My 401K........how much to invest yearly?

[Special K]

Originally posted by: vi_edit

Originally posted by: Special K

Originally posted by: rufruf44

Originally posted by: Special K

Originally posted by: dullard

Originally posted by: shadow9d9
Why can't you invest your emergency fund just like your iras? Taxes aren't bad for long term gains.

You can, and that is exactly what I'm arguing to do. Have your emergency fund available, but NOT in cash form. Have $12k in a taxable stock investment account. Have $12k in your house with a HELOC. Etc. Anything that pays more than cash investments.

If you don't have a home and you lose your job, how are you supposed to make the payments on the CC, especially if you keep a minimal balance in your checking accounts?

Also what if your Roth IRA has lost a lot of money recently? What if it can't cover the emergency?

That's where you borrow more from other 0% CC and start praying :evil:

Seriously though, that's a lot of IF scenario. Even with drop in the IRA, you should still be able to cover significant portion of the emergency cash.

But the whole point of the discussion we were having was whether or not it was worth it to have a savings account. If I don't own a home, put all my money into higher risk investments instead of a savings account, and keep a minimal balance in my checking account, where is this cash supposed to come from if I lose my job?

I think we need to define "high risk". In the context of this conversation, investing in the stock market (S&P 500 fund for example) is considered high risk. In a given year your account could be +/- 15% (or more). If you have $20,000 in your stock market account on a given day you might be up or down $500 bucks on a big swing. Over the course of a year you could be down $5000. But you still have $15,000 available.

You don't just lose that money instantly in a matter of days. You could if you invested in a single stock that went bankrupt or was flirting with it. But that's not high risk investing, that's stupid risk investing for most individual investors.

Alright, here's another n00b question - are the gains on an index or mutual fund calculated the same way gains on a savings account are - i.e., compounded interest? My understanding is that a mutual fund is just a collection of stocks picked out by the fund manager with a specific goal or theme in mind.

So is the value of your mutual fund account just the sum of the values of the individual stocks and nothing more, or is there some type of compounding of interest going on? If someone says their mutual fund is up 15% for the year, does that just mean that the net value of the stocks contained in the fund are up 15%, or is there some type of interest/dividend payout involved?

 

[everman]

Haven't read the thread, just wanted to say that you should have an easily accessible emergency fund in case something terrible happens. 6 months of living expenses would be great,, put it in a high yield savings account for easy access. Then look at putting more into a Roth IRA.

 

[dullard]

Originally posted by: Special K
If you don't have a home and you lose your job, how are you supposed to make the payments on the CC, especially if you keep a minimal balance in your checking accounts?

Also what if your Roth IRA has lost a lot of money recently? What if it can't cover the emergency?

If all of these happen:
1) You don't have a home,
2) You lose your job,
3) You haven't already saved up enough with extra interest using my method,
4) The emergency happens early,
5) You forgot to keep a little extra such as the $300 I mentioned to pay the CC minimums,
6) You already maxed out your CC cash advances to pay the CC minimums (Of course, if you followed my method, this shouldn't happen),
7) Your investment account tanked (if you diversify, this shouldn't happen),
8) You have no other way to pay for anything, nothing to sell, no one to help out, etc,
then if ALL of those happen, you will be slightly more harmed with my method. I bow down to you for showing me a case where my method isn't optimal.

But come on, having all of those rare things occur simultaneously is probably 1 in a billion. And if that happens, you are far worse off than having a couple of $25 fees for not paying a CC on time. And if all that happens, a measly $12k in your bank account probably won't help you enough anyways. Life dealt you a bad blow that no planning could have avoided. Take your lumps, declare bankruptcy, and move on with your life.

 

[Elbryn]

this is one of those topics that comes down to personal comfort. Investing into stocks over the long term will get you better returns but at the price of risk and volitility. take some historical scenarios. best case: you need money and your stocks have increased and you've had them more than a year, great take the long term cap gain and go on your way.
2) same thing but less than a year, take bigger tax hit and go on your way
3) its gone up, back down and is even, you take it out, pay no taxes go off on your way 4) its been bad, 9/11 bad or black tuesday bad, your investment is worth half of what it used to be. you take it out, chaulk up the losses as future write offs and thats that.

The emergency fund is a matter of scenario and comfort level. if i got a wife, 2 kids, and thier live is impacted by my loss of a job, i feel a crapload better about having money in the bank on hand that can be used before i need to get into the worry of managing balance transfers, 0% cards, or mounting interest. if its just me and the worst case if i loose my job is i go home to my parents and live there until i find another, well then i can easily afford to not have much and invest for the future. There is a huge benefit towards saving early as much as can. over 30 years, assuming an interest of 7.2% each dollar saved now is worth 8.

 

[Special K]

Originally posted by: dullard

Originally posted by: Special K
If you don't have a home and you lose your job, how are you supposed to make the payments on the CC, especially if you keep a minimal balance in your checking accounts?

Also what if your Roth IRA has lost a lot of money recently? What if it can't cover the emergency?

If all of these happen:
1) You don't have a home,
2) You lose your job,
3) You haven't already saved up enough with extra interest using my method,
4) The emergency happens early,
5) You forgot to keep a little extra such as the $300 I mentioned to pay the CC minimums,
6) You already maxed out your CC cash advances to pay the CC minimums (Of course, if you followed my method, this shouldn't happen),
7) Your investment account tanked (if you diversify, this shouldn't happen),
8) You have no other way to pay for anything, nothing to sell, no one to help out, etc,
then if ALL of those happen, you will be slightly more harmed with my method. I bow down to you for showing me a case where my method isn't optimal.

But come on, having all of those rare things occur simultaneously is probably 1 in a billion. And if that happens, you are far worse off than having a couple of $25 fees for not paying a CC on time. And if all that happens, a measly $12k in your bank account probably won't help you enough anyways. Life dealt you a bad blow that no planning could have avoided. Take your lumps, declare bankruptcy, and move on with your life.

You aren't allowed to withdraw the earnings of a Roth IRA before a certain age though, correct? So you really only have access to whatever you originally put in there, assuming it's still there at the moment you are in trouble.

 

[Kev]

If my company doesn't do matching should I do the Roth IRA first and then 401k? I am a financial retard btw.

 

[Kev]

Originally posted by: DLeRium

Originally posted by: thomsbrain

Originally posted by: jaybert

Originally posted by: vi_edit
General opinion is to max out your match on your 401k, then max out your Roth IRA. If you still have money left over, go back and add more to your 401k.

thats not the general consensus at all...general consensus is to max out the 401k up to matching, then max out ROTH IRA, then finish maxing out 401k

wow. just wow.

What the hell is going on with people nowadays?

I know they're both wrong. This is correct IIRC:

1. Max out the 401k matching
2. Max out the Roth IRA
3. Max out the rest of the 401k

 

[KCfromNC]

Originally posted by: Special K
So is the value of your mutual fund account just the sum of the values of the individual stocks and nothing more, or is there some type of compounding of interest going on? If someone says their mutual fund is up 15% for the year, does that just mean that the net value of the stocks contained in the fund are up 15%, or is there some type of interest/dividend payout involved?

Depends on what the mutual fund is invested in. In general, though, the price of a share of the fund will go up and down based on whatever the mutual fund owns and/or is tracking. Funds can also pay out dividends if the underlying securities pay them out. Finally, funds can pay out capital gains if the makeup of the fund changes, e.g. selling an underlying stock for a profit because it's no longer part of the index or no longer fits with the direction of the fund.

The total return for the fund is the combination of all of these. The price of a share of a fund will change up or down, and you might periodically get cash for the dividend and capital gains.

When the fund pays out any cash, its value will go down by an amount equal to the amount paid out (this is generally shown as a per-share payout - if the fund is worth $10 per share and pays out $1 per share as a dividend, the fund will then be worth $9 per share the next day when trading starts). To keep your returns matching the fund's total return, you'd have to re-buy shares of the fund using the cash from dividends and capital gains. Lots of funds / brokerages allow this to be done automatically when you first buy the mutual fund.

Note that a mutual fund can invest in lots of things besides just stocks, so what's going on under the covers isn't always straightforward. Still, the general outline still holds - the shares change value, and occasionally the fund pays out money. Exactly what the paid out money comes from matters for taxes, but broadly you can assume it's all just money that needs to be reinvested to keep the returns going.

 

[dullard]

Originally posted by: Special K
You aren't allowed to withdraw the earnings of a Roth IRA before a certain age though, correct? So you really only have access to whatever you originally put in there, assuming it's still there at the moment you are in trouble.

Roth IRA earnings can't be withdrawn before retirement without paying penalties/tax. That is correct. However, why put it in a Roth for this purpose? Just open up a non-retirement account and you can sell at any time for any reason.

You must be doing some pretty bad investing if you are that worried about losing your original investment amounts. Even in the worst of all historical years, a diversified strategy wouldn't have lost much.

I guess I just don't understand your viewpoint. If the stock market crashes, if the job market crashes, and if you lose all your sellable assets, how is a few thousand dollars in a savings account going to do you much good? Your life as you know it is toast anyways at that point. I'll take that very unlikely risk (and even if that risk happens, I don't lose much more than a few hundred dollars more than you would) and I'll try for the very likely and massive gain that you can't achieve.

 

[Special K]

Originally posted by: dullard

Originally posted by: Special K
You aren't allowed to withdraw the earnings of a Roth IRA before a certain age though, correct? So you really only have access to whatever you originally put in there, assuming it's still there at the moment you are in trouble.

Roth IRA earnings can't be withdrawn before retirement without paying penalties/tax. That is correct. However, why put it in a Roth for this purpose? Just open up a non-retirement account and you can sell at any time for any reason.

You must be doing some pretty bad investing if you are that worried about losing your original investment amounts. Even in the worst of all historical years, a diversified strategy wouldn't have lost much.

I guess I just don't understand your viewpoint. If the stock market crashes, if the job market crashes, and if you lose all your sellable assets, how is a few thousand dollars in a savings account going to do you much good? Your life as you know it is toast anyways at that point. I'll take that very unlikely risk (and even if that risk happens, I don't lose much more than a few hundred dollars more than you would) and I'll try for the very likely and massive gain that you can't achieve.

I'm not pushing my strategy, it's just that I am starting my first job next week and have been doing a lot of reading on this the past few months and everything I have read says "you must have a 3-6 month emergency fund in the form of a savings or money market account".

Since your suggestion is the first well-reasoned one I have read that went contrary to the standard 3-6 month emergency fund advice, I'm just wondering if there's a catch somewhere that I'm not aware of, since everything else I read seems to push that 3-6 month emergency fund so hard.

Also, if you open a non-retirement account, do you have to pay capital gains taxes on everything you make each year, whereas with a Roth IRA or 401k, you wouldn't?

Finally, what priority would you put the 401k, Roth IRA, and a non-retirement account?

 

[vi edit]

Originally posted by: Special K

Originally posted by: dullard

Originally posted by: Special K
You aren't allowed to withdraw the earnings of a Roth IRA before a certain age though, correct? So you really only have access to whatever you originally put in there, assuming it's still there at the moment you are in trouble.

Roth IRA earnings can't be withdrawn before retirement without paying penalties/tax. That is correct. However, why put it in a Roth for this purpose? Just open up a non-retirement account and you can sell at any time for any reason.

You must be doing some pretty bad investing if you are that worried about losing your original investment amounts. Even in the worst of all historical years, a diversified strategy wouldn't have lost much.

I guess I just don't understand your viewpoint. If the stock market crashes, if the job market crashes, and if you lose all your sellable assets, how is a few thousand dollars in a savings account going to do you much good? Your life as you know it is toast anyways at that point. I'll take that very unlikely risk (and even if that risk happens, I don't lose much more than a few hundred dollars more than you would) and I'll try for the very likely and massive gain that you can't achieve.

I'm not pushing my strategy, it's just that I am starting my first job next week and have been doing a lot of reading on this the past few months and everything I have read says "you must have a 3-6 month emergency fund in the form of a savings or money market account".

Since your suggestion is the first well-reasoned one I have read that went contrary to the standard 3-6 month emergency fund advice, I'm just wondering if there's a catch somewhere that I'm not aware of, since everything else I read seems to push that 3-6 month emergency fund so hard.

Also, if you open a non-retirement account, do you have to pay capital gains taxes on everything you make each year, whereas with a Roth IRA or 401k, you wouldn't?

Finally, what priority would you put the 401k, Roth IRA, and a non-retirement account?

You only pay when you sell, or receive dividends. There are two types of capital gains - short term (gains made in less than a year) and long term (year or more holding of position).

Short term gains are taxed at your effective tax rate as income. Long term have a flat tax rate of 15%(typically, depends on income but most are in this bracket). You only owe this on years that your realize (sell for profit) your gains.

 

[dullard]

Originally posted by: Special K
I'm not pushing my strategy, it's just that I am starting my first job next week and have been doing a lot of reading on this the past few months and everything I have read says "you must have a 3-6 month emergency fund in the form of a savings or money market account".

Since your suggestion is the first well-reasoned one I have read that went contrary to the standard 3-6 month emergency fund advice, I'm just wondering if there's a catch somewhere that I'm not aware of, since everything else I read seems to push that 3-6 month emergency fund so hard.

Also, if you open a non-retirement account, do you have to pay capital gains taxes on everything you make each year, whereas with a Roth IRA or 401k, you wouldn't?

Finally, what priority would you put the 401k, Roth IRA, and a non-retirement account?

I take pride in going against the norm. Often the norm is correct and I'll follow them. But I do get to be too adamant when the norm isn't optimal. You don't have to take my opinion too literally. If you think $300 is too little, go right ahead and save more than that. This is especially true when you are young and don't have any real form of savings, no house, minimal CC credit limits, no investment accounts, etc.

My big beef is that all these people saying these "rules" forget the costs associated with their rules. Yes, it would be wonderful to have 6 months of cash lying around. But, that costs an awful lot of lost earnings potential to do that. If you are willing to lose that money that you could have gotten, then by all means, save 6 months of cash. You'll be far ahead of those people with no savings, no investment, and no plan.

But, mathematically, if you want to maximize your money you can't use one-size-fits all rules. I suggest you get a sufficent savings account going now since I can see stress will eat at you. But, once you are settled in a couple of years, put your money where you can do more with it. Relax that 3-6 month rule down to a smaller amount (lets say 1-2 months). Don't leave yourself without an escape hatch. But that escape hatch doesn't NEED to be cash any more. At least not with the easy access to cash that we have now.

Vi_edit above is correct about the taxes. Wait with any non-retirement investment account until you are ready for the extra tax headache. And when you start one, don't use it for frequent purchases/sales at least initially. That way, all your taxes will be simple to do and you'll have long term tax rates which are quite low. Depending on your income, it may be as low as 0% next year, although 15% is more common.

 

[habib89]

definately max out your company matching policy... that's a no brainer.. i personally would contribute at absolute max that i could without ruining my budget

 

[Special K]

Originally posted by: dullard

Originally posted by: Special K
I'm not pushing my strategy, it's just that I am starting my first job next week and have been doing a lot of reading on this the past few months and everything I have read says "you must have a 3-6 month emergency fund in the form of a savings or money market account".

Since your suggestion is the first well-reasoned one I have read that went contrary to the standard 3-6 month emergency fund advice, I'm just wondering if there's a catch somewhere that I'm not aware of, since everything else I read seems to push that 3-6 month emergency fund so hard.

Also, if you open a non-retirement account, do you have to pay capital gains taxes on everything you make each year, whereas with a Roth IRA or 401k, you wouldn't?

Finally, what priority would you put the 401k, Roth IRA, and a non-retirement account?

I take pride in going against the norm. Often the norm is correct and I'll follow them. But I do get to be too adamant when the norm isn't optimal. You don't have to take my opinion too literally. If you think $300 is too little, go right ahead and save more than that. This is especially true when you are young and don't have any real form of savings, no house, minimal CC credit limits, no investment accounts, etc.

My big beef is that all these people saying these "rules" forget the costs associated with their rules. Yes, it would be wonderful to have 6 months of cash lying around. But, that costs an awful lot of lost earnings potential to do that. If you are willing to lose that money that you could have gotten, then by all means, save 6 months of cash. You'll be far ahead of those people with no savings, no investment, and no plan.

But, mathematically, if you want to maximize your money you can't use one-size-fits all rules. I suggest you get a sufficent savings account going now since I can see stress will eat at you. But, once you are settled in a couple of years, put your money where you can do more with it. Relax that 3-6 month rule down to a smaller amount (lets say 1-2 months). Don't leave yourself without an escape hatch. But that escape hatch doesn't NEED to be cash any more. At least not with the easy access to cash that we have now.

Vi_edit above is correct about the taxes. Wait with any non-retirement investment account until you are ready for the extra tax headache. And when you start one, don't use it for frequent purchases/sales at least initially. That way, all your taxes will be simple to do and you'll have long term tax rates which are quite low. Depending on your income, it may be as low as 0% next year, although 15% is more common.

What are your thoughts on putting money toward 401k vs. Roth IRA vs. individual investment accounts?

 

[dullard]

Originally posted by: Special K
What are your thoughts on putting money toward 401k vs. Roth IRA vs. individual investment accounts?

I'd go with the general consensous here. 401k until you get the full employer match is a must. After that, I'd personally get my safety cushion in an individual investment account. But once that is set, I'd forget it for now. Then focus on Roth IRA. If you want more retirement investments, go back to the 401k. And finally if you still have money left over, put more into your individual investment account.

That sounds like a lot of mess to figure out. But it really isnt' all that bad. It is just 3 accounts. Also, you don't have to do it all right away the first year. And most can be set up to automatically handle the routine work. It really only takes thought once or twice a year.

Have a great weekend. And I know it is cliche, but since you are asking these questions, you will likely do better than the vast majority of people out there no matter what path you choose.

 

[Atrail]

Originally posted by: OneOfTheseDays
I've seen a lot of conflicting advice on managing one's 401k, some people advocate maxing out your contributions while others say to simply do the maximum that your company will match. My company will match the first 3% of my contributions. Right now my 401k is set to deduct 3% from my payroll annually for annual payments of ~$2100 to my 401k. I could definitely put in more than this since I'm single and have very little expenses at the moment.

Should I go all out and do 50% or something more conservative like say 15%. I'd like to retire when I'm 70-75 if that helps.

Do you have house?

max employer contribution
save the rest for your home investment
pay cash or have a huge down payment...

 

[agibby5]

If you're at a temporary job, look into the Vesting schedule of your plan. This is the amount of time that must pass before you own a certain percentage of the balance that the company contributed to your 401k account. Make sure that it's not a waste to contribute money that when the matched amount contributed by the company won't really be yours for some time.

I.e. if you need the money you're contributing or if you could invest it better elsewhere yourself, don't pay the opportunity cost of contributing to the 401k if you won't own 100% of the amount the employer is contributing for 5 years and you're not planning on working there for that long (for example).

Then again, since a 401k plan is a retirement plan, you likely won't be taking the money out that early.

That's just my understanding though... anyone who can (in)validate this, please do so.

 

[alrocky]

Originally posted by: Kev

Originally posted by: DLeRium

Originally posted by: thomsbrain

Originally posted by: jaybert

Originally posted by: vi_edit
General opinion is to max out your match on your 401k, then max out your Roth IRA. If you still have money left over, go back and add more to your 401k.

thats not the general consensus at all...general consensus is to max out the 401k up to matching, then max out ROTH IRA, then finish maxing out 401k

wow. just wow.

What the hell is going on with people nowadays?

I know they're both wrong. This is correct IIRC:

1. Max out the 401k matching
2. Max out the Roth IRA
3. Max out the rest of the 401k

You're funny.

Originally posted by: Kev If my company doesn't do matching should I do the Roth IRA first and then 401k? I am a financial retard btw.

Originally posted by: Turin39789 I know for a fact that I won't be at this company for the 4 years it takes to get vested. Would it be smarter to just leave the 401k alone and go roth?

Assuming you have access to low cost (expense ratio) no load index mutual funds in your 401(k), you should endeavor to max out both your 401(k) and ROTH IRA. Even without matching or vesting, you receive the tax advantage and can roll it into a no load mutual fund company after you leave your current employer.

---

Originally posted by: OneOfTheseDays
Right now my 401k is set to deduct 3% from my payroll annually for annual payments of ~$2100 to my 401k. I could definitely put in more than this since I'm single and have very little expenses at the moment.

$70,000 * .03 = $2,100 ---> so you're 23 years old and make $70,000 a year?

For 2007, you may contribute up to $15,500 in your 401(k) and $4,000 in an IRA. It is to your financial advantage to invest as much as you can afford for retirement and to do so as soon as you can. A rule of thumb is to invest at least 10% of your income.

What mutual funds are availabe in your 401(k)?

---

Originally posted by: soxfan If you have a crappy 401k plan like some do (e.g., the government)

Well, someone is misinformed...

 

[Azurik]

Originally posted by: dullard

Originally posted by: Special K
Let's say I lose my job. If I use the credit card to survive until I find a new job, where is the money to pay the monthly payments supposed to come from if I'm keeping a minimal balance in my checking account and don't have a savings account? I suppose you could raid the Roth IRA, but what if it's lost money since when you started it?

If you have a CC, use it for the monthly expenses. Even at 20% interest rate for cash advances, you are far ahead.

Of course, you should have another loan source for this first. A HELOC for example or non-retirement investmest accounts. I'm just giving the worst case scenerio of using a CC.

It's not just the CC interest. If you lost your job and you don't have emergency cash, it usually means you don't have enough to pay the minimum payment required. There's additional finance charges tacked on the the ever growing balance. Lets say you got hired after those 6 months, well, now not only do you need to use the new paycheck to fund your ongoing living expenses, but now you need to pay down your CC at the same time. You're not going to be able to pay all that off that soon, and in the interim, you're getting tacked more on interest. Since you're focusing on two things now, when are you going to start having spare money to sock into the new 401k plan from your employer or fund your IRA.

I am only mentioning this in relation to the article that was linked... someone new coming out of the workforce. It gets even worse when you have a house and mortgage payments. That new salary would be spread pretty thin.

Your post assumes that the person will keep his emergency cash in savings for years and years. You only need 3-6 months. Any interest and additional funds can be siphoned to an investment account. This really ISN'T an opportunity cost of risking $547 vs a potential gain of $100,000.

I am not advocating putting money into savings accounts at all. But for most people having an emergency stash readily available in precisely an account like this is a life savior.

 

[Special K]

Originally posted by: Azurik

Originally posted by: dullard

Originally posted by: Special K
Let's say I lose my job. If I use the credit card to survive until I find a new job, where is the money to pay the monthly payments supposed to come from if I'm keeping a minimal balance in my checking account and don't have a savings account? I suppose you could raid the Roth IRA, but what if it's lost money since when you started it?

If you have a CC, use it for the monthly expenses. Even at 20% interest rate for cash advances, you are far ahead.

Of course, you should have another loan source for this first. A HELOC for example or non-retirement investmest accounts. I'm just giving the worst case scenerio of using a CC.

It's not just the CC interest. If you lost your job and you don't have emergency cash, it usually means you don't have enough to pay the minimum payment required. There's additional finance charges tacked on the the ever growing balance. Lets say you got hired after those 6 months, well, now not only do you need to use the new paycheck to fund your ongoing living expenses, but now you need to pay down your CC at the same time. You're not going to be able to pay all that off that soon, and in the interim, you're getting tacked more on interest. Since you're focusing on two things now, when are you going to start having spare money to sock into the new 401k plan from your employer or fund your IRA.

I am only mentioning this in relation to the article that was linked... someone new coming out of the workforce. It gets even worse when you have a house and mortgage payments. That new salary would be spread pretty thin.

Your post assumes that the person will keep his emergency cash in savings for years and years. You only need 3-6 months. Any interest and additional funds can be siphoned to an investment account. This really ISN'T an opportunity cost of risking $547 vs a potential gain of $100,000.

I am not advocating putting money into savings accounts at all. But for most people having an emergency stash readily available in precisely an account like this is a life savior.

Don't you kind of contradict yourself in the bolded statement? Are the savings accounts a good place for the emergency reserves or not?

 

[Azurik]

Originally posted by: Special K

Originally posted by: Azurik

Originally posted by: dullard

Originally posted by: Special K
Let's say I lose my job. If I use the credit card to survive until I find a new job, where is the money to pay the monthly payments supposed to come from if I'm keeping a minimal balance in my checking account and don't have a savings account? I suppose you could raid the Roth IRA, but what if it's lost money since when you started it?

If you have a CC, use it for the monthly expenses. Even at 20% interest rate for cash advances, you are far ahead.

Of course, you should have another loan source for this first. A HELOC for example or non-retirement investmest accounts. I'm just giving the worst case scenerio of using a CC.

It's not just the CC interest. If you lost your job and you don't have emergency cash, it usually means you don't have enough to pay the minimum payment required. There's additional finance charges tacked on the the ever growing balance. Lets say you got hired after those 6 months, well, now not only do you need to use the new paycheck to fund your ongoing living expenses, but now you need to pay down your CC at the same time. You're not going to be able to pay all that off that soon, and in the interim, you're getting tacked more on interest. Since you're focusing on two things now, when are you going to start having spare money to sock into the new 401k plan from your employer or fund your IRA.

I am only mentioning this in relation to the article that was linked... someone new coming out of the workforce. It gets even worse when you have a house and mortgage payments. That new salary would be spread pretty thin.

Your post assumes that the person will keep his emergency cash in savings for years and years. You only need 3-6 months. Any interest and additional funds can be siphoned to an investment account. This really ISN'T an opportunity cost of risking $547 vs a potential gain of $100,000.

I am not advocating putting money into savings accounts at all. But for most people having an emergency stash readily available in precisely an account like this is a life savior.

Don't you kind of contradict yourself in the bolded statement? Are the savings accounts a good place for the emergency reserves or not?

I meant that I don't think anyone should be putting a significant portion of their capital into savings bond. It is a poor vehicle for a proper retirement. But for an extremelly liquid and safe emergency fund, savings accounts has its purpose.

 

[dullard]

Originally posted by: Azurik
Your post assumes that the person will keep his emergency cash in savings for years and years. You only need 3-6 months. Any interest and additional funds can be siphoned to an investment account. This really ISN'T an opportunity cost of risking $547 vs a potential gain of $100,000.

My post assumed all interest and additional funds are siphoned to an investment account in BOTH cases. I only calculated the cost of having $12000 (no more, no less) in the account for that long.

 

[bwatson283]

I do 12% and the match is 6%.........

 

[tk149]

I max out my employer's 401K match by putting in 8% (lousy cheap employer does a half-percent match, up to 4%, with FIVE years until fully vested). The brokerage my employer uses is The Principal, and, to be blunt, their fund choices suck.

I max out Roth IRA.

I keep a 6-month emergency supply of money in my savings accounts. This amount is calculated based on a drastic cutback in entertainment (e.g. cable TV, dining out, toys, etc) and gas expenses (since I'm supposed to be looking for a job and not commuting to work everyday). I guess I'm more risk-averse than Dullard.

I put 23% of my gross paycheck into an individual investment account, where I only hold individual stocks (i.e. no mutual funds, etc). My returns on this account are beating the pants off my retirement accounts. If my 401K accounts did better, I'd probably be putting more money into those.

I live poorly compared to my coworkers, but I'm single with no kids and no debt. I have enough saved for a good-sized down payment on a decent house, and I'm shopping around right now.

 

[Pliablemoose]

Originally posted by: tk149
I max out my employer's 401K match by putting in 8% (lousy cheap employer does a half-percent match, up to 4%, with FIVE years until fully vested). The brokerage my employer uses is The Principal, and, to be blunt, their fund choices suck.

I max out Roth IRA.

I keep a 6-month emergency supply of money in my savings accounts. This amount is calculated based on a drastic cutback in entertainment (e.g. cable TV, dining out, toys, etc) and gas expenses (since I'm supposed to be looking for a job and not commuting to work everyday). I guess I'm more risk-averse than Dullard.

I put 23% of my gross paycheck into an individual investment account, where I only hold individual stocks (i.e. no mutual funds, etc). My returns on this account are beating the pants off my retirement accounts. If my 401K accounts did better, I'd probably be putting more money into those.

I live poorly compared to my coworkers, but I'm single with no kids and no debt. I have enough saved for a good-sized down payment on a decent house, and I'm shopping around right now.

:thumbsup:

Playing keep up with your co-workers is a fast ticket to a life doomed to be a wage slave with no options.

Management was jacking around with me a few months ago & I just told them "Tell me when, I'll resign & save you a whole lot of paperwork." They really freaked out & left me the hell alone.

Having some liquidity means you have options in life. I can't tell you how many of my co-workers are doomed to work till they die or get fired.