help me rethink how i organize my finances

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Topic Author
brujadev
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help me rethink how i organize my finances

Post by brujadev »

Would appreciate feedback on my current strategy. 35F, 1 dependent (child), live in NYC, NY.

Current Income: $4450, pre tax every 2 weeks. Averaging an additional $1K every month from side gig.
Debt: $9345 in student loans at 6%, about $4K in CC debt at 0% for the next year.
Investments: Contributing 12% to Trad 401K so about $1068/mo and DCA ROTH IRA to max out, so $583/mo. About $100/mo to NY 529 Total: $1751/mo.
EF: $28,5K

I've been throwing about $1k almost every month at my student loans (originally ~$20K in September).

Wondering if I should instead:
- Reroute that money to ROTH IRA
- Open a taxable brokerage
- Increase 401K contributions
- Increase 529 contributions

I rent, don't plan on owning soon. Take public transportation so no current car payment although I really do want a vehicle. I have term life insurance.

My thinking is to pay off student loans as aggressively as possible while continuing to make large CC payments. Yet wondering if it makes more sense to max out 401K now since student loan balance is much lower and monthly payment is $180.

Thoughts? Thanks!
SnowBog
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Re: help me rethink how i organize my finances

Post by SnowBog »

The general advice on prioritizing investments would be: https://www.bogleheads.org/wiki/Priorit ... nvestments

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HomeStretch
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Re: help me rethink how i organize my finances

Post by HomeStretch »

You haven’t said what your Roth IRA is invested in, whether it is earning after-tax > 6% student loan rate (net of any interest tax deduction) and whether you will need to withdraw from the Roth IRA to make the student loan payments. That said, consider continuing to pay off the 6% student loan debt fully in 2024.

If you are disciplined enough to not miss the 0% credit card payoff date (which would trigger retro interest), consider not making any payments until the 0% rate expires. But do put the $4k payoff amount in a high-yield account to earn some interest until then. Personally, for such a small yield I’d pay it off earlier just to get all my debt paid off but that’s a personal preference.
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retiredjg
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Re: help me rethink how i organize my finances

Post by retiredjg »

brujadev wrote: Tue May 14, 2024 9:15 am My thinking is to pay off student loans as aggressively as possible while continuing to make large CC payments. Yet wondering if it makes more sense to max out 401K now since student loan balance is much lower and monthly payment is $180.
This is what I would do.

6% debt is medium high...I'd get rid of it as soon as possible. You cannot get a guaranteed 6% return from investments.

CC debt is just insidious, even at 0% interest. Especially at your income level. Get rid of it.
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CAsage
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Re: help me rethink how i organize my finances

Post by CAsage »

You have a reasonable and valid plan. DCA into your Roth IRA is just fine, since you will fill it by the end of the year. It might be slightly better to fill it a bit sooner each year, since the market tends to go up... but your plan is way better than funding it April 2025! I would keep up the student loan payments and get that 6% monkey off your back forever (it's a guaranteed return). I would then favor the (new) brokerage account over bigger 401K contributions because your needs (car, housing) might change.
What is your EF, 401k and Roth invested in? (it's Roth, after Allan Roth who wrote it, not an acronym FYI).
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
solarcub
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Re: help me rethink how i organize my finances

Post by solarcub »

1) Yes, pay off the student loan. 6% is high enough that this is probably a good move. At $1000 per month, it will be gone in a year, and then you can invest that $1000 in something else.

2) You asked about opening a brokerage account. What is your emergency fund in right now? You could be getting 5% in a Vanguard money market, so if your emergency fund is in a bank earning nothing, then at least do this.
Topic Author
brujadev
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Re: help me rethink how i organize my finances

Post by brujadev »

HomeStretch wrote: Tue May 14, 2024 9:28 am You haven’t said what your Roth IRA is invested in, whether it is earning after-tax > 6% student loan rate (net of any interest tax deduction) and whether you will need to withdraw from the Roth IRA to make the student loan payments. That said, consider continuing to pay off the 6% student loan debt fully in 2024.

If you are disciplined enough to not miss the 0% credit card payoff date (which would trigger retro interest), consider not making any payments until the 0% rate expires. But do put the $4k payoff amount in a high-yield account to earn some interest until then. Personally, for such a small yield I’d pay it off earlier just to get all my debt paid off but that’s a personal preference.
Roth IRA is 1-fund, VTSAX. Definitely agree - I'm confident I can pay off CC before the year ends as well.
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brujadev
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Re: help me rethink how i organize my finances

Post by brujadev »

CAsage wrote: Tue May 14, 2024 9:44 am You have a reasonable and valid plan. DCA into your Roth IRA is just fine, since you will fill it by the end of the year. It might be slightly better to fill it a bit sooner each year, since the market tends to go up... but your plan is way better than funding it April 2025! I would keep up the student loan payments and get that 6% monkey off your back forever (it's a guaranteed return). I would then favor the (new) brokerage account over bigger 401K contributions because your needs (car, housing) might change.
What is your EF, 401k and Roth invested in? (it's Roth, after Allan Roth who wrote it, not an acronym FYI).
EF is in a MMF with Ally at 4.20% APY, Roth IRA 1-fund- VTSAX, Trad 401K 2 Funds (total international stock (30%, total stock US (70%)).

With that said, what would you recommend for a new brokerage account?
Topic Author
brujadev
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Re: help me rethink how i organize my finances

Post by brujadev »

solarcub wrote: Tue May 14, 2024 9:46 am 1) Yes, pay off the student loan. 6% is high enough that this is probably a good move. At $1000 per month, it will be gone in a year, and then you can invest that $1000 in something else.

2) You asked about opening a brokerage account. What is your emergency fund in right now? You could be getting 5% in a Vanguard money market, so if your emergency fund is in a bank earning nothing, then at least do this.
EF is in a MMF with Ally at 4.20% APY, Roth IRA 1-fund- VTSAX, Trad 401K in 2 funds (total international stock (30%, total stock US (70%)). Would VMFXX be a could move?
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Watty
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Re: help me rethink how i organize my finances

Post by Watty »

brujadev wrote: Tue May 14, 2024 9:15 am ...about $4K in CC debt at 0% for the next year.
.....
EF: $28,5K

I've been throwing about $1k almost every month at my student loans (originally ~$20K in September).

Wondering if I should instead:
- Reroute that money to ROTH IRA
Your emergency fund might also be needed to pay off the $4K in 0% credit card debt so it is really more like $24,500

You did not say what our monthly expenses are but for a single parent living in NYC a $24,500 emergency fund might not last a long time if something happens like you lose your job.

I would use the extra money to build up your emergency fund more and then at some point it may be large enough that you would feel comfortable with paying off the remaining student loan all at once. Your emergency fund should be invested in something like a HYSA, CDs, or a money market fund which pays somewhere around 5% which is not much less than your 6% student loan so delaying the payoff of the student loan would not cost you a lot but you would be a lot safer if you need your emergency fund.
brujadev wrote: Tue May 14, 2024 9:15 am ....and DCA ROTH IRA to max out, so $583/mo
You did not say how much you have in your Roth already. One of the nice things about a Roth is that if you really need to you can almost always withdraw your contributions, but not earnings, and not pay a penalty or taxes. While you would not want to do it without a really good reason in a dire situation you can use your Roth as a emergency fund. There are even people who intentionally use their Roth as an emergency fund.

https://www.bogleheads.org/wiki/Roth_IR ... gency_fund

If you have been making Roth contributions for years and have something like $25k(???) in contributions you can withdraw in an emergency then combined with your other $28,500 emergency fund you might have enough emergency money available that you could pay off the remaining $9K student loan and still have enough emergency money available.
brujadev wrote: Tue May 14, 2024 9:15 amThoughts?
My situation was different but when I was about your age one thing I did was that I committed to myself that whenever I got a raise that I would save half if it. I was pretty much able to stick with this for a long time and it worked out well for me. Whenever I got a raise I still got more take home pay and saving the money helped me not have too much lifestyle creep.

Note: By "save" it does not need to just be retirement savings since you can have other goals you are saving for like a house downpayment, buying a car for cash or a smaller car loan, college savings, modest travel, etc.

You are contributing 12% of your income to your 401k now so with even moderate raises you could be contributing over 20% of your income to your 401k by the time you are 40 and not miss the extra money because you never got used to having it.
Last edited by Watty on Tue May 14, 2024 10:29 am, edited 1 time in total.
solarcub
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Re: help me rethink how i organize my finances

Post by solarcub »

brujadev wrote: Tue May 14, 2024 10:19 am
solarcub wrote: Tue May 14, 2024 9:46 am 1) Yes, pay off the student loan. 6% is high enough that this is probably a good move. At $1000 per month, it will be gone in a year, and then you can invest that $1000 in something else.

2) You asked about opening a brokerage account. What is your emergency fund in right now? You could be getting 5% in a Vanguard money market, so if your emergency fund is in a bank earning nothing, then at least do this.
EF is in a MMF with Ally at 4.20% APY, Roth IRA 1-fund- VTSAX, Trad 401K in 2 funds (total international stock (30%, total stock US (70%)). Would VMFXX be a could move?
VMFXX currently pays 5.26%, so about 1% higher than Ally, or $285 a year. Not a big deal, but I would do it. Your EF could have been earning 0.1% or something, which is why I asked.
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CAsage
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Re: help me rethink how i organize my finances

Post by CAsage »

brujadev wrote: Tue May 14, 2024 10:18 am EF is in a MMF with Ally at 4.20% APY, Roth IRA 1-fund- VTSAX, Trad 401K 2 Funds (total international stock (30%, total stock US (70%)).
With that said, what would you recommend for a new brokerage account?
IRA and 401K look like great choices! MMF are paying good rates right now (as in, today) but you will have more options at a brokerage. and as your savings grow. Open at Vanguard or Fidelity. For now, keep a good chunk in one of their MMF (rates are good), and over time, buy either bond funds or CDs. depending on your desire for security. I go with bond funds because I really don't care if it goes up/down a little, and over time I will get good yields. My spouse holds only CDs. We have reliable income for monthly expenses, so don't hold a designated EF.
Personally, I keep under $1k in checking, about the same in my CU savings account (often less), and all my "real" money at Vanguard.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.
furwut
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Re: help me rethink how i organize my finances

Post by furwut »

I share Watty’s thoughts on the size of your emergency fund.

Referring to the priority chart from SnowBog focus on the High Priority steps for now - possibly taking Watty’s Roth contributions as emergency funds suggestion into consideration.
HomeStretch
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Re: help me rethink how i organize my finances

Post by HomeStretch »

Where do you hold your accounts now?
Emergency fund - Ally
Roth IRA - ?
401k - ?
NY 529 - Vanguard/Ascensus

You can definitely earn a higher yield on your emergency fund at a brokerage. While Vanguard will offer you the highest money market fund rate, consider Fidelity rather than Vanguard:
1. There are several forum threads about Vanguard restricting cash transfers out for 1 year for new accounts. Search the forum. Here is one thread:
viewtopic.php?t=418315
2. Fidelity has a cash management account that is a brokerage account with cash features such as ATM/debit card, free wires, paper checks, bill pay, direct deposit, mobile deposit, etc.
3. Fidelity has local offices and 24/7 800#.
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ApeAttack
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Re: help me rethink how i organize my finances

Post by ApeAttack »

solarcub wrote: Tue May 14, 2024 9:46 am 1) Yes, pay off the student loan. 6% is high enough that this is probably a good move. At $1000 per month, it will be gone in a year, and then you can invest that $1000 in something else.
Additionally, eliminating the student loan would remove one large negative item on OP's to do list, which could be very emotionally satisfying.
May all your index funds gain +0.5% today.
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ApeAttack
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Re: help me rethink how i organize my finances

Post by ApeAttack »

HomeStretch wrote: Tue May 14, 2024 6:02 pm Where do you hold your accounts now?
Emergency fund - Ally
Roth IRA - ?
401k - ?
NY 529 - Vanguard/Ascensus

You can definitely earn a higher yield on your emergency fund at a brokerage. While Vanguard will offer you the highest money market fund rate, consider Fidelity rather than Vanguard:
1. There are several forum threads about Vanguard restricting cash transfers out for 1 year for new accounts. Search the forum. Here is one thread:
viewtopic.php?t=418315
2. Fidelity has a cash management account that is a brokerage account with cash features such as ATM/debit card, free wires, paper checks, bill pay, direct deposit, mobile deposit, etc.
3. Fidelity has local offices and 24/7 800#.
Fidelity's current 7day yield for SPAXX is 4.95%, which is reasonably close to VMFXX.
May all your index funds gain +0.5% today.
Olemiss540
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Re: help me rethink how i organize my finances

Post by Olemiss540 »

How much money do you have in Roth IRA contributions total? If >6mo of expenses, I would consider using my emergency fund to payoff my CC and Student loans, then route all available money towards building the EF back up.

Whats your current marginal tax rate (city, state and fed)?
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
Topic Author
brujadev
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Re: help me rethink how i organize my finances

Post by brujadev »

HomeStretch wrote: Tue May 14, 2024 6:02 pm Where do you hold your accounts now?
Emergency fund - Ally
Roth IRA - ?
401k - ?
NY 529 - Vanguard/Ascensus

You can definitely earn a higher yield on your emergency fund at a brokerage. While Vanguard will offer you the highest money market fund rate, consider Fidelity rather than Vanguard:
1. There are several forum threads about Vanguard restricting cash transfers out for 1 year for new accounts. Search the forum. Here is one thread:
viewtopic.php?t=418315
2. Fidelity has a cash management account that is a brokerage account with cash features such as ATM/debit card, free wires, paper checks, bill pay, direct deposit, mobile deposit, etc.
3. Fidelity has local offices and 24/7 800#.
Roth IRA and Trad 401K is with Vanguard as well. I do like the idea of being able to have access to my cash so Fidelity allowing that if I were to move EF is definitely attractive! I'll look into it. Thanks!
Topic Author
brujadev
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Re: help me rethink how i organize my finances

Post by brujadev »

Olemiss540 wrote: Wed May 15, 2024 6:29 am How much money do you have in Roth IRA contributions total? If >6mo of expenses, I would consider using my emergency fund to payoff my CC and Student loans, then route all available money towards building the EF back up.

Whats your current marginal tax rate (city, state and fed)?
Yes - I have a little over $33K (monthly spends is closer to ~$4K now).
The idea of using EF to pay off debt make me scared lol.
I have some teaching gigs this summer that will yield an additional $4-5K which I'll put towards student loans. I'm moderately chipping away at CC debt which should also be paid off in the next 3-5mos.

I believe my marginal tax rate is 22.00%
Topic Author
brujadev
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Re: help me rethink how i organize my finances

Post by brujadev »

ApeAttack wrote: Tue May 14, 2024 6:40 pm
solarcub wrote: Tue May 14, 2024 9:46 am 1) Yes, pay off the student loan. 6% is high enough that this is probably a good move. At $1000 per month, it will be gone in a year, and then you can invest that $1000 in something else.
Additionally, eliminating the student loan would remove one large negative item on OP's to do list, which could be very emotionally satisfying.
Yes to it being emotionally satisfying once paid off! I am very thankful for the loan - it allowed me to literally triple my income but it is a huge liability. I'd feel different if it was a car loan or mortgage, I think.
Topic Author
brujadev
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Re: help me rethink how i organize my finances

Post by brujadev »

Watty wrote: Tue May 14, 2024 10:25 am
brujadev wrote: Tue May 14, 2024 9:15 am ...about $4K in CC debt at 0% for the next year.
.....
EF: $28,5K

I've been throwing about $1k almost every month at my student loans (originally ~$20K in September).

Wondering if I should instead:
- Reroute that money to ROTH IRA
Your emergency fund might also be needed to pay off the $4K in 0% credit card debt so it is really more like $24,500

You did not say what our monthly expenses are but for a single parent living in NYC a $24,500 emergency fund might not last a long time if something happens like you lose your job.

I would use the extra money to build up your emergency fund more and then at some point it may be large enough that you would feel comfortable with paying off the remaining student loan all at once. Your emergency fund should be invested in something like a HYSA, CDs, or a money market fund which pays somewhere around 5% which is not much less than your 6% student loan so delaying the payoff of the student loan would not cost you a lot but you would be a lot safer if you need your emergency fund.
brujadev wrote: Tue May 14, 2024 9:15 am ....and DCA ROTH IRA to max out, so $583/mo
You did not say how much you have in your Roth already. One of the nice things about a Roth is that if you really need to you can almost always withdraw your contributions, but not earnings, and not pay a penalty or taxes. While you would not want to do it without a really good reason in a dire situation you can use your Roth as a emergency fund. There are even people who intentionally use their Roth as an emergency fund.

https://www.bogleheads.org/wiki/Roth_IR ... gency_fund

If you have been making Roth contributions for years and have something like $25k(???) in contributions you can withdraw in an emergency then combined with your other $28,500 emergency fund you might have enough emergency money available that you could pay off the remaining $9K student loan and still have enough emergency money available.
brujadev wrote: Tue May 14, 2024 9:15 amThoughts?
My situation was different but when I was about your age one thing I did was that I committed to myself that whenever I got a raise that I would save half if it. I was pretty much able to stick with this for a long time and it worked out well for me. Whenever I got a raise I still got more take home pay and saving the money helped me not have too much lifestyle creep.

Note: By "save" it does not need to just be retirement savings since you can have other goals you are saving for like a house downpayment, buying a car for cash or a smaller car loan, college savings, modest travel, etc.

You are contributing 12% of your income to your 401k now so with even moderate raises you could be contributing over 20% of your income to your 401k by the time you are 40 and not miss the extra money because you never got used to having it.
Something to think about for sure. Yes I have over $25K in contributions to my Roth IRA.
My thinking is because I've gotten the loan down significantly, if I continue at the pace I am at then the interest I'd be paying on the loan will be minimal (under $400) and I'd clear the date at the latest Jan/Feb 2025.

I appreciate you sharing how folks use their Roth IRA accounts as EF if its a dire situation. God willing, I'll be okay!

I should be getting a raise and a bonus next month and depending on the bonus amount, it'll yield an extra $1-2K I can through out my student loans or save towards getting a car. Will definitely up my contributions to 15% depending on the raise as well.

Thanks for sharing your input.
Olemiss540
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Re: help me rethink how i organize my finances

Post by Olemiss540 »

brujadev wrote: Wed May 15, 2024 2:50 pm
Olemiss540 wrote: Wed May 15, 2024 6:29 am How much money do you have in Roth IRA contributions total? If >6mo of expenses, I would consider using my emergency fund to payoff my CC and Student loans, then route all available money towards building the EF back up.

Whats your current marginal tax rate (city, state and fed)?
Yes - I have a little over $33K (monthly spends is closer to ~$4K now).
The idea of using EF to pay off debt make me scared lol.
I have some teaching gigs this summer that will yield an additional $4-5K which I'll put towards student loans. I'm moderately chipping away at CC debt which should also be paid off in the next 3-5mos.

I believe my marginal tax rate is 22.00%
Given that, I would use my emergency fund to payoff all of my debts, use the excess cash flow and upcoming bonus to replenish my EF, and keep monthly contributions to my roth ira to max it out by the end of the year.

No need to keep those debts hanging around and the quicker you get into a mindset that debt is an emergency, the more wealthy your future IMO....

Last item. Do your own taxes, research your tax rate, and come back with more detail as to your federal/state/city tax brackets. Wouldnt be suprised to see they are 30%+
I hold index funds because I do not overestimate my ability to pick stocks OR stock pickers.
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