GOOD OR BAD?

[krystyna624]

I have been reading the Boards for the past few years but have rarely posted. I'm going to throw this out to get some honest reponses. I'm 44, single with 2 daughters (22 and 16) who don't live with me, so no child support issues.

Also, 401(k) has been stopped as the free money is gone. I'm trying to get enough together to open an account with Vanguard.

Gross 1,440.00 2,880.00
Take Home 1,259.87 2,519.74

Rent 751.00
Car @ 8.74 14,250.16 287.20
Capital One @ 13.9 3,929.96 200.00
Insurance 93.00
Student Loans 15,940.82 78.07
Cable 70.83
Cell Phone 48.84
Electric 28.00
Fuel 180.00
Food 300.00

TOTAL 2,036.94


Savings/EF 3,000.00
401(k) 7,781.96

[Savoir Faire-Demogague in NJ]

My initial knee-jerk response is your emergency fund is inadequate. I'd recommend in the next six months getting it to $6000.
And get back into your 401K plan ASAP. It is easy and painless. Contributions are automatic. If the funds offered are not great, then I agree with opening an IRA account with Vanguard. Your income is low enough that you should be able to get the pre-tax contributions(ie: tax deductions).

[Urban Chicago]

Agree with SF.

I'd also be thinking about ways to pay off that Capital One card. Are you getting a tax refund this year?

[Deleted]

Krysty,

Exalt to you for posting.

Not good. Not bad.

You have some high interest debt that you should work on getting rid off. Your retirement funds are very low. You should work on increasing your contributions and make sure they are invested appropriately. I think you could take advantage of the retirement savers tax credit at your income level.

[krystyna624]

Thanks everyone, keep them coming.

SF - so even though there is no company match, get back in? Company has 401(k) with ING. Not sure is 37,440 is decent in good old NJ.

Urban - taxes already done and into EF. I'm in a catch 22 - stop EF contribtions ($500) and send to cc altogether or just send the 500 and send 200 to EF.

[Havoc]

Well, one bright spot you have is that you are cash-flow positive, which is a great position to be in. The biggest neon-flashing sign that jumps out at me is your 401k - I would definitely second SF on needing to get back in there, match or no match. The longer your savings can grow tax-deferred, the better.

While I also agree that the EF could/should be larger (you have enough to get you through a month of expenses, personally I like to have at least three - trouble seems to have a tendency to arrive quickly, and then be painfully slow to leave), I think that $3k is a good starter cushion if (1) you feel that your job is secure and (2) you don't foresee any big expenses in the immediate future. What I would do is to take the $500 extra you referrenced (plus any extra surplus you can wring out) and use that to kill the 14% credit debt, then resume your EF contributions...

Good luck!

[Savoir Faire-Demogague in NJ]

SF - so even though there is no company match, get back in? Company has 401(k) with ING. Not sure is 37,440 is decent in good old NJ.

The 401K custodian is not as important as what funds are offered in your plan. The advantage of 401K and similar retirement plans is the money is taken out of your pay each pay period. It is a painless exercise.
You are also in the lowest tax bracket so it could be that you may be better off in a Roth account.

[Firebird]

Also, 401(k) has been stopped as the free money is gone. I'm trying to get enough together to open an account with Vanguard.

I didn't understand this statement. Do you mean that you stopped your contributions once you were no longer getting a company match? That wasn't wise. My company matches nothing, and I still contribute to it. The match is a nice thing but not all companies offer it, and it doesn't make a 401k a bad idea.

I max out my ROTH IRA first (just a personal preference) and I am working up to 15% of my income with the remainder going to my 401k (I've got about 3% to go). But you should absolutely never stop retirement contributions unless you really have no choice.

ETA: I see that was, in fact, the case. You should definitely get back in ASAP. If the funds offered are no good, go with a ROTH for sure - but don't just contribute nothing.

My ROTH is with Vanguard, by the way, and it's done very well. Most of their funds require a $3k buy-in, but their STAR fund only required $1k (at least back when I got it) so it's a good one to start with, if you're looking for a recommendation and don't have a lot of cash on hand.

[Deleted]

You need to do 3 things, pay off that debt, up your EF and start saving for retirement. Why are you waiting to get into vanguard, you can start autotransfers into Fidelity with $200/month. What is the rate for the SL? Can you work on cutting down the food bill? My mom is in a HCOL area and only spend $50/week on food. Where are your other expenses, like hair cuts, car expenses etc? Is fuel gas for your house or gas for your car?

[Plain Old Petunia]

Well, I will be the lone dissenter.

When it comes to investing, costs are very important. With no match, I would pass on the expensive 401k and fund my Vanguard IRA, Roth or traditional. If you get to a point where you can max your IRA and still have some dollars to invest, then contributing to your 401k will make sense again.

I think you are doing OK with your money, but have room for improvement. What can you do to increase your income? Think about that. More income means you will have more to work with. At age 44, it is time to get serious about accumulating some assets for yourself.

I am also 44 and divorced, my kiddos are 20 and 15.

BTW, you only need $1000 to get started at Vanguard. How much are you setting aside each month for retirement?

[krystyna624]

Gin - rates are between 5-6%. What I forgot to mention is that 11K of that is in deferment because of in school status. The $78 is for a private loan (I know, dumb, dumb, dumb). Food is an estimate but pretty close since most for fresh fruits and vegetbles, no meats. That also included any cleaning, personal products. Whatever amount is left is transferred to a reserve account that I use for hair cuts and car maintenance. The fuel is for the car and that too is a rough estimate. This week was $44 to fill up and it does last all week. I'll check the Fidelity requirements. My life is pretty low maintenance and the numbers I posted are it.

Firebird - I have always heard to stop contributing to a compay 401(k) if there is no match and just go with a ROTH...I only stopped in January so if I don't open a ROTH, I'll restart in July when the new period starts....Vanguard had $3,000 minimum to open account when I looked in Jauary...maybe I missed something.

Havoc - yes, I want to build that EF to 5-6k and start throwing everything first at the cc then the car. I workd as an Admin Asst in an engineering office. Things are really bad with work being a bare minimum. I have an Associate's in Business Management and am 4 classes away from my Paralegal degree.

[Plain Old Petunia]

Krystyna - STAR is the only Vanguard fund with a 1k minimum. It is a 60/40 actively managed fund with low expenses and a good track record. Many people start with STAR.

[Firebird]

Firebird - I have always heard to stop contributing to a compay 401(k) if there is no match and just go with a ROTH...I only stopped in January so if I don't open a ROTH, I'll restart in July when the new period starts....Vanguard had $3,000 minimum to open account when I looked in Jauary...maybe I missed something.

I couldn't find the STAR by browsing, either. I had to search for it and I wouldn't have known about it if my friend hadn't filled me in. It's a good starter fund and I've been very pleased with it.

If you're not maxing an IRA, I agree you should do that first if there's no match but $5k/year is not much in the way of retirement savings. Ideally, you should do both (because then you diversify your tax burden and get the best of both worlds).

Can you not opt back in before July? Even 1% is better than nothing. At my company, you can adjust your percentage anytime you want - it usually takes a month to kick in.

[stats45]

For the long term, are you working a job that you would reasonably be able to continue to 65 or beyond? Do you receive health insurance from your employer? Because of your current total savings, you are going to need to work quite a while to build up a good Social Security plus savings retirement income.

Do you have a similar work history for the last twenty years in earnings? Social Security is going to be a big part of your retirement income, so staying in the workforce until 65 or so will probably be even more important so that you can ensure a sizable SS check.

[Peace77]

I suggest cutting out the cable

Split the extra funds 50/50 between the CC and EF.

Call your CC company and ask them to lower the interest rate.
You have probably received a lower rate offer in the mail. Mention that to them. If they refuse, transfer the balance to a 0% or very low interest rate card.

[Tiny]

FWIW: Fidelity (and I'm sure Vangaurd) offers "accounts" for those just starting out - I think they call them Account Builder or something like that. Basically, you start out by committing to an automatic transfer of $50 (or maybe $100) and you're good to go. You may not need the 1K or 2500 up front to get started or to buy into the fund you want...
If you don't want to search around and read about the options available to you - you could go to Vanquard/Fidelity and probably open a non-retirement account with an autotransfer of $50 or $100 a month and have the money go into something like Cash Reserves (a money market/savings account kinda thing) and then when you do get to 1K or 2500 you'll be able to buy into the fund(s) of your choice.

What I'm trying to say is, just because you don't have 1K or 2500 or 5K it doesn't mean you shouldn't bother to go over to fidelity/vanguard/where ever and look into opening a Roth or IRA or just getting an account set up. You can get started ASAP with a small monthly commitment.

[krystyna624]

I'll be taking care of the ROTH situation this weekend. thank you eveyrone for the advice. No matter how much I read, investing is still foreign.

I've been working on and off since I was 16. I spent a good 10-12 years as a stay at home mom. Last SS statement I received, I think by benefit was in the area of $1,700. Not sure will check tonight.

This job is not where I want to be. Right now it helps pay the bills and lets me finish my Paralegal degree. I also see myself leaving New Jersey within the next 5 years.

[Deleted]

Vanguard does not have a lower minimum investment for those starting out but Fidelity does, it just requires $200/month. I am sure you can find 200/month to put in retirement. I second cutting the cable, btw do you have internet?

[krystyna624]

Fidelity just opened an investmenr center in Bridgewater, will probably go there sometime tomorrow.

I have no internet, use at work or school. Cable is my source of entertainment.

[Deleted]

Can you bundle the cell phone and the cable if you are unwilling to cut the cable? Could you get movies/tv shows from the library for 6 months to pay off your debt?

[Deleted]

How much longer do you have on the car?
ETA: It looks like if you do not charge anymore on the car and continue paying at this rate it will take you 2 years to pay off the cc.

[sunuva]

I'd just get rid of the CC first instead of both EF and CC. If you need to dip into the EF anytime between now and having the credit card paid off, if you don't have enough in the EF you're just going to put the rest on your CC, anyway.

I'd take the gamble (risk) and get rid of the CC as soon as possible, then sock more into your EF.

If the gamble doesn't pay off you're no worse off than if you only paid off a fraction of CC at a time and contributed a small portion (at a time) to your EF.

What's the worst that could happen by paying off the CC first and foremost before contributing more to your EF? You end up with a CC balance (pretty much the same as doing a bit to each at a time). True, you miss out on compounding returns in your EF (contributing a little bit at a time), but then again, you also miss out on compounding interest payments on your CC (paying it off a little bit at a time).

[Peace77]

I would pay off the CC before opening an investment account or ROTH IRA.

[Firebird]

Feb 24, 2011 23:33:36 GMT -5 Peace77 said:

I would pay off the CC before opening an investment account or ROTH IRA.

Peace, I'm curious as to why you say this? At her age, conventional wisdom says that the paucity of retirement accounts ought to be her top priority.

If the gamble doesn't pay off you're no worse off than if you only paid off a fraction of CC at a time and contributed a small portion (at a time) to your EF.

But she's not really gambling EF contributions - what she is really sacrificing is her retirement funds. She needs to get on that yesterday, IMO. Plus, if she has an emergency while paying off the cards where do you think that cash will come from if she doesn't have it on hand? She'll just end up running up the cards again.

[qofcc]

She needs to get on that yesterday, IMO. Plus, if she has an emergency while paying off the cards where do you think that cash will come from if she doesn't have it on hand? She'll just end up running up the cards again.

So, how is paying it off and charging it back up worse than not paying it off at all? If the amount was locked in at a low balance transfer rate, I would agree to pay only the minimum and not risk having to charge again, but at 13.9% interest, I agree with Peace, just pay off the card as quickly as possible, and if an emergency happens, charge it. Actually, if I had another paid off card available for emergencies in case this credit line was cut, I would use most of the savings toward paying off the card, then start putting all of the available cash each month into re-building savings.

Yes, she needs to save for retirement, but I agree that without the company match, the 401K is not as attractive and her income is too high for the saver's credit. I think getting her current cash flow under control and reducing the high interest debt is a higher priority right at the moment. When she completes the Paralegal degree and (I assume) moves into a better paying job, then she needs to really work on saving for retirement. At that point, those retirement contributions will be even more valuable because presumably, she will be in a higher tax bracket than she is now.

good luck

[gsbrq]

Your retirement savings is a high priority; however, if it were me, I would put everything towards eliminating that cc debt right now. I'd cut the cable, at least until the cc is paid off; if you throw everything at it, that shouldn't take more than 6 months.

Then you still have time and sufficient cash flow to put a good amount in a Roth, which I think is a better choice than a 401k, given your income & tax bracket. Automatic deductions are the best way to go; I have mine set up to draw weekly from my account.

You have a lot of car debt for your income level. Are there any less expensive options?

[krystyna624]

I'm throwing every extra cent I have towrds the cc so that it can be paid off quicker. Once that is done I'll then the ROTH and throw $500 monthly into it and $200 into the EF. When July rolls round, I will once again contribute to the 401(k) and adjust the above numbers accordingly.