-80% of my income = $49-56k/yr.

Will there be a 401k or similar plan when you become a full-time employee? If so will there be an employer match? If so what is the employer match? What funds will be offered in the 401k? Please give fund names, tickers and expense ratios.

You can simply add this to your original post using the edit button, so that all of your information is in one place.

. . . . .

In addition to use of any 401k or similar work-based account, you can use a taxable account at a low cost provider like Vanguard.

In general (assuming no high-interest debt, and no HSA eligibility) the account funding priority that often works well for many people is this:

1) Contribute to the work-based plan (401(k), 403b,) enough to get the full employer match (the match is like free money, your best possible investment);
2) Contribute the maximum to an IRA, traditional or Roth, depending on eligibility and personal circumstances;
3) Contribute the remainder of the maximum employee contribution to the work-based plan; and
4) Contribute to a taxable investing account.
Please see the wiki article "Prioritizing investments".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

TheJoker
Posts: 58
Joined: Mon Apr 17, 2017 12:21 pm
Location: Bellingham, Wa

Re: Almost done saving for emergency fund...now what?

Post by TheJoker » Tue May 16, 2017 6:21 pm

Read the "Suggested Reading" list to the left side of this posting. Read everything by Bogle and Buffett (Berkshire annual letters on their web site) . They have each been doing investing for 60 plus years. Yes.....I know it is work and you would like a short cut but, we have all learned the hard way. DIRTFT.......Do it right the first time.

Lauren Vignec
Posts: 255
Joined: Sat Feb 16, 2008 9:34 am

Re: Almost done saving for emergency fund...now what?

Post by Lauren Vignec » Wed May 17, 2017 10:40 am

elin09 wrote:I am currently 26 years old, and ...
- My goal is to have the option to quit my 9-5 job and live off of passive income within the next 10 years


You are doing a great job of saving, and I love that you are looking to have the option to live off of passive income. Life happens--goals change, personalities change, careers change, relationships change. Having that option, though, is always wonderful, even if things change and you choose not to take it.

The only specific thing I'm going to suggest is this. It's easy to see the downsides of "boring" investing, the kind of investing most of us practice and recommend. The stories of stock market declines and low returns are everywhere.

When you look into more "exciting" ideas like out-of-state rentals, please be sure to track down the stories of those who tried it and it didn't work out. You will learn more from those failures than from almost any of the advice anyone will give you.

elin09
Posts: 4
Joined: Tue May 16, 2017 1:57 pm

Re: Almost done saving for emergency fund...now what?

Post by elin09 » Fri May 19, 2017 12:20 pm

ruralavalon wrote:Welcome to the forum :) .

You have an excellent savings rate. Keep it up.

elin09 wrote:I am currently 26 years old, and will be done putting money towards my emergency fund next month. I'm keeping my emergency fund in an online savings accounting with 1.05% interest rate. At the same time, I am on track to max out my Roth IRA account (which I just opened last year), and have invested 100% in VTSMX and hope to convert it to VTSAX by the end of this year. I'm wondering how I should invest the rest of my savings, after I complete my emergency fund? Some options I'm considering:

- investing in real estate (out-of-state rental properties)
> done a lot of research (through books, blogs, seminars, friends, etc...but haven't taken the plunge :(
- investing in another type of investment account (not sure which one would be better)

For more details about me/my goals/future plans:
- My goal is to have the option to quit my 9-5 job and live off of passive income within the next 10 years
- I'm currently saving about $1,500 - $2000/month, and am splitting it between my emergency fund and Roth IRA = $18-24k/yr
- I'm currently earning about $2900/month (after-tax) as a temp = $34.8k/yr, but will be switching to a contract position in July 2017 earning about $8K/month (pre-tax) = $96k/yr. I'm estimating this to be about $5K/month (after-tax) $60k/yr; this doesn't include added expenses (e.g. health insurance, dental, etc.).
- I'm planning on becoming a permanent, full-time employee by the end of this year 2017. My income is unknown but I estimate it to be around $70K/year.
- With the increase income, I plan on increasing my savings. Hopefully saving between 70-80% of my income = $49-56k/yr.

Will there be a 401k or similar plan when you become a full-time employee? If so will there be an employer match? If so what is the employer match? What funds will be offered in the 401k? Please give fund names, tickers and expense ratios.

You can simply add this to your original post using the edit button, so that all of your information is in one place.

. . . . .

In addition to use of any 401k or similar work-based account, you can use a taxable account at a low cost provider like Vanguard.

In general (assuming no high-interest debt, and no HSA eligibility) the account funding priority that often works well for many people is this:

1) Contribute to the work-based plan (401(k), 403b,) enough to get the full employer match (the match is like free money, your best possible investment);
2) Contribute the maximum to an IRA, traditional or Roth, depending on eligibility and personal circumstances;
3) Contribute the remainder of the maximum employee contribution to the work-based plan; and
4) Contribute to a taxable investing account.
Please see the wiki article "Prioritizing investments".


Hi ruralavalon:

Thanks for this! I've been perusing the finance articles and blogs, and am considering making nondeductible contributions to an IRA account and rolling them over to my Roth IRA. Unfortunately, Vanguard (where my Roth IRA is) doesn't allow after-tax contributions into their solo 401k, sep ira...etc. (as far as I know). I'm wondering if there is such thing as an IRA account that:
- has high contribution limit (around $35K)
- good stock index fund options (e.g. VTSAX)
- allows Roth conversion
- accepts nondeductible contributions
If something like this existed, I would be all over it :)

elin09
Posts: 4
Joined: Tue May 16, 2017 1:57 pm

Re: Almost done saving for emergency fund...now what?

Post by elin09 » Fri May 19, 2017 12:29 pm

Lauren Vignec wrote:
elin09 wrote:I am currently 26 years old, and ...
- My goal is to have the option to quit my 9-5 job and live off of passive income within the next 10 years


You are doing a great job of saving, and I love that you are looking to have the option to live off of passive income. Life happens--goals change, personalities change, careers change, relationships change. Having that option, though, is always wonderful, even if things change and you choose not to take it.

The only specific thing I'm going to suggest is this. It's easy to see the downsides of "boring" investing, the kind of investing most of us practice and recommend. The stories of stock market declines and low returns are everywhere.

When you look into more "exciting" ideas like out-of-state rentals, please be sure to track down the stories of those who tried it and it didn't work out. You will learn more from those failures than from almost any of the advice anyone will give you.


Hi Lauren:

Thanks! I have some some close friends who have just began dipping their toes in the real estate investing game, and know some who have been in the game for a while and have already built a hefty portfolio for themselves. I'm still working on getting over my psychological fear of "no matter how much I know, I will fail."

User avatar
ruralavalon
Posts: 11287
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Almost done saving for emergency fund...now what?

Post by ruralavalon » Fri May 19, 2017 1:03 pm

elin09 wrote:For more details about me/my goals/future plans:
- My goal is to have the option to quit my 9-5 job and live off of passive income within the next 10 years
- I'm currently saving about $1,500 - $2000/month, and am splitting it between my emergency fund and Roth IRA = $18-24k/yr
- I'm currently earning about $2900/month (after-tax) as a temp = $34.8k/yr, but will be switching to a contract position in July 2017 earning about $8K/month (pre-tax) = $96k/yr. I'm estimating this to be about $5K/month (after-tax) $60k/yr; this doesn't include added expenses (e.g. health insurance, dental, etc.).
- I'm planning on becoming a permanent, full-time employee by the end of this year 2017. My income is unknown but I estimate it to be around $70K/year.
- With the increase income, I plan on increasing my savings. Hopefully saving between 70-80% of my income = $49-56k/yr.


elin09 wrote:Hi ruralavalon:

Thanks for this! I've been perusing the finance articles and blogs, and am considering making nondeductible contributions to an IRA account and rolling them over to my Roth IRA. Unfortunately, Vanguard (where my Roth IRA is) doesn't allow after-tax contributions into their solo 401k, sep ira...etc. (as far as I know). I'm wondering if there is such thing as an IRA account that:
- has high contribution limit (around $35K)
- good stock index fund options (e.g. VTSAX)
- allows Roth conversion
- accepts nondeductible contributions
If something like this existed, I would be all over it :)

You lost me there :( . You had seemed to say in your original post that you are an employee, rather than self-employed.

Are you an employee? Will there be a 401k or similar plan when you become a full-time employee? If so will there be an employer match? If so what is the employer match? What funds will be offered in the 401k? Please give fund names, tickers and expense ratios.

Are you self-employed, own your own business? If so do you have any employees other than yourself? A solo 401k, SEP IRA or SIMPLE IRA are choices you get to make if you are self-employed, own your own business.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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