Invest 100% of income?

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Topic Author
amb124
Posts: 2
Joined: Sun Apr 02, 2017 12:13 am

Invest 100% of income?

Post by amb124 »

I am almost 29 years old and have $80,000 in cash and $50,000 in investments (between a 401K, Brokerage Account, and two IRAS.)

I make just under 50,000 a year. My yearly take home pay after taxes, 401K contributions, healthcare expenses, etc. is around $31,000.

Since I am more than four years away from living paycheck to paycheck (Only spend about $17K/year), single with no kids, and only have a $8000 car loan as a debt, would it be a good move to start to really invest aggressively by investing all of my takehome pay, or at least a large percentage of it (say at least 70%)? All that money in the bank is losing buying power, and I would like to put more of my money to work.

Any feedback would be appreciated.
PFInterest
Posts: 2684
Joined: Sun Jan 08, 2017 12:25 pm

Re: Invest 100% of income?

Post by PFInterest »

are you not already investing?
whats the cash for?
why do you have 2 IRAs....since they are individual....do you mean a roth and traditional?
do you max the 401k and IRA already?

so in short....yes.
livesoft
Posts: 75203
Joined: Thu Mar 01, 2007 8:00 pm

Re: Invest 100% of income?

Post by livesoft »

Sure, try it and see how it goes. You can always change your mind later.
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Topic Author
amb124
Posts: 2
Joined: Sun Apr 02, 2017 12:13 am

Re: Invest 100% of income?

Post by amb124 »

The 80K in cash is just a 'safety net' However. I have learned over the past couple of years that building wealth and financial independence takes more than just saving $$.

Yes, I have both a trad and roth IRA
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jimb_fromATL
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Location: Atlanta area & Piedmont Triad NC and Interstate 85 in between.

Re: Invest 100% of income?

Post by jimb_fromATL »

amb124 wrote:I am almost 29 years old and have $80,000 in cash and $50,000 in investments (between a 401K, Brokerage Account, and two IRAS.)

I make just under 50,000 a year. My yearly take home pay after taxes, 401K contributions, healthcare expenses, etc. is around $31,000.

Since I am more than four years away from living paycheck to paycheck (Only spend about $17K/year), single with no kids, and only have a $8000 car loan as a debt, would it be a good move to start to really invest aggressively by investing all of my takehome pay, or at least a large percentage of it (say at least 70%)? All that money in the bank is losing buying power, and I would like to put more of my money to work.

Any feedback would be appreciated.
First question, if you have $50K in the bank where it's earning next to nothing, why do you have a car loan at all?

Next, if you have $31K take-home after taxes and other things and the 401(k), then you must not be contributing very much to the 401(k). That means you're paying 15% federal tax plus whatever your state income tax rate on all the money that you're NOT contributing to the 401(k). Seems like it would make sense to increase the 401(k) contributions and put that money to work earning compound interest for you for the rest of your life -- instead of giving it to the gubbament sooner than necessary to do whatever the heck they're doing with it.

Next question, how much are you contributing to an IRA?

If you're not contributing the $5500 per year maximum, that's the next place to put your spare money. In fact you can contribute a total of $5500 toward your 2016 IRA right now if you haven't already maxed it. Then put $5500 in the Roth for 2017.
  • Your Roth funds can serve as a secondary source of emergency funds, since you can withdraw your contributions from a Roth IRA at any time without tax or penalty. So ... IF you were not going to max the Roth(s) otherwise, and if you have to take some back out for a bigger emergency later, you have not lost anything.

    But if you don't ever need it for dire emergency, you'll be much better off in retirement because you have not lost the once-per-year use-it-or-lose-it opportunity to put the extra money in an account where it can earn compound interest for the rest of your life tax-free.

    The main caution is that the funds in the Roth that are earmarked for a potential emergency need to be placed in stable value funds -- perhaps some combination of money market, CDs, bonds, etc, to preserve the value and insure that it's all there if you need it for an emergency.

    Once you have enough saved in your non-retirement emergency fund and enough in your Roth that you would still have enough cash available even if the Roth funds were to drop in value during a market crash, you can afford to move more of the Roth money into more aggressive mutual funds with more stocks in the mix, where it is likely to gain more in value and earn even more compound interest in the long run.
Next question is ... do you have a need for shorter-term savings, such as a down payment for a home, etc?

jimb
Blender
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Re: Invest 100% of income?

Post by Blender »

I'd keep at most 1 year's worth of cash expenses in a savings account which you said is $17K. Then open an investment account and take the remaining $63K and invest it. Then I'd put all my extra income into the investment account.

Think of it this way, you'd have a guaranteed 1 year's worth of cash on hand. You can liquidate your investments for cash if you ever need more so your investment account also serves as a second emergency fund. So I'd suggest that you figure out your investment strategy/asset allocations and then start putting that cash that's sitting there losing money to work.

Edit: I missed the car loan part. So not only are you losing money on the cash, you're losing money on the loan interest that you could have paid off with the cash that's also sitting there losing money. Pay off all debts and then don't borrow again. Then keep 6-12 months worth of expenses in cash and put the rest into investments.
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Meg77
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Location: Dallas, TX

Re: Invest 100% of income?

Post by Meg77 »

1. Pay off the car loan today.

2. Max out a Roth IRA for 2016 and 2017 if you haven't already.

3. Get your own place if you still live with your parents.

4. Change contributions to max out your 401k for 2017, if you haven't already. I'd go with a Roth 401k if you have access to one in your case.

5. Max out an HSA if you have access to one.

6. Reduce cash to pay for living expenses in order to accomplish the above 5 items, but don't let cash dip below $20K. At that point, reduce 401k contributions.

If you think you want a wife/family/house in the near future, you might want to leave cash piled up for some of those goals. Otherwise I'd shift your taxable and cash holdings into Roths for the long term tax shelter. Saving over 50% of your income is great, but don't do it at the expense of living your life. Travel, take classes, live independently, date, eat well, have hobbies even if they cost some money.
"An investment in knowledge pays the best interest." - Benjamin Franklin
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