Confused UK Guy needs some help with investments & finances

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ConfusedUKGuy
Posts: 12
Joined: Wed Mar 14, 2012 10:25 pm

Confused UK Guy needs some help with investments & finances

Post by ConfusedUKGuy »

Background:

I have recently moved to the US from the UK and was married a few months ago. I have never looked at my finances in this way and have had a bit of a wake up call, especially with the advent of a child on the way. I now have a budget we work towards and have been saving a good chunk of money a month.

I am really looking for some help to get myself on the right path. I have tried to put a plan together to pay off my debt and to save up for a down payment on a house this year (as I believe this year to be the year to do so before prices go up again). I would be grateful for any kind of advice you can give me in relation to the information provided to help me make more informed decisions going forward both in terms of paying off debt and investing.

For personal reasons I do not invest in any products that provide interest I know it must sound weird to anyone reading this.

Joint Income: $118k + $80k

Emergency funds = Do not have this in place as yet.

Cash in bank = $40k saving at a rate of $5k per month

Joint Debt (doesn't look good):

Credit Card 1 UK – $6k with an APR of 22%
Credit Card 2 UK– $16k with an APR of 24%
Student Loan US – $34k with an APR of 2.29%
Credit Card 3 US - $10.5k with an APR of 6.24%

Payments are being made monthly of $1200 monthly

Tax Filing Status: Fed – Single with 1 allowance; State – Single with 1 allowance

Tax Rate: 20.5% Federal 5.1% State NJ based on my salary of $118k

Age: 36 (me) and 37 (wife)

Desired Asset allocation: (stocks/bonds): 100% stock

I have only just started my 401(k) and my wife does not have one as yet. I have $147 (paid in by myself I assume the company puts in the same amount) in this account as this is my first paycheck where I have contributed to my 401(k) ( I am paid twice monthly).

My 401(k) is set out as below

60% Large Caps
20% Small Caps
20% International Equity

For each pay period in which I make at least the minimum 3% employee contribution (which is what I have selected), my Company Matching Contribution will equal 100% of the first 3% of eligible pay I contribute, plus 50% of the next 2% of eligible pay i contribute. That represents a potential 4% matching contribution when I contribute at least 5% of eligible pay.

My wife has a company match available of up to 6%. But as yet this has not been selected.

I also have a pension in the UK worth 27,000 pounds sterling approx $42k.

My PRA personal retirement account has $500 in it so far as well.

Questions:
1. What is the best method to pay off my credit cards and in what order?
2. Is my 401k allocation ok? Should i increase my amount and/or what should my wife select as the amount she should select in her 401k
3. what other “safer” way other than stocks and bonds is there to invest where I am not gaining money through interest.
4. Any other advice you could provide or insight would be helpful.
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PaddyMac
Posts: 1573
Joined: Fri Jul 09, 2010 10:29 pm

Re: Confused UK Guy needs some help with investments & finan

Post by PaddyMac »

ConfusedUKGuy wrote: Cash in bank = $40k saving at a rate of $5k per month

Joint Debt (doesn't look good):

Credit Card 1 UK – $6k with an APR of 22%
Credit Card 2 UK– $16k with an APR of 24%
Student Loan US – $34k with an APR of 2.29%
Credit Card 3 US - $10.5k with an APR of 6.24%

Payments are being made monthly of $1200 monthly
What do you mean by "Cash in bank = $40k saving at a rate of $5k per month" - are you saving $5K a month but only paying $1200 monthly on CC debt?

You have $32,500K of CC debt - how long is it going to take you to pay it off? Can you assume that 6.24% rate will hold?

If your jobs are secure, I would put the emergency fund on hold for a bit and attack those cards. You can always use the cards again in an emergency!

The advice is always to pay the minimum on all cards and throw the rest at the highest APR. The difference between 22% and 24% is not huge though, so you might knock off the $6K first just to feel good! Then tackle the CC2 at 24%.

Why do you not want interest again?

If you intend to work in the US until retirement, remember that SS is based on your top 35 highest earning years (if you have less than 35, you get 0 credit). But it sounds like you have a UK pension (private?), and you also have a State UK pension I would think as well (even if small). Last time I checked, so long as you work in the US for 30 years and pay into the system, the UK state pension cannot reduce your US Social Security benefits. I know retiring is not on your mind right now, but file that away...
coldplay221
Posts: 177
Joined: Thu Sep 15, 2011 9:14 pm

Re: Confused UK Guy needs some help with investments & finan

Post by coldplay221 »

Hi

Welcome to the forum ConfusedUKGuy.

1. If I were you I'd wake up tomorrow morning and pay up
Credit Card 1 UK – $6k with an APR of 22%
Credit Card 2 UK– $16k with an APR of 24%
with the 40K in the bank.

2. Max out both 401ks
TedSwippet
Posts: 3239
Joined: Mon Jun 04, 2007 4:19 pm
Location: UK

Re: Confused UK Guy needs some help with investments & finan

Post by TedSwippet »

ConfusedUKGuy wrote:For personal reasons I do not invest in any products that provide interest I know it must sound weird to anyone reading this.
...
I have only just started my 401(k) and my wife does not have one as yet. I have $147 (paid in by myself I assume the company puts in the same amount) in this account as this is my first paycheck where I have contributed to my 401(k) ( I am paid twice monthly).
...
I also have a pension in the UK worth 27,000 pounds sterling approx $42k.
On interest, maybe investigate Sharia compliant funds. Amana, perhaps. The UK is apparently the largest market of Sharia funds, but there are a few in the US also. You will want to use US based funds for US tax reasons.

Regarding your 401k, IRA and other US based retirement accounts, if you think you're going to return to the UK before you retire then the standard US-centric wisdom to "max them out" might not apply. Research HEART ("exit tax") and FATCA for why this might be. Regardless of these, maxing up to the company match is usually worthwhile though.

Be triple-careful to report your UK pension correctly for US tax purposes. You'll need to spend quality time reading the US/UK tax treaty -- and note that even professionals disagree on its interpretation for pensions. Among the dangers are FBAR TD F 90-22.1, FATCA form 8938, foreign trust form 3520(A), and US "offshore" fund tax rules. Watch out for similar tax traps for any other accounts you may still hold in the UK.
Valuethinker
Posts: 41447
Joined: Fri May 11, 2007 11:07 am

Re: Confused UK Guy needs some help with investments & finan

Post by Valuethinker »

1. take the cash and pay off the credit cards. You can draw on them in an emergency in future.

Do that NOW before the next bills come-- save yourself interest (you can estimate the outstanding balances).

2. increase your pension contribution to 5% so you get the full 9%.

3. get your wife into company pension scheme.

Work from there.
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englishgirl
Posts: 2484
Joined: Thu Mar 01, 2007 5:34 pm
Location: FL

Re: Confused UK Guy needs some help with investments & finan

Post by englishgirl »

PaddyMac wrote:If you intend to work in the US until retirement, remember that SS is based on your top 35 highest earning years (if you have less than 35, you get 0 credit). But it sounds like you have a UK pension (private?), and you also have a State UK pension I would think as well (even if small). Last time I checked, so long as you work in the US for 30 years and pay into the system, the UK state pension cannot reduce your US Social Security benefits. I know retiring is not on your mind right now, but file that away...
I just wanted to say welcome! And that it takes 10 years of earnings to qualify for social security. The amount you get is based on your top 35 earning years - if you have less than 35, some years will be 0 so that reduces the amount you get, but it doesn't mean that you won't qualify at all. I thought the above was a little confusingly worded.

Don't expect any UK benefits. Also, look into FBAR - foreign bank account reporting, as you'll have to report your UK accounts every year, which I find horribly complicated and confusing to figure out how to do, but that's another story.

And yes, I'm sure there must be Sharia compliant accounts that are around for your cash investments, but first get those debts paid off! And once your debts are gone, I'd bump up your 401k contribution to 5% to get the full match.
Sarah
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PaddyMac
Posts: 1573
Joined: Fri Jul 09, 2010 10:29 pm

Re: Confused UK Guy needs some help with investments & finan

Post by PaddyMac »

Sorry if that "0 credit" was confusing; thanks to Sarah for clearing that up.

If you worked in the UK for a number of years and paid into their state pension scheme, be sure to keep you employment records and your number, address at the time, etc. for the future. After 30 years you'll have trouble remembering your address in the UK etc!

links for if you qualify for UK state pension here:

http://www.direct.gov.uk/en/Pensionsand ... G_10014671
http://www.direct.gov.uk/en/Pensionsand ... /DG_184319

I'm currently researching what it would cost to top up my contributions to qualify as I think I'm a year or two short:
http://www.direct.gov.uk/en/MoneyTaxAnd ... /DG_190077
SamB
Posts: 823
Joined: Mon Mar 12, 2007 3:17 pm

Re: Confused UK Guy needs some help with investments & finan

Post by SamB »

After you pay off your debt and your first child is born start a 529 plan or at least put together a financial strategy for a college education. I do not know anything about what school system your child will be enrolled in, but depending on the circumstances you may have to move, or pay for a private school, well before college is a financial issue.

Do not buy a house for financial reasons, and consider where you live in relation to public or private school for your child. I do not know how you do this, but start spending more time on figuring out how to prepare your child for the future. Whatever you do in this regard, take charge of the situation, and do not turn it over to the public school system. If you do, your child will suffer, and you will end up suffering financially when you have to deal with the consequences.

Asset allocation is easy. Raising a family is an order of magnitude more difficult.
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Epsilon Delta
Posts: 8090
Joined: Thu Apr 28, 2011 7:00 pm

Re: Confused UK Guy needs some help with investments & finan

Post by Epsilon Delta »

ConfusedUKGuy wrote:Background:

I ... was married a few months ago.
Tax Filing Status: Fed – Single with 1 allowance; State – Single with 1 allowance

...

Tax Rate: 20.5% Federal 5.1% State NJ based on my salary of $118k

Age: 36 (me) and 37 (wife)

My wife ... .
In US tax law if you are married at the end of the year (Dec 31st) you are treated as if you were married for the entire year. So, modulo some unusual situations, you will be filing as married next year and need to figure out what your tax rate will be. It could be higher or lower than you and your wife experienced as singles. It is worth doing a "pro forma" tax return for 2011 filled out as if you and your wife were married. This will give you a place to start. You and your wife (if employed) should also fill out new W-4 forms to get your withholding correct for 2012.
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frose2
Posts: 628
Joined: Thu Mar 01, 2007 2:10 am

Re: Confused UK Guy needs some help with investments & finan

Post by frose2 »

I second TedSwippet's advice. HEART (the exit tax) is key. The decision whether to contribute to a 401(k) or not is strongly dependent on whether you think you will be subject to exit tax when you leave and if so what you think American income tax rates will be then, although it is hard to justify leaving a 100% employer match on the table. US tax treatment of your British pension is also an important issue (more for accurate compliance with the reporting requirements than for the amount of tax they'll charge you here), but I don't know much about that.
Topic Author
ConfusedUKGuy
Posts: 12
Joined: Wed Mar 14, 2012 10:25 pm

Re: Confused UK Guy needs some help with investments & finan

Post by ConfusedUKGuy »

Thanks everyone... im going through the all the advice. Just wanted to say i appreciate it!
Topic Author
ConfusedUKGuy
Posts: 12
Joined: Wed Mar 14, 2012 10:25 pm

Re: Confused UK Guy needs some help with investments & finan

Post by ConfusedUKGuy »

TedSwippet wrote:
ConfusedUKGuy wrote:For personal reasons I do not invest in any products that provide interest I know it must sound weird to anyone reading this.
...
I have only just started my 401(k) and my wife does not have one as yet. I have $147 (paid in by myself I assume the company puts in the same amount) in this account as this is my first paycheck where I have contributed to my 401(k) ( I am paid twice monthly).
...
I also have a pension in the UK worth 27,000 pounds sterling approx $42k.
On interest, maybe investigate Sharia compliant funds. Amana, perhaps. The UK is apparently the largest market of Sharia funds, but there are a few in the US also. You will want to use US based funds for US tax reasons.

Regarding your 401k, IRA and other US based retirement accounts, if you think you're going to return to the UK before you retire then the standard US-centric wisdom to "max them out" might not apply. Research HEART ("exit tax") and FATCA for why this might be. Regardless of these, maxing up to the company match is usually worthwhile though.

Be triple-careful to report your UK pension correctly for US tax purposes. You'll need to spend quality time reading the US/UK tax treaty -- and note that even professionals disagree on its interpretation for pensions. Among the dangers are FBAR TD F 90-22.1, FATCA form 8938, foreign trust form 3520(A), and US "offshore" fund tax rules. Watch out for similar tax traps for any other accounts you may still hold in the UK.
Hi Just wanted to ask if you knew of any sharia compliant funds in the US?
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