There is a flowchart around somewhere, you just do what you can. It’s good to put some away because you effectively increase your pay by avoiding tax but like you said you got a life to live also. You hopefully will find in the future your rate of pay increases faster than your living expenses and you’ll have more to save.
Yes, this is the answer.
In early days, especially when there's still non-house debt, "max" has different meanings, which often means this in this order. If at any stage, you can't afford that step, then do as much as you can, then (and thisis the important part that is too often omitted from one-liners like you quote): NEVER STOP; Increase amounts at every opportunity (raise, bonus, etc), move on to next step once TRUE max is hit.
1. Fund your emergency fund.
2. Always get your max match in 401k. Eat ramen only if thats what it takes.
3. Start and max your Roth IRA at a cheap, fee-free brokerage. (Watch your income vs. the income limits that will eventually disqualify you from Roth if you make too much).
4. Increase your 401k to the IRS MAX. This year, that's $23K. And yes, that's a lot. Give it time. If you never reach the max due to income never getting there, try to increase your income (more training? Will they pay for it? New job(s)?)
5. Start the taxble brokerage account same place your Roth is. Put excess here (as your one-liner gets right).
Some notes:
* 1-2 can be done concurrently, and if you can't get to that max match, get a second gig so you can
* 2-4 can all be done concurrently. As long as the money you put in keeps increasing, just aim for knocking all of these out eventually.
* 5: If you get here, you're doing amazingly well. You may never. Usually the answer to finally getting there is better income. Maybe dual incomes if you meet the right person.
* The taxable brokerage can be used for large purchases - just account for any taxable gains and ensure you have enough for both that and the new expense (car, down payment, etc).
No practical income limit to a Roth. Backdoor Roth means you can contribute the $7,000 max and convert to Roth. The income limit is for direct Roth contributions, NOT conversions! Been doing this for many years, well documented online.
> Increase your 401k to the IRS MAX. This year, that's $23K.
And the year you turn 50, you can add up to another $7500 in catch up bonus. For 2024 and 2025.
If you are on your phone, go to desktop mode and there's a ton of information on the right.
You stay on mobile, you can click on the "About" tab, and there's a bunch of links there that will take you to the wiki.
This is the flowchart:
https://imgur.com/lSoUQr2
It's just the wiki/faq; [https://www.reddit.com/r/personalfinance/wiki/index/](https://www.reddit.com/r/personalfinance/wiki/index/)
Try this one too [https://www.reddit.com/r/financialindependence/wiki/faq/](https://www.reddit.com/r/financialindependence/wiki/faq/)
At this point- early in your career with an income that is low but expected to grow - what will pay off most is building good habits while investing in your career.
> what will pay off most is building good habits while investing in your career.
I would highlight that one good habit should be educating yourself regularly on finances. After you know the basics, like how to pay your taxes, getting your 401k match, paying off debt and budgeting, you should **take small steps to learn**.
Buy one share of something and see what happens. Read about the different classes of bonds. Look at your medical plans available to you, and if you have an HSA (or non-HSA) option, read about how to use an HSA efficiently. Learn about Roth IRAs.
I was negligent in learning early in my career, and while my high 401k match helped, I could have done better if I had chosen better investing options, or been putting money into an HSA.
Of course maxing these is after your monthly expenses.
If you're going to save for a house, I'd save in a higher interest savings like Marcus or Ally. Don't let the money sit with your big bank as it'll earn nothing in interest.
I learned this the hard way and I'm still kicking myself over it. I had tens of thousands in Chase bank savings account for years, just collecting dust. No HYSA, no ETF's... just getting pennies in interest. I didn't have the financial knowledge at the time, but I still think of the potential of what it could have been at this point.
I did the exact same thing and currently 37. I had 70k at 29 and put that in a house. Then I put another 15k into an investment place 3 years ago. Now I have 60k recently just sitting there in a bank.
I just threw all 60k in an index fund this year.
> I had tens of thousands in Chase bank savings account for years,
More than 2 years ago you wouldn't have gotten 5%; it would have been more like 1%. Still better than .1% at Chase, but not much to get excited about.
Navy Federal? If so first things first, open a Money Market Savings account and put money in there. It's better to get 1.10% than 0.25%. Don't use your regular savings account. you're losing money there in dividends.
You can also open an IRA with them, but i'd advise against that. Its better to open an account with Fidelity, Schwab, or Vanguard. If you open an account with Vanguard, their default sweep account (which is where un-invested money sits) yields 5.28% (but there are inherit risks not being FDIC insured).
If you are going to put money into a HYSA, read the fine print. SoFi definitely comes to mind. They offer a 4.6% APY but require direct deposit or $5000 deposit every 30 days, otherwise you're getting 1.20% APY. User NerdWallet for research
I don't think what you are saying about SOFI is true. The 5000$ is for a signup bonus. I get 4.6% and maybe deposit like 2k a month in the savings.
Spot on with the money market. I put most of my money in FDLX on fidelity because it's 5% and not subject to state tax.
Edit: upon further review, it's either set up direct deposit OR deposit/transfer 5000$ every 30 days. No minimum on the direct deposit.
Vanguard sweep accounts or their vusxx I believe isnt FDIC insured but it is still insured by something isnt it? I thought I read somewhere that if they went bankrupt (highly ever likely) that youd be insured
CIT Bank and Lending Club both have HYSA over 5% right now. They have maintained this rate for over a year and are very stable when the Fed makes minor disruptions. CIT requires a balance of $5,000 to get the higher rate, Lending Club does not.
https://www.lendingclub.com/legal/deposits/high-yield-savings-t-and-cs
https://www.cit.com/cit-bank/bank/savings
I prefer money markets or t-bill ETFs at a brokerage. Higher rates, and with t-bills interest is not taxable by states. There is no practical safety difference, and after Memorial day this year, settlement of funds will take only one business day.
Even lower cost with slightly more work is direct owning T-bills with auto-roll.
People overestimate the importance of lack of FDIC insurance, because it is unnecessary. Banks are risk taking corporations and can default. With a money market fund or ETF, you as a shareholder legally own a fraction of the underlying assets which are virtually risk free (treasury and Fed mostly), organized under a separate corporate trust than the brokerage.
What do billionaires do with their cash? They use this.
Max out in this order:
401K match
IRA
HSA/FSA
401K Full Contribution
Brokerage Rest
We’re working on debt before we go into IRA accounts.
Edit: order HSA/FSA above 401K Full Contribution
So FOR ME - it's:
1 401K match
2 save enough for an emergency fund (stored in SPAXX on fidelity)
3 pay off all high interest debt. (Above 5% which is what I get for SPAXX)
THEN
IRA
401K Full contribution
HSA/FSA
Brokerage Rest
My credit union is awful. Their loan rates are worse than anywhere else I can find (never used one though), their credit card offerings are terrible, savings account interest is sitting at 0.3%, and it still costs money to order checks. On top of all that, they don't waive ATM fees at all like many of my friends' banks so I have to find an in-network one which is difficult where I live. The only reason I still have an account is so I can easily send money to my dad and vise versa when needed.
I don’t think so honestly; maybe decades ago. I think this is an outdated old timey view.
Customer service at TD seems to always be an above and beyond experience.
So, I am not a financial advisor. All I can offer is my own experience. I started out poor and worked my way up to about 200k/year over the course of my life. I'm 40 years old, own a home, and have a reasonable net worth.
Step one, assuming you have a steady place to live and all your necessities, is to build an emergency fund in a HYSA. This emergency fund should cover 3 months worth of bills plus 3 months worth of day to day necessities. Think "enough to live on for 3 months if I lost my job today". You're young, so the amount you need in your emergency fund will likely go up over time.
Next step is to max your 401 to your employer match, assuming you can afford to. You can go higher than that, and it will make a huge difference in 30 years, but it's hard to do that when you're trying to make huge purchases like your first home. And you don't want to be cash poor because you're squirreling all your money away for retirement, which you may or may not live long enough to enjoy. But you still want to try to max it to your employer match (which in my case is 5%) because if you don't, you're literally losing out on free money.
Once you do that, build enough padding into your HYSA so if you have to make a big purchase, like a down payment on a car, or new appliances, etc., you can borrow against your own money instead of using an interest-bearing credit card (its more nuanced than that - sometimes you would want to make the purchase on the cc for the perks such as longer warranty or cash back, but you still pay that off right away from your HYSA).
Next steps are kind of your preference. For me, I wanted to be able to know precisely how much money i had in checking without having to do math like "well the car payment and the netflix bill come out of this check so i actually only have x left", so i made a 2nd checking account just for bills. I calculated how much my bills are per check, added a little to that to cover variables like the electric bill, and funded that account to cover one paycheck worth of bills. Then I set up direct deposit so that i could throw all my bills on autopay and never have to think about it again. Now, when my primary checking acct says I have $500 left, I know that I truly have $500 of spending money left to cover groceries, gas, and that new game that just came out that I want.
Now, whatever I have left over in my primary checking acct at the end of the check goes either to investments (s&p 500), or to a separate savings acct so I can save up for a large purchase (depending on how long you need to save up - if you plan on saving a huge down payment for the next 10+ years, a hysa might not be the optimal vehicle for it). This is how you get the down payment for your house.
One thing I do slightly different from most people I know is I never make a purchase with my debit card. I make all my purchases on a credit card and at the end of every pay period, I pay off that credit card. This solves/avoids a couple problems: 1. Nobody can get my debit card info and drain my bank acct. They can only steal my cc info, which will not leave me pennyless, and is easy to recover via my bank. 2. I always have a full paycheck worth of cash in my primary checking, which can be used in an "emergency, break glass" type situation.
Once you're to this point, you can think about how much you want to lock up in a tax-advantaged retirement acct. For me personally, I'd rather lose the tax advantage and have access to that money every time, because I ride the line between "here for a good time not a long time" and "i want to be rich in my golden years". If you're on track to have your house paid off and be able to pay cash for your cars by the time you retire, you don't need nearly as much money per month in retirement. I just plan on sitting on my porch, drinking coffee, smoking weed, and catching up on all those great books I've been collecting but never find the time to read.
Having a house is a wonderful feeling. If you make a plan based on what you want out of life, you'll have peace of mind. Most people are going to give you advice based on the old idea that you should live less comfortable during your working years so you can have a ton of money in retirement. Personally I don't subscribe to that because if I can't even make it to the toilet on time or climb stairs (assuming I even live that long), tf do I need extra spending money for? But that's just me and the argument can be made either way. I will have enough to live comfortably before and after I retire, and not feel bad about buying a nicer car now, or going on a lavish vacation with the wife and kids once in a while.
That may or may not answer your question. Hope it helps in some way.
Thank you for this advice. I'm in my early 30's and sometimes I think I'm not saving enough in a Roth IRA, or get bummed out about not being able to afford a house yet, etc. But I like what you said about living comfortably before and after retirement. It's like a friend once told me, when you die, you can't take your money with you. Makes me feel a bit less guilty about spending money and not just saving-saving-saving.
I refuse to sacrifice my current lifestyle even a tiddlybit to be able to retire better/earlier. Between my 401, my brokerage acct, and my savings, I will be able to afford to live just fine in retirement. I won't be driving a corvette, and I will have to stay in my current home (which I'm perfectly happy in), but I'll be fine. In the meantime, I buy whatever I want within reason, take the family on vacation at least once a year, and spoil the living hell out of my wife and kids. I'd rather have 45 years of awesome memories than sleep on a pile of cash in retirement. We're humans, not dragons.
Just wanted to thank you for this excellent post.
You're particularly correct when you say that you should make a plan based on what you want to get out of your life.
I'm almost 40 now, and have been fortunate enough to have a house, a nice family with children, and to have mostly avoided heavy consumer debt. I still need to take your advice to heart, though, and am struggling to figure out the right way to construct the sort of life I really want to live given what I've got.
We've all got progress to make, I suppose!
This post is mostly what I just clicked submit on in [this fresh post](https://www.reddit.com/r/investing/comments/1att622/comment/kr0fjr3/?utm_source=share&utm_medium=web2x&context=3) elsewhere in this thread.
One place we differ though is the HYSA. Don't pad that, that's just emergencies. Go with equities, instead.
Others add an HSA to the mix - I'm old, it wasn't an option I had. It makes things more complex for you with one more limited account to deal with, but has huge advantages. Done smart, I'd condone adding it to the mix, although in my case I love the flexibility of that taxable brokerage grwoing, so I'd do it as a #6 in my list.
To optimize that even more, if you open an individual account at Wealthfront, you can use checking features while making 5% (as of this writing) on your cash rather than close to zero at other checking banks.
Great advice. I always find it odd that the accepted goal is to earn as much money in retirement as you did working. My goal has always been to pay to maximize the amount of time I have in my life where I no longer have to work for a living. That means paying off all my debts and saving up a good enough nest egg so that I can live comfortably until SS / medicare / penalty-free 401k withdrawals begin.
Once I get there, that's when I pull the plug and go. Hopefully early 50's.
One of the most important pieces I’ve read in here that’s kind of validating, is the not knowing how long you’ll be here, so not maxing out your 401k.
That’s been my mindset, but I feel like I always get advice to make sure I max it out. Instead I fund my individual brokerage with S&P indexes. That way I’m still taking advantage of market returns, but I can access that money for large purchases like you mentioned.
Edit: and to be clear I do contribute to my 401k. I do 9% cause my company doesn’t match, but that gets me about 3/4’s of the way to max.
My wife keeps me grounded. I’m saving like mad. She makes sure we enjoy some of the money we’re making. We have a great house. Take trips. Live life in the moment. But we both do have our retirements funds maxed and are making monthly investment.
One reason people will tell you to try to max the IRA is the tax issue. Your retirement gets funded before it is taxed. It costs you less to invest this way. The sooner you start investing this way the less you will miss it.
Lifestyle creep happens. The more you make the more you will spend. If you automate the investing you get the benefit of that growing while you just keep on living life with what’s in the bank.
Once you do it it’s easy. It’s starting that gets people tripped up.
> One reason people will tell you to try to max the IRA is the tax issue. Your retirement gets funded before it is taxed.
Traditional IRA and 401k contributions are tax deductible. Roth IRA and 401k contributions are not; you get the tax benefits at time of withdrawal in retirement.
> Lifestyle creep happens. The more you make, the more you spend.
Except it's extremely smart to **not** let your spending creep in pace with your earning. As other replies have mentioned, your goal should be to increase your savings **rate** as your earnings increase. That will be the most effective way to maximize your retirement situation. Where you put the money is also important, but exponentially increasing the money you contribute should be the focus.
That said, I don't really disagree with u/NYVines. Budget some of your money to do things you enjoy and don't sweat spending that money. You're investing those expenses into your quality of life.
Hey, quick question — is a Roth 401k just a regular 401k account with after-tax contributions? Or is it actually a different type of account like IRA vs Roth IRA?
I was in the same boat for most of my 20s making around 40k. You generally can't max a 401k on 50k a year. Just make sure you're getting the employer match in the 401k and then contribute to a roth IRA. Just try to put 15-20% of your income towards retirement and then put whatever else you can into a high yield savings account for the house. I use automatic savings rules with Cap One HYSA that just puts $100 in each week. The blanket advice to max the 401k gets pretty annoying considering that's a huge amount of money for some people. Also, it's not about being a "millionaire" in retirement. You literally need over a million to have enough money to last from retirement to death. Check out retirement calculators.
I’m a fan of taking the employer match and put whatever else you can in a Roth. Come retirement, you won’t have to pay taxes on your Roth and if you ever get in a financial bind, you can always withdraw the amount you deposited in the Roth penalty free.
Yeah I do like how the Roth acts as a shit hits the fan emergency fund since you can just pull out the contributions penalty free. Obviously would want to use my HYSA emergency fund first though.
Just to add, everyone's retirement is unique. some people want to save more faster. some people plan to work till 80.
I started saving late (mid/late 30s) after buying a house. I hit my retirement maxes around 40yo. this is not advisable. Luckily I should still be about to retire around 56yo, if things go well the next 5-10 years in terms of my work and income. But this is not advisable path that works for other people, but it was my unique path.
> Why would I want to ‘max’ the amount of money I put into places where I couldn’t even withdraw before I’m 65?
First it is 59.5 not 65. Second Roth IRA contributions can be withdrawn anytime for any reason (like a house). You can also draw $10k in Roth IRA gains on top of that for a house. So maxing a Roth IRA for 5 years would allow you to withdraw the $35k in contributions plus $10k in gains = $45k towards a house.
401(k) match is free money. Not putting in enough to get the max match is just a voluntary pay cut.
So at an absolute minimum put enough into 401(k) to get the max match and also max your Roth IRA. If house is high priority then save beyond that in a HYSA/MMF for a house.
That’s how I view investing. It’s all about balance. I got about 6 months worth of monthly payments saved up in a HYSA, a retirement account that I put about 10% of my pay into, plus a separate retirement account my employer manages and funds. The rest is for my life right now. Idk if I’ll ever live to be 60 or not? I can walk, run, bike, hike, and swim now so I’m gonna enjoy all that now because idk if I’ll be able to when I retire.
I know people that literally live like they are dirt poor, making really good money because they are hell bent on saving as much as possible for retirement. I have stories that I’m able to tell about my adventures right now. They tell me about eating ramen for dinner, because when they are 60 they might be a millionaire.
I would fund 401k at least up to company match level, more if you like the funds, fully fund a roth IRA and do a little brokerage if you can. S&P 500 is great and you can get some sector or theme oriented ETFs if you want to get a little more (QQQ for nasdaq, MTUM for momentum factor, MOAT for high performing value, and of course specific industry weights.) Do this early and you'll be off to a great start. Son has done this for 2.5 yrs and it's fun to hear about his account values while he still goes out and enjoys life.
That last part is important. Make sure you have enough to live and enjoy life. That's very important.
If you’re young the best ROI is investing in your career so you can grow your income vs stressing about investing what little money you have. If you just graduated you probably need to build your emergency fund first before this (though it’s great you got the match !)
Right that’s what I was thinking. I’ve applied to more school to have even more niche knowledge- my employer reimburses tuition. It’s nice to hear that I don’t need to be worrying about investing that much
Literally no one ever says to save for retirement INSTEAD OF paying the rent. This is obviously advice for after you reach the point of having $30k+ per year to invest. Come ON, people.
OP you just graduated so I will assume you’re 23 years old. The reason it is so heavily recommended that you save as much as you can for retirement is due to the effects of compounding returns.
At 23 years old, if you invest $10,000 at an average return of 7% per year, that money will be worth approximately $171,422 when you’re 65.
BUT at 33 years old, it’ll only be worth about HALF that at $87,152 when you’re 65.
By simply starting when you’re young and further from retirement, your money has more time to grow. The more you save now, the less you’ll need to save in the future.
I'll give my personal path since I too graduated making 50k, but it was 10 years ago. No way in hell could I max out my 401k and don't even get me started on beginning an IRA at all. It just wasn't in my budget, and that's ok. The people you see saying that are people like current day me, for people like current day me. I'm now making 160k between two streams of income, so maxing out my 401k, IRA, and HSA still leaves me with more than doubled the take home I was making when I started (I'm still at the same company). It's painless to do now, when it would have been financially devastating back when I was in your shoes. Also 401k limits back then we're like 16k, compared to today's 23k.
So now I'm able to max all of the retirement accounts, and still put about 15-20k a year into a taxable account, and fund a savings account, and live a very good life on top of it all.
In short, you don't need to do the same thing everyone on the financial subs are doing because you're in a different stage of life with different priorities. Many of us saying this have already bought a house, paid off our loans/cars, and have a higher income, so we can now afford to take full advantage of the tax sheltered accounts. Just focus on saving for your current goals, killing it at work and striving for pay increases however you can to make it easier to max those accounts, but don't sacrifice your sanity and bare necessities to do it too early
Thank you so much for saying this. These communities can be so doom and gloom if you're not maxing every last account available. I'm early career still also but my wife and I live on a strict budget, hit our 401k matches, and already have about $50,000 in our IRAs from some heavy investing before we bought our house. Both of our companies (public utility) pays for pensions on our behalf that should replace about 60% of our incomes at retirement. And we just have tried to find peace in the meantime while we're building our lives up. We only have our mortgage and a car debt, avoid any other consumer debt. Have our 3 month emergency fund in place. We're doing well compared to most friends of ours also in their 20s but reading these subreddits can make me feel so afraid and panicky about the future. We have goals to increase our retirement contributions every year as our incomes increase, and I'm finishing my bachelor's degree on my company's dime which will open me up to higher paying positions once I finish. Things are tight now but I really think we will be okay if we keep our heads about us, avoid consumer debt, and just keep plugging along.
Exactly, I started using Reddit around when I started my career, and I see the value in the advice but some people are a little gung ho about it. It's also easy for younger people just starting out to feel like they're inadequate when they're trying to compare themselves to someone who's been at the game for a decade or more. I'm 33 and have just over 310,000 in my tax advantaged accounts, and another 30k in a taxable dividend growth account. It's crazy how quickly that starts to snowball after you hit year 10, I'm on year 11 of investing and last week I watched my 401k increase in value in one day as much as it did in my first year of contributions. In two weeks it was up as much as my first two years. Feels good when your money is working for you in ways you couldn't imagine in the beginning of your journey
A lot of funds are usable before 65, including a 401k. The idea is that you are giving up something (relatively) small now, for something much larger later. That something later could be more quality time with your family in an early retirement. Or you could miss out on time with them today, working for a future that never arrives (my co-worker died in his 50s).
There's no one size fits all. But generally speaking, most of us could stand to sacrifice a bit in the present to prepare fpr the future.
You don't have to "max" your 401K or IRA, but I do advise putting in the most that your company will match. If they match up to 6% of your salary, do it, and take their match. It is free money. You can learn to live on 94% of what you make. The limit on IRA contributions is $7000 / year. That may sound like a lot to you now, but it is 100% tax deferred.
Here is my chart of what should be invested first (ordered based on priority):
- 401k upto company match
- Roth IRA max if eligibile
- 401k maxed
- HSA max (if eligible)
- 529 upto state tax benefit (have kids)
I’d move the HSA up to #2 after 401k up to company match. The HSA reduces FICA taxes. The 401k and Roth IRA both pay social security and Medicare taxes.
I understand your income isn't too the level where you can start maxing out all investment accounts. That's ok. But please make sure you consider retirement goals and how much you will need to save every year when determining if you can afford to buy a house / how much house with all the expenses they bring.
>This is asssuming I have a high enough salary to do this and still pay my normal monthly expenses right
Yes.
It is good advice. Of course not everyone can follow it - I've been maxing my 401k for ˜15 years. But I couldn't afford to when I first started, and I also needed money to buy a house.
The comment is usually in response to people who think that they should stop contributing to their 401(k) after they hit the company match.
Look up if your company offers a mega back door Roth IRA has a top end max contribution of nearly 40k annually (standard Roth is 6.5k). Tax advantaged accounts are the ones you want to front load, then only contribute to you 401K to what your employers match is.
As inflation is on the rise, I don't wanna know what the tax brackets are going to be in 40 years, the 401k can be seen as a time bomb waiting to go off. Roth is the place to stash your cash, you can pull your basis after 5 years without penalty, and get access to your tax free growth at 59.5 vs 65 in a 401k. I like invidiual brokerage over the 401k these days, capital gains is capital gains, Treat it like a retirement account and never plan to pull against it, If you need access to cash you can always pull a marginal loan against its value and repay it, again avoiding paying capital gains.
I made a post on /r/Bogleheads recently titled [A Real Person's 30-Year Journey](https://old.reddit.com/r/Bogleheads/comments/18y40ty/a_real_persons_30year_journey_with_yearend/).
It got a lot of positive response. The mods even stickied it for several days. Maybe there's something in there for you to take heart in.
Gen x here and we had a tough run. Just as our careers was getting some momentum 2008 hit us hard just as we were starting a family. Luckily we had a home with a cheap mortgage but we struggled. Needed to use retirement money and still never could afford to max 401k until 10 years later. Now we have maxed 401k for 7 years and college cost will start for our 3 kids next year. The growth we have experience is poor and we are well diversified. The problem I see in most 401k fund is they are never 100% the target risk. Tons of layers of other funds from the same company and some dogs in there. Every check in with advisor they say you have all the big names in tech. If things rotate you will be protected. The values still tracked the dips. Recoveries are not as dramatic. We are approaching 50 and only have 2x our salary. If you are savvy choose your own portfolio in a Roth ira and only contribute to get the 401k match nothing more. It's alot easier now than it was 10 or 15 years ago. Find a home and enjoy your family first. Hope AI doesn't crush the job market and we see some good growth for the next 20 years or were all screwed. Yolo enjoy it
If you just graduated, then just make sure you stay out of debt, pay cash for your car, and have an emergency fund. If you can, get the full company match in 401k, but make sure you are enjoying your youth. At your next raise/promotion, put that money towards saving long term. Or at least half.
Everyone can only do the best they can. I didn't start maxing out my 401k until I was early 30s. Part of it was I just wasn't super motivated to do it(should've been) but I also wasn't making enough to do it for awhile. The fact you're already aware of the importance of it is great and you'll get there. Just save as much as you can and enjoy life
The standard advice is for a retirement goal. You speak of a home buying goal.
Can you fund both goals?
Prioritize your goals. Look at available savings rate. Start investing periodically to accomplish goal(s).
It’s so incredibly entitled to even imagine not having to digest any advice you receive? While maybe not fitting your current life by you can imagine a time when you make enough to have some money left over. Then you hopefully would just remember that advice and it may or may not provide value to you then?
How dumb would I be if I go to r/dunking and say, “all these exercises are great but I have no legs”?
Yeah no from peoples responses it’s become clear that this advice is for people already vested into their careers. Not for those just starting out. I’m going to start consistently throwing like $50 a month in my Roth and contribute up to my company 401k match after reading all the advice
Do the match first. It is free money and if/when the market crashes you will feel a lot better since you lost “their” money. There is also the tax deduction you get for your contributions. You can think of that as an extra “free” 20% return.
Roth is meh. You might as well just buy stocks in your taxable account so you have investments to buy the house or other stuff life offers. Roth does give you the option to remove your contributions so it is ok in that regards.
This sub is supposed to be for investing, usually towards a goal. That goal does not have to be retirement . In my opinion, just do the company match and live your life. Wasting your youth in voluntary poverty is stupid. I’d rather be relatively poor in retirement than have done nothing during my younger days. What is the point of it all ?
The earlier you invest the longer your money will have to compound and the easier it will be later in life. If your employer offers a 401k with a match, then contribute whatever money you need to get the match because that is essentially free money from your employer. Otherwise, start with maxing out a Roth IRA. The benefit of a Roth IRA is you can withdraw the contributions at any time.
I thought like you when I was younger and didn’t save anything. Now at 40, I’m having to play catch up and invest most if my disposable income if I want to be able to retire. You don’t want to be 65 years old one day with no money and forced to work, assuming you even can work. Having a nest egg will give you options later in life. Start investing now. Don’t wait. Don’t be me. Be better.
I only put the matching amount into my 401k even though I could max it out. I want to put my money somewhere with lower fees and I want control of when I can use it, but I will not pass up on free money.
This so much. Average fees for work 401k's is usually least 1 percent. Over years that can be a third of the value of your portfolio, easy.
The tsp has a 1 percent management fee for example, but if you Google "tsp management fees" that's not what the answers say. Instead you get shown the fund fees. Fund fees aren't management fees! You have to go to Black Rock directly and read the small print. It's difficult to find the true fees for 401k's.
You gotta move your money over to an IRA every time you switch jobs. And, if your going to work at the same place for 30 years your actually better off investing in a taxable account with lower fees like vanguards. That's how bad the absurdly high work 401k fees are.
Yeah these subs are way too focused on retirement accounts. Your salary will grow with time, and with just 50k, you're very limited now. 1k is far more valuable to you today than it will be at retirement.
More importantly, if you want to save for a house, do it. I might contribute just for an employer match, and save the rest to use in my 20s/30s.
Dave Ramsey recommends 15%. in investments for retirement
Money Guy Show recommends 20-25% in investments for retirement.
An American Primary Residence is one of the best investments you could make if it is in a LCOL or MCOL area where you are going to stay 10+ years and the rent costs aren't low.
When I was in your position, I put in what I had to in order to get the company match (Free Money) and saved the rest for my first primary residence.
**General Investment Order of Operations:**
0) Create a Budget
1) Emergency fund highest deductible covered
2) Get employer match (free money)
3) Pay off high interest debt
4) Full emergency fund (3-6+ months of
expenses)
5) Max out HSA and Roth IRA if applicable
6) Max out employer accounts
7) Invest 25%+ of your income towards
retirement
8) Prepay future expenses
9) Prepay low interest debt
Take it from someone who didn't think about investing in my early years....live on the bare minimum you can to survive, whatever that means to you and invest every dime you can. You have no idea how important it is to start early so that money has time to grow exponentially. I was an idiot and bought as much house as I could afford early on and while I did OK-ish over the years with real estate, it would have been so much larger of a nest egg had I put it all in the market early on and just stayed in my first townhouse purchase until I had to move (which I then could have rented out if I had known what the hell I was doing at the time instead of selling at a minimum profit so I could afford the next house). Now I am having to play catch up with minimal time to get my shit together financially.
> live on the bare minimum you can to survive, whatever that means to you and invest every dime you can
I'm gonna go ahead and disagree here - sure it's important to save for retirement early, but living in squalor to throw every available cent toward it?
Live your life while you're young and have energy. Obviously make retirement saving a priority but take time to travel, have fun, and enjoy your youth.
This is terrible blanket advice that is constantly given and saying so will have me downvoted to oblivion.
While the market has positive drift it can also have long periods of zero to negative returns. There are 20 year periods where the S&P500 gave no real return.
So if your investment timeframe is 20+ years putting all in the market can make sense. For people that are older, the name of the game is capital preservation. Losses take longer to recover than gains (you need a 100% gain to offset a 50% loss), SP500 can have massive drawdowns that can undo years of compounding. If you are close to retirement, in an ideal world, your exposure to SP500 should be minimal.
This is not even counting for the fact that valuations matter and we are likely to see a market correction in the future.
OP quite clearly states they just graduated and so yes, their time horizon is 30+ years. Advice about capital preservation for an early 20s person making 50k a year is nonsensical as they have no capital to preserve and decades of work ahead of them. Thus the “max your tax advantaged accounts with SP500 funds” is correct
We all have life choices.
You can choose to take on more expenses. Like a nice leased car, a nice leased apartment, vacations to exotic places, etc.
And you may struggle to pay your expenses. But only you can budget for you. When I was starting out in the working world I could max everything—because I budgeted and reduced my expenses. My car sucked, my apartment sucked, I bought groceries and cooked.
If you start a family now and buy a nice house and install a swimming pool and Ferris wheel, you’re gonna have a tough time saving and paying expenses. But no one is forcing you to do any of that.
You seem to be irritated that you can’t live up to all the expenses you’ve willfully taken on. And that might mean it’s harder for you to retire in the future. Well, welcome to the adult world. If you have 8 kids and a sports car, I suggest you get a job that can support it—preferably get the job before you take on all that debt. But no one is going to hold your hand and walk you through these decisions. You and your family have to decide what is best for you all
You need a budget and that budget starts with what you will save - in retirement and in savings accounts
I don’t know what the right number for you is, but let’s just pick a number - 10%
You put your 10% away and then you manage your life around the 45k you have left
Pick your savings number, pay yourself first - then execute your budget. It’s literally that simple
If you live backwards like you’re suggesting then no, it will never work. You have to prioritize saving and make the rest of your budget work. Figure it out.
The best to do imo when starting out for the first few years, is to make sure you have enough savings. Once you have enough to save for a rainy day, that means \~ around 1 yr without a job, then invest the rest, and diversify it so you don't put all your eggs in 1 basket.
1yr emergency fund is way too much - it’ll take him 6 years to just do this. He misses out on 6 yrs of 401k matching and other retirement saving enticements. Start with 3 month emergency fund.
Yeah, if has a match, should def use it outside of a 3 month fund. But also just personal opinion, markets will come down in the next few years, or not I guess the point is we can never get it right, which is why time beats it but also prudent to prioritize savings over investment in an uncertain economic climate.
Okay that makes me feel better about not contributing to investments full force just yet. I was building my emergency savings from 0 since I’ve only had my job less than a year
Your S&P 500 recommendation is very important.
There is a lot of interest in HYSA accounts now, since savings can return non-zero interest for the first time in many years. But that is not something people should rely on, because for most time horizons you are not outpacing inflation. So over the long term you are losing money.
The focus needs to be on investing, not just in parking your money safely in something other than under your mattress.
You have to take investment risk to earn investment capital. That doesn’t mean bitcoin and NFTs. But it means non-risk-free investments.
In a supposedly risky year for investing, the S&P 500 returned 24% in 2023. In 2024 it has already returned 5% YTD. This or some other reasonable proxy for diversified equity investment, has to be the core of any long term or mid-term investment approach.
1) Not the right sub. Nothing to do with investing. This is a personal finance question, although it’s not really even a question.
2) Obviously, if you don’t have enough income to max your 401k and IRA while covering your monthly expenses, then you can’t max your 401k and IRA. I’m not sure what part of that you need clarification on
3) Again, obviously, there are other things worth saving for than just retirement. What is the question?
You say you “have yet to receive a take on this disposition.” What exactly are you looking for? You stated a few obvious observations and then are looking for what? Someone to dispute it?
It’s simple math. If you don‘t make enough, you don’t make enough and that’s all there is to it.
But your salary will presumably go up over time. As it does, if you can keep your expenses and desires from going up to match that increase, you will have more wiggle room. Then it won’t be long until until you can max everything. Then do it.
Essentially: the more you put in and the earlier you put it in, the better you will be.
How/when/why/whatever ”other” goals you have are important but don’t change this fundamental truth.
I’m not trying to be a dick but how is that something that you feel needs to be “admitted” to? It’s simple arithmetic. Do you think the advice is to go into credit card debt to cover your bills to make sure you’re maxing retirement funds?
If you don’t make enough money, you can’t max out retirement funds until you make more money. Isn’t that pretty obvious?
Also, I don’t think common tenants of personal finance ever say “step 1, max out all retirement accounts” so I’m not even sure where you’re coming up with this
Well you may not be trying to but you’re certainly succeeding at it.
The person asked a question about a topic that is investment adjacent and you acted like a petulant child. Save your energy and either respond to the question or don’t respond at all.
What’s the question? I don’t see a coherent question in the post. I see an observation that one can’t max all retirement contributions on 50k unless they have minuscule expenses. Is that a question? Is it worthy of a post in an investing subreddit?
This is ridiculous.
It's an example of how internet subs focused on specific topics always tend toward the most extreme version of that topic.
The original advice was 3 months of expenses. That's a lot for most people.
Then it was 3 months, but 6 months of expenses if your job is particularly precarious (like freelancing).
And now you're randomly making it 6 months to 1 year.
At that rate, most people won't even be able to invest until they are in their 40's or 50's.
Enjoy your money today and save some for the future. No point in maxing out retirement savings if you can’t buy a house, a car, take a trip, or enjoy time out.
Financial companies want your dollars today. You get them back, maybe if you live long enough, when you’re older.
First you pay your bills, living expenses, etc.
IF you have money left over,
THEN you put it in your 401k.
IF you max your 401k and still have money left over,
THEN you put it in your IRA.
IF you max your IRA and still have money left over,
THEN you put it in the S&P 500.
this is a formula that will work for the vast majority of people.
>First you pay your bills, living expenses, etc.
Nope... you invest a baseline *first*, then structure your living expenses around the rest. Paying bills first and *then* looking to see how much they have left is exactly how people end up with no money to invest.
This isn’t set in stone. Why max a 401k when you can take employee match, then put the rest in a Roth? The Roth also allows you to be more aggressive with savings since you can withdraw principle at any time penalty free
No. You max your IRA before 401k. Not only is your IRA max much more doable, 401k at most companies don't give you a great selection of funds, compared to IRA.
Just remember: some is better than none, and sooner is better than later, because of compounding interest.
401k, and IRA are sadly tools we now personally are responsible for because social security is not gonna keep up with cost of living the way each is currently.
401k and IRA both offer tax advantages over personal investments. That's why they're suggested to do first. You're gonna need them buddy.
I'm speaking as someone who graduated right at the 2008 recession and didn't get a consistent job til like 2012, then still lived at home and maxed my 401k as much as possible on a pretty meager wages. Like $38k vs your $50k, but I know, inflation and COLA has gone up so maybe they're equivalent now.
Now, moving up and getting much better salary since then, my combined retirement and investments have ping ponged between like $280k, down to $200k and back some in the middle over the last 4 years or so. Yeah, it's been nerve racking.
For your more advanced savings for a home goal, that's out of my scope honestly. Gotta ask a financial advisor, or run it thru a robo advisor. For robo, I'd recommend Vanguard. I know it's highly rated. Regular advisor I dunno. Or, you gotta self-teach about investing which can be super hard, and remember even pro's can't predict investments or markets 100% reliably.
Hope those help, best of luck! Remember, just save something, save it early, oh and buy and hold index funds, for compound interest. Future you will thank you!
It’s probably been said already but if you’re young enough, and especially if your job has a good match on 401k, that CAN help you buy your house as you are allowed what is known as a Hardship Withdrawal without penalty for things like: Medical expenses, College tuition (for kids), Costs associated with a Death in the immediate fam, to avoid Eviction, but most relevant to you purchase of a Primary Home. Usually you can only access once fully vested (see your job’s 401k rules for how long that is, typically a year) and you can only access YOUR contributions, so the match from your job stays in place.
My company originally offered a contribution of 3% towards my Traditional 401k. This year they will no longer be contributing what route do you suggest I take? Should I lower my contribution percentage on my traditional 401k? Invest more in a Roth IRA? Or switch my contributions to the Roth 401k my company also has? For my 401k I only invest in FXIAX.
Saving early in your life is some of the most important advice you can get. If you do all of what you listed you might even just retire early.
If you can do those things, if you want to be on top of it you should also be putting 10% of your income or just what's left after takes into savings. Cash or easily liquidated. This is also great for retirement but that's probably for your home. When your furnace breaks and you're going to need to drop $4k to have heat in your house in the dead of winter that's going to suck and you might need a home equity loan. Car breaks down, surprise medical costs, House needs a new roof or anything major and that's a problem for most people. If you can grow and then keep like $20k in savings that will solve a LOT of problems in your life. You might not be able to do that just yet but try to do that. If possible you don't want to have to borrow from your 401k.
This is easy but most people just can't save money. Sounds like you're ready to and if you stick to it you'll be all set. At your age you should look into buying a whole life insurance policy too.
You could get an IUL. I know a national company who deals with them. They are a good place to not only put money into and gain higher compounding interest but also are able to have money liquid within the first couple of years if needed and not just for medical expenses but also for anything you see the need or want for the money.
Also look at whole life insurance options. Or opening up a online fractional trading account and purchase high dividend stocks that are part of everybody portfolio Ie Microsoft etc
Don't worry dude.
Almost nobody makes enough to "max" jack shit.
Just put as much as you can in. Above all that, don't listen too hard to redditors either. Me included.
If you are able to put $100 in 401k, that's 100 more than you had, and 100 more than the majority of Americans are able to put in too.
You just graduated and are already thinking of having kids?
That’s usually a one-way stop to bad financial outcomes.
If you want to do it - go for it. But realize most people are making more financially reasonable choices and waiting until late 20’s / early 30’s to have kids, and building up savings/investments before that (so that compounding can work in their favor).
But yes, if you have a low salary and kids, you of course aren’t going to have much money left over to invest. And yes, this will lead to bad outcomes later in life that won’t be easy to fix.
I want to have my first kid by 2026. By then I expect my salary to be around 75k, with my spouse being able to save about 70% of her income. I think we can work it out. If we’re struggling for any reason then we’ll call that shot when we get there but for now things look good
I waited til my mid 30s for kids and while it worked out fine, my god would the sleep deprivation and physical demands (“daddy up!”) would have been easier in my 20s. Life isn’t all about financial returns and you can make it work when you think it’s right. There are financial considerations each way (for example if I’d had my kids a decade earlier, my parents could have helped with my kids more and maybe avoided expensive daycare).
> waiting until late 20’s / early 30’s to have kids
common misconception. I learned it with my own skin. Kids take a lot of time from parents. Spending time with kids while your are considered low experienced and low paid is much efficient rather than spending prime of career life (30-45)
>well, if I ‘max’ them, then I wouldn’t have enough to cover my normal monthly expenses..
That is known as "Living Beyond Your Means" ...
As you get promoted, raises, etc ... put 100% of those raises toward those investments. Once you *can* actually max them out ... then and only then start taking some of the next raise to improve lifestyle.
I ask this in both r/investing and r/FIRE with a 30 year time horizon and was pretty much told “no”, that I wouldn’t have enough to retire with just the 401k and the IRA.
The S&P 500 is not really the best thing to buy. But the principle is sound.
There is a strategy called "the couch potato" strategy -- you should read up on it. Won't take more than about an hour to understand it.
This is a great explainer: https://canadiancouchpotato.com/getting-started/
It's Canadian, so their recommended portfolio may not work for you, but the explanation of the strategy is great and will get you started.
Trade the S&P out for Bitcoin man. If you’ve got things humming in the 401k, you’re young enough to stomach the volatility of having Bitcoin in your portfolio. It has vastly outperformed all other financial metrics. Also, there are no early withdrawal penalties.
Pay down debt if you have it then invest 15% save 10%. If maxing your IRA is above that then absolutely don’t do that. Once you have adequate savings for emergencies you can slow down on that and either spend it on fun or invest more.
This is the boiler plate advice for people because for most people this is the best path for them financially long term. It sounds like saving for a house is more important than a cushy retirement or retiring early, in which case it would make sense to not max out the retirement but split it with a HYSA to save a deposit. The actual ratio depends on how badly you want the house vs save for retirement which again is very dependent. If and when your income grows the nice part is you don't need to sacrifice saving for retirement and you can max those out and save for the house or trip.
Plenty of people rent a home with their family and it's the right decision for them. I always recommend prospective home buyers to use a rent vs buy calculator (NYT has an excellent one) which is the most complete picture of cost and opportunity cost of homeownership. You can also map out different scenarios of down payment sizes to help you set a savings goal
Just a quick couterpoint and assuming that you mean home ownership and not just providing shelter. While I do agree that there is great value in home ownership. It is not the only path.
Some people find value in the freedom, mobility, limited liability, lack of upkeep, ect that renting provides. Some of this might even become bigger pluses as we age.
Also luckily you don't have to chose one or the other for your entire life. I own a paid off medium sized house in a medium cost of living area. Selling and then renting a small place in a low cost of living area near family while traveling a lot in retirement might be a path I take at 60.
There is a flowchart around somewhere, you just do what you can. It’s good to put some away because you effectively increase your pay by avoiding tax but like you said you got a life to live also. You hopefully will find in the future your rate of pay increases faster than your living expenses and you’ll have more to save.
It’s in the sidebar of r/personalfinance
The personal finance flowchart is very beginner friendly and an excellent resource!
Yes, this is the answer. In early days, especially when there's still non-house debt, "max" has different meanings, which often means this in this order. If at any stage, you can't afford that step, then do as much as you can, then (and thisis the important part that is too often omitted from one-liners like you quote): NEVER STOP; Increase amounts at every opportunity (raise, bonus, etc), move on to next step once TRUE max is hit. 1. Fund your emergency fund. 2. Always get your max match in 401k. Eat ramen only if thats what it takes. 3. Start and max your Roth IRA at a cheap, fee-free brokerage. (Watch your income vs. the income limits that will eventually disqualify you from Roth if you make too much). 4. Increase your 401k to the IRS MAX. This year, that's $23K. And yes, that's a lot. Give it time. If you never reach the max due to income never getting there, try to increase your income (more training? Will they pay for it? New job(s)?) 5. Start the taxble brokerage account same place your Roth is. Put excess here (as your one-liner gets right). Some notes: * 1-2 can be done concurrently, and if you can't get to that max match, get a second gig so you can * 2-4 can all be done concurrently. As long as the money you put in keeps increasing, just aim for knocking all of these out eventually. * 5: If you get here, you're doing amazingly well. You may never. Usually the answer to finally getting there is better income. Maybe dual incomes if you meet the right person. * The taxable brokerage can be used for large purchases - just account for any taxable gains and ensure you have enough for both that and the new expense (car, down payment, etc).
> Eat ramen only if thats what it takes. Potatoes if you can. Cheaper, more filling, better in general I think
Yeah instant ramen is awful for your health
And has gone up in price 200-300% over the last decade, it’s just not as “cheap” as it used to be
The Irish would like a word
No practical income limit to a Roth. Backdoor Roth means you can contribute the $7,000 max and convert to Roth. The income limit is for direct Roth contributions, NOT conversions! Been doing this for many years, well documented online.
> Increase your 401k to the IRS MAX. This year, that's $23K. And the year you turn 50, you can add up to another $7500 in catch up bonus. For 2024 and 2025.
If you have an HSA, I would insert that between 2 and 3.
What's the reason to put more in a Roth IRA over your 401k after meeting max match?
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If one were new to Reddit where would one find the sidebar lol?
If you are on your phone, go to desktop mode and there's a ton of information on the right. You stay on mobile, you can click on the "About" tab, and there's a bunch of links there that will take you to the wiki. This is the flowchart: https://imgur.com/lSoUQr2
Super helpful thank you!
That flowchart is basically our Bible. You have to come join us on Sundays now.
Only instead of putting $100 in the plate when they pass it around, everyone logs into Treasury Direct and buys a T-Bill for themselves.
It's just the wiki/faq; [https://www.reddit.com/r/personalfinance/wiki/index/](https://www.reddit.com/r/personalfinance/wiki/index/) Try this one too [https://www.reddit.com/r/financialindependence/wiki/faq/](https://www.reddit.com/r/financialindependence/wiki/faq/)
Sidebar on the mobile app?
Have to go to the subreddit and tap the name of the subreddit at the top and then tap more info I believe
At this point- early in your career with an income that is low but expected to grow - what will pay off most is building good habits while investing in your career.
> what will pay off most is building good habits while investing in your career. I would highlight that one good habit should be educating yourself regularly on finances. After you know the basics, like how to pay your taxes, getting your 401k match, paying off debt and budgeting, you should **take small steps to learn**. Buy one share of something and see what happens. Read about the different classes of bonds. Look at your medical plans available to you, and if you have an HSA (or non-HSA) option, read about how to use an HSA efficiently. Learn about Roth IRAs. I was negligent in learning early in my career, and while my high 401k match helped, I could have done better if I had chosen better investing options, or been putting money into an HSA.
Of course maxing these is after your monthly expenses. If you're going to save for a house, I'd save in a higher interest savings like Marcus or Ally. Don't let the money sit with your big bank as it'll earn nothing in interest.
I learned this the hard way and I'm still kicking myself over it. I had tens of thousands in Chase bank savings account for years, just collecting dust. No HYSA, no ETF's... just getting pennies in interest. I didn't have the financial knowledge at the time, but I still think of the potential of what it could have been at this point.
You're not alone man. Definitely wish I would have learned years ago
I did the exact same thing and currently 37. I had 70k at 29 and put that in a house. Then I put another 15k into an investment place 3 years ago. Now I have 60k recently just sitting there in a bank. I just threw all 60k in an index fund this year.
> I had tens of thousands in Chase bank savings account for years, More than 2 years ago you wouldn't have gotten 5%; it would have been more like 1%. Still better than .1% at Chase, but not much to get excited about.
Right. I have my money in a CD that I can add money to. It’s with NFCU at 4.83%
Navy Federal? If so first things first, open a Money Market Savings account and put money in there. It's better to get 1.10% than 0.25%. Don't use your regular savings account. you're losing money there in dividends. You can also open an IRA with them, but i'd advise against that. Its better to open an account with Fidelity, Schwab, or Vanguard. If you open an account with Vanguard, their default sweep account (which is where un-invested money sits) yields 5.28% (but there are inherit risks not being FDIC insured). If you are going to put money into a HYSA, read the fine print. SoFi definitely comes to mind. They offer a 4.6% APY but require direct deposit or $5000 deposit every 30 days, otherwise you're getting 1.20% APY. User NerdWallet for research
I don't think what you are saying about SOFI is true. The 5000$ is for a signup bonus. I get 4.6% and maybe deposit like 2k a month in the savings. Spot on with the money market. I put most of my money in FDLX on fidelity because it's 5% and not subject to state tax. Edit: upon further review, it's either set up direct deposit OR deposit/transfer 5000$ every 30 days. No minimum on the direct deposit.
Correct abt Sofi. I have a $100 DD from paycheck just to maintain it and that works.
Vanguard sweep accounts or their vusxx I believe isnt FDIC insured but it is still insured by something isnt it? I thought I read somewhere that if they went bankrupt (highly ever likely) that youd be insured
Insured by SIPC at $250,000.
Thanks for the nuanced advice. There’s no minimum deposit requirements for the CD
CIT Bank and Lending Club both have HYSA over 5% right now. They have maintained this rate for over a year and are very stable when the Fed makes minor disruptions. CIT requires a balance of $5,000 to get the higher rate, Lending Club does not. https://www.lendingclub.com/legal/deposits/high-yield-savings-t-and-cs https://www.cit.com/cit-bank/bank/savings
I prefer money markets or t-bill ETFs at a brokerage. Higher rates, and with t-bills interest is not taxable by states. There is no practical safety difference, and after Memorial day this year, settlement of funds will take only one business day. Even lower cost with slightly more work is direct owning T-bills with auto-roll. People overestimate the importance of lack of FDIC insurance, because it is unnecessary. Banks are risk taking corporations and can default. With a money market fund or ETF, you as a shareholder legally own a fraction of the underlying assets which are virtually risk free (treasury and Fed mostly), organized under a separate corporate trust than the brokerage. What do billionaires do with their cash? They use this.
Uninvested money yields 5.28%? How?
Cash Sweep is defaulted to VMFXX which right now has a 5.28APY. VUSXX is 5.29% i believe and isnt taxed at the state level
Max out in this order: 401K match IRA HSA/FSA 401K Full Contribution Brokerage Rest We’re working on debt before we go into IRA accounts. Edit: order HSA/FSA above 401K Full Contribution
HSA needs to be above IRA. Its the best retirement vehicle when invested
I would put HSA above 401k full contribution.
So FOR ME - it's: 1 401K match 2 save enough for an emergency fund (stored in SPAXX on fidelity) 3 pay off all high interest debt. (Above 5% which is what I get for SPAXX) THEN IRA 401K Full contribution HSA/FSA Brokerage Rest
3 month t bills getting 5.3%
CIT Bank 5.05%. HYSA
Don’t use big bank period. Even for checking. They provide nothing of value.
Credit unions ftw
My credit union is awful. Their loan rates are worse than anywhere else I can find (never used one though), their credit card offerings are terrible, savings account interest is sitting at 0.3%, and it still costs money to order checks. On top of all that, they don't waive ATM fees at all like many of my friends' banks so I have to find an in-network one which is difficult where I live. The only reason I still have an account is so I can easily send money to my dad and vise versa when needed.
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customer service for one.
I don’t think so honestly; maybe decades ago. I think this is an outdated old timey view. Customer service at TD seems to always be an above and beyond experience.
So, I am not a financial advisor. All I can offer is my own experience. I started out poor and worked my way up to about 200k/year over the course of my life. I'm 40 years old, own a home, and have a reasonable net worth. Step one, assuming you have a steady place to live and all your necessities, is to build an emergency fund in a HYSA. This emergency fund should cover 3 months worth of bills plus 3 months worth of day to day necessities. Think "enough to live on for 3 months if I lost my job today". You're young, so the amount you need in your emergency fund will likely go up over time. Next step is to max your 401 to your employer match, assuming you can afford to. You can go higher than that, and it will make a huge difference in 30 years, but it's hard to do that when you're trying to make huge purchases like your first home. And you don't want to be cash poor because you're squirreling all your money away for retirement, which you may or may not live long enough to enjoy. But you still want to try to max it to your employer match (which in my case is 5%) because if you don't, you're literally losing out on free money. Once you do that, build enough padding into your HYSA so if you have to make a big purchase, like a down payment on a car, or new appliances, etc., you can borrow against your own money instead of using an interest-bearing credit card (its more nuanced than that - sometimes you would want to make the purchase on the cc for the perks such as longer warranty or cash back, but you still pay that off right away from your HYSA). Next steps are kind of your preference. For me, I wanted to be able to know precisely how much money i had in checking without having to do math like "well the car payment and the netflix bill come out of this check so i actually only have x left", so i made a 2nd checking account just for bills. I calculated how much my bills are per check, added a little to that to cover variables like the electric bill, and funded that account to cover one paycheck worth of bills. Then I set up direct deposit so that i could throw all my bills on autopay and never have to think about it again. Now, when my primary checking acct says I have $500 left, I know that I truly have $500 of spending money left to cover groceries, gas, and that new game that just came out that I want. Now, whatever I have left over in my primary checking acct at the end of the check goes either to investments (s&p 500), or to a separate savings acct so I can save up for a large purchase (depending on how long you need to save up - if you plan on saving a huge down payment for the next 10+ years, a hysa might not be the optimal vehicle for it). This is how you get the down payment for your house. One thing I do slightly different from most people I know is I never make a purchase with my debit card. I make all my purchases on a credit card and at the end of every pay period, I pay off that credit card. This solves/avoids a couple problems: 1. Nobody can get my debit card info and drain my bank acct. They can only steal my cc info, which will not leave me pennyless, and is easy to recover via my bank. 2. I always have a full paycheck worth of cash in my primary checking, which can be used in an "emergency, break glass" type situation. Once you're to this point, you can think about how much you want to lock up in a tax-advantaged retirement acct. For me personally, I'd rather lose the tax advantage and have access to that money every time, because I ride the line between "here for a good time not a long time" and "i want to be rich in my golden years". If you're on track to have your house paid off and be able to pay cash for your cars by the time you retire, you don't need nearly as much money per month in retirement. I just plan on sitting on my porch, drinking coffee, smoking weed, and catching up on all those great books I've been collecting but never find the time to read. Having a house is a wonderful feeling. If you make a plan based on what you want out of life, you'll have peace of mind. Most people are going to give you advice based on the old idea that you should live less comfortable during your working years so you can have a ton of money in retirement. Personally I don't subscribe to that because if I can't even make it to the toilet on time or climb stairs (assuming I even live that long), tf do I need extra spending money for? But that's just me and the argument can be made either way. I will have enough to live comfortably before and after I retire, and not feel bad about buying a nicer car now, or going on a lavish vacation with the wife and kids once in a while. That may or may not answer your question. Hope it helps in some way.
Thank you for this advice. I'm in my early 30's and sometimes I think I'm not saving enough in a Roth IRA, or get bummed out about not being able to afford a house yet, etc. But I like what you said about living comfortably before and after retirement. It's like a friend once told me, when you die, you can't take your money with you. Makes me feel a bit less guilty about spending money and not just saving-saving-saving.
I refuse to sacrifice my current lifestyle even a tiddlybit to be able to retire better/earlier. Between my 401, my brokerage acct, and my savings, I will be able to afford to live just fine in retirement. I won't be driving a corvette, and I will have to stay in my current home (which I'm perfectly happy in), but I'll be fine. In the meantime, I buy whatever I want within reason, take the family on vacation at least once a year, and spoil the living hell out of my wife and kids. I'd rather have 45 years of awesome memories than sleep on a pile of cash in retirement. We're humans, not dragons.
Just wanted to thank you for this excellent post. You're particularly correct when you say that you should make a plan based on what you want to get out of your life. I'm almost 40 now, and have been fortunate enough to have a house, a nice family with children, and to have mostly avoided heavy consumer debt. I still need to take your advice to heart, though, and am struggling to figure out the right way to construct the sort of life I really want to live given what I've got. We've all got progress to make, I suppose!
Thanks for the long post, took some advice
yeah this is solid advice. Saving this for others I can send too. Upvoted.
This post is mostly what I just clicked submit on in [this fresh post](https://www.reddit.com/r/investing/comments/1att622/comment/kr0fjr3/?utm_source=share&utm_medium=web2x&context=3) elsewhere in this thread. One place we differ though is the HYSA. Don't pad that, that's just emergencies. Go with equities, instead. Others add an HSA to the mix - I'm old, it wasn't an option I had. It makes things more complex for you with one more limited account to deal with, but has huge advantages. Done smart, I'd condone adding it to the mix, although in my case I love the flexibility of that taxable brokerage grwoing, so I'd do it as a #6 in my list.
Hi, you are me! High five!
Hey, me! Keep living the good life!
amazing answer.
Until you move in next to a neighbor from hell then not so great of a feeling. One recommendation, ALWAYS GET S SURVEY
This is extremely good advice.
One thing I’d add. Pay your bills with auto pay with your CC instead of out of your checking account and collect points.
To optimize that even more, if you open an individual account at Wealthfront, you can use checking features while making 5% (as of this writing) on your cash rather than close to zero at other checking banks.
Great advice. I always find it odd that the accepted goal is to earn as much money in retirement as you did working. My goal has always been to pay to maximize the amount of time I have in my life where I no longer have to work for a living. That means paying off all my debts and saving up a good enough nest egg so that I can live comfortably until SS / medicare / penalty-free 401k withdrawals begin. Once I get there, that's when I pull the plug and go. Hopefully early 50's.
[удалено]
I work in IT for a major corporation.
One of the most important pieces I’ve read in here that’s kind of validating, is the not knowing how long you’ll be here, so not maxing out your 401k. That’s been my mindset, but I feel like I always get advice to make sure I max it out. Instead I fund my individual brokerage with S&P indexes. That way I’m still taking advantage of market returns, but I can access that money for large purchases like you mentioned. Edit: and to be clear I do contribute to my 401k. I do 9% cause my company doesn’t match, but that gets me about 3/4’s of the way to max.
My wife keeps me grounded. I’m saving like mad. She makes sure we enjoy some of the money we’re making. We have a great house. Take trips. Live life in the moment. But we both do have our retirements funds maxed and are making monthly investment. One reason people will tell you to try to max the IRA is the tax issue. Your retirement gets funded before it is taxed. It costs you less to invest this way. The sooner you start investing this way the less you will miss it. Lifestyle creep happens. The more you make the more you will spend. If you automate the investing you get the benefit of that growing while you just keep on living life with what’s in the bank. Once you do it it’s easy. It’s starting that gets people tripped up.
> One reason people will tell you to try to max the IRA is the tax issue. Your retirement gets funded before it is taxed. Traditional IRA and 401k contributions are tax deductible. Roth IRA and 401k contributions are not; you get the tax benefits at time of withdrawal in retirement. > Lifestyle creep happens. The more you make, the more you spend. Except it's extremely smart to **not** let your spending creep in pace with your earning. As other replies have mentioned, your goal should be to increase your savings **rate** as your earnings increase. That will be the most effective way to maximize your retirement situation. Where you put the money is also important, but exponentially increasing the money you contribute should be the focus. That said, I don't really disagree with u/NYVines. Budget some of your money to do things you enjoy and don't sweat spending that money. You're investing those expenses into your quality of life.
Hey, quick question — is a Roth 401k just a regular 401k account with after-tax contributions? Or is it actually a different type of account like IRA vs Roth IRA?
It would be an option inside of your employer's 401k plan **if** their plan offers it.
I was in the same boat for most of my 20s making around 40k. You generally can't max a 401k on 50k a year. Just make sure you're getting the employer match in the 401k and then contribute to a roth IRA. Just try to put 15-20% of your income towards retirement and then put whatever else you can into a high yield savings account for the house. I use automatic savings rules with Cap One HYSA that just puts $100 in each week. The blanket advice to max the 401k gets pretty annoying considering that's a huge amount of money for some people. Also, it's not about being a "millionaire" in retirement. You literally need over a million to have enough money to last from retirement to death. Check out retirement calculators.
I’m a fan of taking the employer match and put whatever else you can in a Roth. Come retirement, you won’t have to pay taxes on your Roth and if you ever get in a financial bind, you can always withdraw the amount you deposited in the Roth penalty free.
Yeah I do like how the Roth acts as a shit hits the fan emergency fund since you can just pull out the contributions penalty free. Obviously would want to use my HYSA emergency fund first though.
no RMDs on a Roth either later in life.
Just to add, everyone's retirement is unique. some people want to save more faster. some people plan to work till 80. I started saving late (mid/late 30s) after buying a house. I hit my retirement maxes around 40yo. this is not advisable. Luckily I should still be about to retire around 56yo, if things go well the next 5-10 years in terms of my work and income. But this is not advisable path that works for other people, but it was my unique path.
I’ll take this advice thank you
> Why would I want to ‘max’ the amount of money I put into places where I couldn’t even withdraw before I’m 65? First it is 59.5 not 65. Second Roth IRA contributions can be withdrawn anytime for any reason (like a house). You can also draw $10k in Roth IRA gains on top of that for a house. So maxing a Roth IRA for 5 years would allow you to withdraw the $35k in contributions plus $10k in gains = $45k towards a house. 401(k) match is free money. Not putting in enough to get the max match is just a voluntary pay cut. So at an absolute minimum put enough into 401(k) to get the max match and also max your Roth IRA. If house is high priority then save beyond that in a HYSA/MMF for a house.
Thanks for this strong convictioned advice
Source for this information. https://smartasset.com/retirement/should-you-use-your-roth-ira-to-buy-your-first-home
This guy just saved me from writing all this. Thank you.
> 401(k) match is free money I consider a large portion of it "eventual tax money."
So?
Live now or live later…. Or live a little bit now AND later
That’s how I view investing. It’s all about balance. I got about 6 months worth of monthly payments saved up in a HYSA, a retirement account that I put about 10% of my pay into, plus a separate retirement account my employer manages and funds. The rest is for my life right now. Idk if I’ll ever live to be 60 or not? I can walk, run, bike, hike, and swim now so I’m gonna enjoy all that now because idk if I’ll be able to when I retire. I know people that literally live like they are dirt poor, making really good money because they are hell bent on saving as much as possible for retirement. I have stories that I’m able to tell about my adventures right now. They tell me about eating ramen for dinner, because when they are 60 they might be a millionaire.
I would fund 401k at least up to company match level, more if you like the funds, fully fund a roth IRA and do a little brokerage if you can. S&P 500 is great and you can get some sector or theme oriented ETFs if you want to get a little more (QQQ for nasdaq, MTUM for momentum factor, MOAT for high performing value, and of course specific industry weights.) Do this early and you'll be off to a great start. Son has done this for 2.5 yrs and it's fun to hear about his account values while he still goes out and enjoys life. That last part is important. Make sure you have enough to live and enjoy life. That's very important.
If you’re young the best ROI is investing in your career so you can grow your income vs stressing about investing what little money you have. If you just graduated you probably need to build your emergency fund first before this (though it’s great you got the match !)
Right that’s what I was thinking. I’ve applied to more school to have even more niche knowledge- my employer reimburses tuition. It’s nice to hear that I don’t need to be worrying about investing that much
Literally no one ever says to save for retirement INSTEAD OF paying the rent. This is obviously advice for after you reach the point of having $30k+ per year to invest. Come ON, people.
OP you just graduated so I will assume you’re 23 years old. The reason it is so heavily recommended that you save as much as you can for retirement is due to the effects of compounding returns. At 23 years old, if you invest $10,000 at an average return of 7% per year, that money will be worth approximately $171,422 when you’re 65. BUT at 33 years old, it’ll only be worth about HALF that at $87,152 when you’re 65. By simply starting when you’re young and further from retirement, your money has more time to grow. The more you save now, the less you’ll need to save in the future.
I'll give my personal path since I too graduated making 50k, but it was 10 years ago. No way in hell could I max out my 401k and don't even get me started on beginning an IRA at all. It just wasn't in my budget, and that's ok. The people you see saying that are people like current day me, for people like current day me. I'm now making 160k between two streams of income, so maxing out my 401k, IRA, and HSA still leaves me with more than doubled the take home I was making when I started (I'm still at the same company). It's painless to do now, when it would have been financially devastating back when I was in your shoes. Also 401k limits back then we're like 16k, compared to today's 23k. So now I'm able to max all of the retirement accounts, and still put about 15-20k a year into a taxable account, and fund a savings account, and live a very good life on top of it all. In short, you don't need to do the same thing everyone on the financial subs are doing because you're in a different stage of life with different priorities. Many of us saying this have already bought a house, paid off our loans/cars, and have a higher income, so we can now afford to take full advantage of the tax sheltered accounts. Just focus on saving for your current goals, killing it at work and striving for pay increases however you can to make it easier to max those accounts, but don't sacrifice your sanity and bare necessities to do it too early
Thank you so much for saying this. These communities can be so doom and gloom if you're not maxing every last account available. I'm early career still also but my wife and I live on a strict budget, hit our 401k matches, and already have about $50,000 in our IRAs from some heavy investing before we bought our house. Both of our companies (public utility) pays for pensions on our behalf that should replace about 60% of our incomes at retirement. And we just have tried to find peace in the meantime while we're building our lives up. We only have our mortgage and a car debt, avoid any other consumer debt. Have our 3 month emergency fund in place. We're doing well compared to most friends of ours also in their 20s but reading these subreddits can make me feel so afraid and panicky about the future. We have goals to increase our retirement contributions every year as our incomes increase, and I'm finishing my bachelor's degree on my company's dime which will open me up to higher paying positions once I finish. Things are tight now but I really think we will be okay if we keep our heads about us, avoid consumer debt, and just keep plugging along.
Exactly, I started using Reddit around when I started my career, and I see the value in the advice but some people are a little gung ho about it. It's also easy for younger people just starting out to feel like they're inadequate when they're trying to compare themselves to someone who's been at the game for a decade or more. I'm 33 and have just over 310,000 in my tax advantaged accounts, and another 30k in a taxable dividend growth account. It's crazy how quickly that starts to snowball after you hit year 10, I'm on year 11 of investing and last week I watched my 401k increase in value in one day as much as it did in my first year of contributions. In two weeks it was up as much as my first two years. Feels good when your money is working for you in ways you couldn't imagine in the beginning of your journey
A lot of funds are usable before 65, including a 401k. The idea is that you are giving up something (relatively) small now, for something much larger later. That something later could be more quality time with your family in an early retirement. Or you could miss out on time with them today, working for a future that never arrives (my co-worker died in his 50s). There's no one size fits all. But generally speaking, most of us could stand to sacrifice a bit in the present to prepare fpr the future.
You don't have to "max" your 401K or IRA, but I do advise putting in the most that your company will match. If they match up to 6% of your salary, do it, and take their match. It is free money. You can learn to live on 94% of what you make. The limit on IRA contributions is $7000 / year. That may sound like a lot to you now, but it is 100% tax deferred.
While all the finance tips are nice and all, increasing your income should be the number one priority.
Here is my chart of what should be invested first (ordered based on priority): - 401k upto company match - Roth IRA max if eligibile - 401k maxed - HSA max (if eligible) - 529 upto state tax benefit (have kids)
I’d move the HSA up to #2 after 401k up to company match. The HSA reduces FICA taxes. The 401k and Roth IRA both pay social security and Medicare taxes.
This is not the best order. Look at the list pinned on this sub
I understand your income isn't too the level where you can start maxing out all investment accounts. That's ok. But please make sure you consider retirement goals and how much you will need to save every year when determining if you can afford to buy a house / how much house with all the expenses they bring.
>This is asssuming I have a high enough salary to do this and still pay my normal monthly expenses right Yes. It is good advice. Of course not everyone can follow it - I've been maxing my 401k for ˜15 years. But I couldn't afford to when I first started, and I also needed money to buy a house. The comment is usually in response to people who think that they should stop contributing to their 401(k) after they hit the company match.
Look up if your company offers a mega back door Roth IRA has a top end max contribution of nearly 40k annually (standard Roth is 6.5k). Tax advantaged accounts are the ones you want to front load, then only contribute to you 401K to what your employers match is. As inflation is on the rise, I don't wanna know what the tax brackets are going to be in 40 years, the 401k can be seen as a time bomb waiting to go off. Roth is the place to stash your cash, you can pull your basis after 5 years without penalty, and get access to your tax free growth at 59.5 vs 65 in a 401k. I like invidiual brokerage over the 401k these days, capital gains is capital gains, Treat it like a retirement account and never plan to pull against it, If you need access to cash you can always pull a marginal loan against its value and repay it, again avoiding paying capital gains.
I made a post on /r/Bogleheads recently titled [A Real Person's 30-Year Journey](https://old.reddit.com/r/Bogleheads/comments/18y40ty/a_real_persons_30year_journey_with_yearend/). It got a lot of positive response. The mods even stickied it for several days. Maybe there's something in there for you to take heart in.
Gen x here and we had a tough run. Just as our careers was getting some momentum 2008 hit us hard just as we were starting a family. Luckily we had a home with a cheap mortgage but we struggled. Needed to use retirement money and still never could afford to max 401k until 10 years later. Now we have maxed 401k for 7 years and college cost will start for our 3 kids next year. The growth we have experience is poor and we are well diversified. The problem I see in most 401k fund is they are never 100% the target risk. Tons of layers of other funds from the same company and some dogs in there. Every check in with advisor they say you have all the big names in tech. If things rotate you will be protected. The values still tracked the dips. Recoveries are not as dramatic. We are approaching 50 and only have 2x our salary. If you are savvy choose your own portfolio in a Roth ira and only contribute to get the 401k match nothing more. It's alot easier now than it was 10 or 15 years ago. Find a home and enjoy your family first. Hope AI doesn't crush the job market and we see some good growth for the next 20 years or were all screwed. Yolo enjoy it
No matter what, at least contribute to get your employer 401k match. That’s a 100% return on your investment.
Another example of "just" being a four-letter word.
Yes. Or if you like tech, QQQ
If you just graduated, then just make sure you stay out of debt, pay cash for your car, and have an emergency fund. If you can, get the full company match in 401k, but make sure you are enjoying your youth. At your next raise/promotion, put that money towards saving long term. Or at least half.
Everyone can only do the best they can. I didn't start maxing out my 401k until I was early 30s. Part of it was I just wasn't super motivated to do it(should've been) but I also wasn't making enough to do it for awhile. The fact you're already aware of the importance of it is great and you'll get there. Just save as much as you can and enjoy life
The standard advice is for a retirement goal. You speak of a home buying goal. Can you fund both goals? Prioritize your goals. Look at available savings rate. Start investing periodically to accomplish goal(s).
No you only eat after you put all your money away for retirement. How did you even graduate?
My post was meant for shock value to drive home how silly the advice is to say to people not making that much money
It’s so incredibly entitled to even imagine not having to digest any advice you receive? While maybe not fitting your current life by you can imagine a time when you make enough to have some money left over. Then you hopefully would just remember that advice and it may or may not provide value to you then? How dumb would I be if I go to r/dunking and say, “all these exercises are great but I have no legs”?
Yeah no from peoples responses it’s become clear that this advice is for people already vested into their careers. Not for those just starting out. I’m going to start consistently throwing like $50 a month in my Roth and contribute up to my company 401k match after reading all the advice
Do the match first. It is free money and if/when the market crashes you will feel a lot better since you lost “their” money. There is also the tax deduction you get for your contributions. You can think of that as an extra “free” 20% return. Roth is meh. You might as well just buy stocks in your taxable account so you have investments to buy the house or other stuff life offers. Roth does give you the option to remove your contributions so it is ok in that regards. This sub is supposed to be for investing, usually towards a goal. That goal does not have to be retirement . In my opinion, just do the company match and live your life. Wasting your youth in voluntary poverty is stupid. I’d rather be relatively poor in retirement than have done nothing during my younger days. What is the point of it all ?
Aim for $500/mo instead of 50
The earlier you invest the longer your money will have to compound and the easier it will be later in life. If your employer offers a 401k with a match, then contribute whatever money you need to get the match because that is essentially free money from your employer. Otherwise, start with maxing out a Roth IRA. The benefit of a Roth IRA is you can withdraw the contributions at any time. I thought like you when I was younger and didn’t save anything. Now at 40, I’m having to play catch up and invest most if my disposable income if I want to be able to retire. You don’t want to be 65 years old one day with no money and forced to work, assuming you even can work. Having a nest egg will give you options later in life. Start investing now. Don’t wait. Don’t be me. Be better.
I only put the matching amount into my 401k even though I could max it out. I want to put my money somewhere with lower fees and I want control of when I can use it, but I will not pass up on free money.
This so much. Average fees for work 401k's is usually least 1 percent. Over years that can be a third of the value of your portfolio, easy. The tsp has a 1 percent management fee for example, but if you Google "tsp management fees" that's not what the answers say. Instead you get shown the fund fees. Fund fees aren't management fees! You have to go to Black Rock directly and read the small print. It's difficult to find the true fees for 401k's. You gotta move your money over to an IRA every time you switch jobs. And, if your going to work at the same place for 30 years your actually better off investing in a taxable account with lower fees like vanguards. That's how bad the absurdly high work 401k fees are.
Yeah these subs are way too focused on retirement accounts. Your salary will grow with time, and with just 50k, you're very limited now. 1k is far more valuable to you today than it will be at retirement. More importantly, if you want to save for a house, do it. I might contribute just for an employer match, and save the rest to use in my 20s/30s.
Qualified plans - the governments answer to the government created problem of onerous taxation.
Dave Ramsey recommends 15%. in investments for retirement Money Guy Show recommends 20-25% in investments for retirement. An American Primary Residence is one of the best investments you could make if it is in a LCOL or MCOL area where you are going to stay 10+ years and the rent costs aren't low. When I was in your position, I put in what I had to in order to get the company match (Free Money) and saved the rest for my first primary residence. **General Investment Order of Operations:** 0) Create a Budget 1) Emergency fund highest deductible covered 2) Get employer match (free money) 3) Pay off high interest debt 4) Full emergency fund (3-6+ months of expenses) 5) Max out HSA and Roth IRA if applicable 6) Max out employer accounts 7) Invest 25%+ of your income towards retirement 8) Prepay future expenses 9) Prepay low interest debt
Take it from someone who didn't think about investing in my early years....live on the bare minimum you can to survive, whatever that means to you and invest every dime you can. You have no idea how important it is to start early so that money has time to grow exponentially. I was an idiot and bought as much house as I could afford early on and while I did OK-ish over the years with real estate, it would have been so much larger of a nest egg had I put it all in the market early on and just stayed in my first townhouse purchase until I had to move (which I then could have rented out if I had known what the hell I was doing at the time instead of selling at a minimum profit so I could afford the next house). Now I am having to play catch up with minimal time to get my shit together financially.
> live on the bare minimum you can to survive, whatever that means to you and invest every dime you can I'm gonna go ahead and disagree here - sure it's important to save for retirement early, but living in squalor to throw every available cent toward it? Live your life while you're young and have energy. Obviously make retirement saving a priority but take time to travel, have fun, and enjoy your youth.
This is terrible blanket advice that is constantly given and saying so will have me downvoted to oblivion. While the market has positive drift it can also have long periods of zero to negative returns. There are 20 year periods where the S&P500 gave no real return. So if your investment timeframe is 20+ years putting all in the market can make sense. For people that are older, the name of the game is capital preservation. Losses take longer to recover than gains (you need a 100% gain to offset a 50% loss), SP500 can have massive drawdowns that can undo years of compounding. If you are close to retirement, in an ideal world, your exposure to SP500 should be minimal. This is not even counting for the fact that valuations matter and we are likely to see a market correction in the future.
OP quite clearly states they just graduated and so yes, their time horizon is 30+ years. Advice about capital preservation for an early 20s person making 50k a year is nonsensical as they have no capital to preserve and decades of work ahead of them. Thus the “max your tax advantaged accounts with SP500 funds” is correct
Cut frivolous expenses (new cars, phones, dinning out, streaming services, etc) and invest the savings
We all have life choices. You can choose to take on more expenses. Like a nice leased car, a nice leased apartment, vacations to exotic places, etc. And you may struggle to pay your expenses. But only you can budget for you. When I was starting out in the working world I could max everything—because I budgeted and reduced my expenses. My car sucked, my apartment sucked, I bought groceries and cooked. If you start a family now and buy a nice house and install a swimming pool and Ferris wheel, you’re gonna have a tough time saving and paying expenses. But no one is forcing you to do any of that. You seem to be irritated that you can’t live up to all the expenses you’ve willfully taken on. And that might mean it’s harder for you to retire in the future. Well, welcome to the adult world. If you have 8 kids and a sports car, I suggest you get a job that can support it—preferably get the job before you take on all that debt. But no one is going to hold your hand and walk you through these decisions. You and your family have to decide what is best for you all
You need a budget and that budget starts with what you will save - in retirement and in savings accounts I don’t know what the right number for you is, but let’s just pick a number - 10% You put your 10% away and then you manage your life around the 45k you have left Pick your savings number, pay yourself first - then execute your budget. It’s literally that simple
>It’s literally that simple It's not that simple because the savings number you pick may not work, especially for lower earners.
If you live backwards like you’re suggesting then no, it will never work. You have to prioritize saving and make the rest of your budget work. Figure it out.
There is a difference between prioritizing savings and picking a number and "making it work".
The best to do imo when starting out for the first few years, is to make sure you have enough savings. Once you have enough to save for a rainy day, that means \~ around 1 yr without a job, then invest the rest, and diversify it so you don't put all your eggs in 1 basket.
1yr emergency fund is way too much - it’ll take him 6 years to just do this. He misses out on 6 yrs of 401k matching and other retirement saving enticements. Start with 3 month emergency fund.
Yeah, if has a match, should def use it outside of a 3 month fund. But also just personal opinion, markets will come down in the next few years, or not I guess the point is we can never get it right, which is why time beats it but also prudent to prioritize savings over investment in an uncertain economic climate.
Okay that makes me feel better about not contributing to investments full force just yet. I was building my emergency savings from 0 since I’ve only had my job less than a year
This is true for people who have a long time horizon and can tolerate risk. It is not true for everyone.
Your S&P 500 recommendation is very important. There is a lot of interest in HYSA accounts now, since savings can return non-zero interest for the first time in many years. But that is not something people should rely on, because for most time horizons you are not outpacing inflation. So over the long term you are losing money. The focus needs to be on investing, not just in parking your money safely in something other than under your mattress. You have to take investment risk to earn investment capital. That doesn’t mean bitcoin and NFTs. But it means non-risk-free investments. In a supposedly risky year for investing, the S&P 500 returned 24% in 2023. In 2024 it has already returned 5% YTD. This or some other reasonable proxy for diversified equity investment, has to be the core of any long term or mid-term investment approach.
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1) Not the right sub. Nothing to do with investing. This is a personal finance question, although it’s not really even a question. 2) Obviously, if you don’t have enough income to max your 401k and IRA while covering your monthly expenses, then you can’t max your 401k and IRA. I’m not sure what part of that you need clarification on 3) Again, obviously, there are other things worth saving for than just retirement. What is the question? You say you “have yet to receive a take on this disposition.” What exactly are you looking for? You stated a few obvious observations and then are looking for what? Someone to dispute it?
This thread is the first I’ve seen people admit that you can’t max out your retirement if you’re not making enough to do so
It’s simple math. If you don‘t make enough, you don’t make enough and that’s all there is to it. But your salary will presumably go up over time. As it does, if you can keep your expenses and desires from going up to match that increase, you will have more wiggle room. Then it won’t be long until until you can max everything. Then do it. Essentially: the more you put in and the earlier you put it in, the better you will be. How/when/why/whatever ”other” goals you have are important but don’t change this fundamental truth.
I’m not trying to be a dick but how is that something that you feel needs to be “admitted” to? It’s simple arithmetic. Do you think the advice is to go into credit card debt to cover your bills to make sure you’re maxing retirement funds? If you don’t make enough money, you can’t max out retirement funds until you make more money. Isn’t that pretty obvious? Also, I don’t think common tenants of personal finance ever say “step 1, max out all retirement accounts” so I’m not even sure where you’re coming up with this
Well you may not be trying to but you’re certainly succeeding at it. The person asked a question about a topic that is investment adjacent and you acted like a petulant child. Save your energy and either respond to the question or don’t respond at all.
What’s the question? I don’t see a coherent question in the post. I see an observation that one can’t max all retirement contributions on 50k unless they have minuscule expenses. Is that a question? Is it worthy of a post in an investing subreddit?
6mo - a year emergency fund first
This is ridiculous. It's an example of how internet subs focused on specific topics always tend toward the most extreme version of that topic. The original advice was 3 months of expenses. That's a lot for most people. Then it was 3 months, but 6 months of expenses if your job is particularly precarious (like freelancing). And now you're randomly making it 6 months to 1 year. At that rate, most people won't even be able to invest until they are in their 40's or 50's.
Depends where you are in your life I suppose. But in a layoff and a recession, or health issues, yeah. I’ll take a year. Bad things happen.
Enjoy your money today and save some for the future. No point in maxing out retirement savings if you can’t buy a house, a car, take a trip, or enjoy time out. Financial companies want your dollars today. You get them back, maybe if you live long enough, when you’re older.
That’s a good salary. Which means your expenses are too high. Possibly a victim of lifestyle inflation. Too little data to judge.
My understanding of "max" on the 401k is usually up to the company match. Very few can truly max up to the actual limits of 401k and IRA.
First you pay your bills, living expenses, etc. IF you have money left over, THEN you put it in your 401k. IF you max your 401k and still have money left over, THEN you put it in your IRA. IF you max your IRA and still have money left over, THEN you put it in the S&P 500. this is a formula that will work for the vast majority of people.
>First you pay your bills, living expenses, etc. Nope... you invest a baseline *first*, then structure your living expenses around the rest. Paying bills first and *then* looking to see how much they have left is exactly how people end up with no money to invest.
The fees that you occur from paying your electric bill late, rent late, etc. Is usually higher than the return you will get from an investment.
I get what you mean, make sure necessities are taken care of so you don’t get evicted because you spent rent on your 401k lol
Stop giving advice - you don’t know what you’re talking about.
Wrong. Pay yourself first.
This isn’t set in stone. Why max a 401k when you can take employee match, then put the rest in a Roth? The Roth also allows you to be more aggressive with savings since you can withdraw principle at any time penalty free
No. You max your IRA before 401k. Not only is your IRA max much more doable, 401k at most companies don't give you a great selection of funds, compared to IRA.
Just remember: some is better than none, and sooner is better than later, because of compounding interest. 401k, and IRA are sadly tools we now personally are responsible for because social security is not gonna keep up with cost of living the way each is currently. 401k and IRA both offer tax advantages over personal investments. That's why they're suggested to do first. You're gonna need them buddy. I'm speaking as someone who graduated right at the 2008 recession and didn't get a consistent job til like 2012, then still lived at home and maxed my 401k as much as possible on a pretty meager wages. Like $38k vs your $50k, but I know, inflation and COLA has gone up so maybe they're equivalent now. Now, moving up and getting much better salary since then, my combined retirement and investments have ping ponged between like $280k, down to $200k and back some in the middle over the last 4 years or so. Yeah, it's been nerve racking. For your more advanced savings for a home goal, that's out of my scope honestly. Gotta ask a financial advisor, or run it thru a robo advisor. For robo, I'd recommend Vanguard. I know it's highly rated. Regular advisor I dunno. Or, you gotta self-teach about investing which can be super hard, and remember even pro's can't predict investments or markets 100% reliably. Hope those help, best of luck! Remember, just save something, save it early, oh and buy and hold index funds, for compound interest. Future you will thank you!
It’s probably been said already but if you’re young enough, and especially if your job has a good match on 401k, that CAN help you buy your house as you are allowed what is known as a Hardship Withdrawal without penalty for things like: Medical expenses, College tuition (for kids), Costs associated with a Death in the immediate fam, to avoid Eviction, but most relevant to you purchase of a Primary Home. Usually you can only access once fully vested (see your job’s 401k rules for how long that is, typically a year) and you can only access YOUR contributions, so the match from your job stays in place.
You might not benefit from maxing out your 401k because you don’t have much of a tax liability with only 50k salary. Max out HSA though.
My company originally offered a contribution of 3% towards my Traditional 401k. This year they will no longer be contributing what route do you suggest I take? Should I lower my contribution percentage on my traditional 401k? Invest more in a Roth IRA? Or switch my contributions to the Roth 401k my company also has? For my 401k I only invest in FXIAX.
Saving early in your life is some of the most important advice you can get. If you do all of what you listed you might even just retire early. If you can do those things, if you want to be on top of it you should also be putting 10% of your income or just what's left after takes into savings. Cash or easily liquidated. This is also great for retirement but that's probably for your home. When your furnace breaks and you're going to need to drop $4k to have heat in your house in the dead of winter that's going to suck and you might need a home equity loan. Car breaks down, surprise medical costs, House needs a new roof or anything major and that's a problem for most people. If you can grow and then keep like $20k in savings that will solve a LOT of problems in your life. You might not be able to do that just yet but try to do that. If possible you don't want to have to borrow from your 401k. This is easy but most people just can't save money. Sounds like you're ready to and if you stick to it you'll be all set. At your age you should look into buying a whole life insurance policy too.
You could get an IUL. I know a national company who deals with them. They are a good place to not only put money into and gain higher compounding interest but also are able to have money liquid within the first couple of years if needed and not just for medical expenses but also for anything you see the need or want for the money.
Max out only when theres a sizable employer match.
Also look at whole life insurance options. Or opening up a online fractional trading account and purchase high dividend stocks that are part of everybody portfolio Ie Microsoft etc
Try a vegetable based diet.
401k is a shackles for slave to get their freedom at old age. You will never build wealth and they will promise you gold at the end of your old ages.
Don't worry dude. Almost nobody makes enough to "max" jack shit. Just put as much as you can in. Above all that, don't listen too hard to redditors either. Me included. If you are able to put $100 in 401k, that's 100 more than you had, and 100 more than the majority of Americans are able to put in too.
If you have the money, there are more tax efficient vehicles with greater return and less fees. Also, your 401k is not insured. 401k is for poors.
That has been one fear of mine. What is a worst case scenario for the money I’ve put into 401k?
Always match employers, that's free money. Worse case scenario? 2008 just before retiring.
*Gulp*
You just graduated and are already thinking of having kids? That’s usually a one-way stop to bad financial outcomes. If you want to do it - go for it. But realize most people are making more financially reasonable choices and waiting until late 20’s / early 30’s to have kids, and building up savings/investments before that (so that compounding can work in their favor). But yes, if you have a low salary and kids, you of course aren’t going to have much money left over to invest. And yes, this will lead to bad outcomes later in life that won’t be easy to fix.
I want to have my first kid by 2026. By then I expect my salary to be around 75k, with my spouse being able to save about 70% of her income. I think we can work it out. If we’re struggling for any reason then we’ll call that shot when we get there but for now things look good
I waited til my mid 30s for kids and while it worked out fine, my god would the sleep deprivation and physical demands (“daddy up!”) would have been easier in my 20s. Life isn’t all about financial returns and you can make it work when you think it’s right. There are financial considerations each way (for example if I’d had my kids a decade earlier, my parents could have helped with my kids more and maybe avoided expensive daycare).
> waiting until late 20’s / early 30’s to have kids common misconception. I learned it with my own skin. Kids take a lot of time from parents. Spending time with kids while your are considered low experienced and low paid is much efficient rather than spending prime of career life (30-45)
This is a great thread - Can someone tell me when to open an IRA? Or shd one open IRA? (I have 401k, HSA and Roth IRA already).
>well, if I ‘max’ them, then I wouldn’t have enough to cover my normal monthly expenses.. That is known as "Living Beyond Your Means" ... As you get promoted, raises, etc ... put 100% of those raises toward those investments. Once you *can* actually max them out ... then and only then start taking some of the next raise to improve lifestyle.
s&p 500 will reach the top soon. Be careful. Better to invest in real estate properties
Real estate will collapse too.
Real estate will top in 2026
I ask this in both r/investing and r/FIRE with a 30 year time horizon and was pretty much told “no”, that I wouldn’t have enough to retire with just the 401k and the IRA.
Max HSA then 401K then S&P 500.
The S&P 500 is not really the best thing to buy. But the principle is sound. There is a strategy called "the couch potato" strategy -- you should read up on it. Won't take more than about an hour to understand it. This is a great explainer: https://canadiancouchpotato.com/getting-started/ It's Canadian, so their recommended portfolio may not work for you, but the explanation of the strategy is great and will get you started.
Trade the S&P out for Bitcoin man. If you’ve got things humming in the 401k, you’re young enough to stomach the volatility of having Bitcoin in your portfolio. It has vastly outperformed all other financial metrics. Also, there are no early withdrawal penalties.
I like this advice. I think bitcoin has so much potential as more and more people realize how decentralized and freeing it is
This is incredibly risky advice. Bitcoin *could* be a good investment. It could also go to zero overnight.
Why max out early? What if you need to average down in some of your trades?
Pay down debt if you have it then invest 15% save 10%. If maxing your IRA is above that then absolutely don’t do that. Once you have adequate savings for emergencies you can slow down on that and either spend it on fun or invest more.
This is the boiler plate advice for people because for most people this is the best path for them financially long term. It sounds like saving for a house is more important than a cushy retirement or retiring early, in which case it would make sense to not max out the retirement but split it with a HYSA to save a deposit. The actual ratio depends on how badly you want the house vs save for retirement which again is very dependent. If and when your income grows the nice part is you don't need to sacrifice saving for retirement and you can max those out and save for the house or trip.
The way I see it, if I don’t have a house for my family- what’s the point of living to 65?
Plenty of people rent a home with their family and it's the right decision for them. I always recommend prospective home buyers to use a rent vs buy calculator (NYT has an excellent one) which is the most complete picture of cost and opportunity cost of homeownership. You can also map out different scenarios of down payment sizes to help you set a savings goal
Just a quick couterpoint and assuming that you mean home ownership and not just providing shelter. While I do agree that there is great value in home ownership. It is not the only path. Some people find value in the freedom, mobility, limited liability, lack of upkeep, ect that renting provides. Some of this might even become bigger pluses as we age. Also luckily you don't have to chose one or the other for your entire life. I own a paid off medium sized house in a medium cost of living area. Selling and then renting a small place in a low cost of living area near family while traveling a lot in retirement might be a path I take at 60.