Forum Thread

How to begin saving?

7 10 November 24, 2019 at 05:33 PM
Deal
Score
0
831 Views

Thread Details

0 Deal Score
831 Views
Hey all, I am seeking guidance on the best way to prepare for my eventual retirement. I am 47 and currently have no type of retirement plan/retirement savings, etc, in place. I do however have some cash from selling a house and am wondering what my best play might be. Considering paying off my car or current home. Thanks in advance for any advice.

14 Comments

1

Sign up for a Slickdeals account to remove this ad.

This comment has been rated as unhelpful by Slickdeals users
Joined Dec 2005
L6: Expert
1,425 Posts
1,145 Reputation
#2
First and foremost, you need to have a rainy day fund worth 3-12 months of your living expenses. This should be in a liquid savings account. Online banks typically pay the most interest. I have mine at All America Bank, but there is Ally, Salem Five, etc. Some banks remain more competitive than others. Here is a list: https://www.doctorofcredit.com/hi...gs-to-get/.

Next, pay off your debts such as car loans, credit cards, etc.. Mortgages are generally considered good debt since real estate generally appreciates over time, so it is excluded.

Whatever you have left over, you can start saving for retirement by opening a traditional or Roth IRA with $6k each year. Traditional is pre-tax. Roth is after tax, and you can also withdraw your contributions to a Roth at any time penalty free. There are many discussions and debates online about which type is better. You have until April 15, 2020 to deposit money for the 2019 tax year. I would recommend investing it in a Boglehead 3 fund [bogleheads.org] or lazy portfolio [bogleheads.org]. It is a great time to start as many brokerages no longer charge trading fees.

Finally, if your employer has a retirement plan such as a 401k, sign up for it. You are getting a late start, so contribute as much as you can. Many employers match your contributions to a certain amount which is essentially free money.

Hope that helps.
Reply Helpful Comment? 2 0
This comment has been rated as unhelpful by Slickdeals users
Joined Aug 2011
L6: Expert
1,115 Posts
208 Reputation
#3
Quote from theST0RM
:
First and foremost, you need to have a rainy day fund worth 3-12 months of your living expenses. This should be in a liquid savings account. Online banks typically pay the most interest. I have mine at All America Bank, but there is Ally, Salem Five, etc. Some banks remain more competitive than others. Here is a list: https://www.doctorofcredit.com/hi...gs-to-get/ [doctorofcredit.com].

Next, pay off your debts such as car loans, credit cards, etc.. Mortgages are generally considered good debt since real estate generally appreciates over time, so it is excluded.

Whatever you have left over, you can start saving for retirement by opening a traditional or Roth IRA with $6k each year. Traditional is pre-tax. Roth is after tax, and you can also withdraw your contributions to a Roth at any time penalty free. There are many discussions and debates online about which type is better. You have until April 15, 2020 to deposit money for the 2019 tax year. I would recommend investing it in a Boglehead 3 fund [bogleheads.org] or lazy portfolio [bogleheads.org]. It is a great time to start as many brokerages no longer charge trading fees.

Finally, if your employer has a retirement plan such as a 401k, sign up for it. You are getting a late start, so contribute as much as you can. Many employers match your contributions to a certain amount which is essentially free money.

Hope that helps.
Wait, so you would advise someone to have thousands in the bank for a rainy day fund before they pay off credit card debt. I'm not good at finance but that seems crazy to me. Isn't it like taking out a line of credit and paying interest on it just so it can sit in a bank. I mean, you can always go into debt if you need it, right?
Reply Helpful Comment? 0 0
This comment has been rated as unhelpful by Slickdeals users
Joined Dec 2005
L6: Expert
1,425 Posts
1,145 Reputation
#4
Quote from NateRules
:
Wait, so you would advise someone to have thousands in the bank for a rainy day fund before they pay off credit card debt. I'm not good at finance but that seems crazy to me. Isn't it like taking out a line of credit and paying interest on it just so it can sit in a bank. I mean, you can always go into debt if you need it, right?
Enough that the OP could get his car repaired it case it breaks down after paying it off. Those of us who lived through the Great Recession learned that a line of credit may not always be available when you most need it no matter how great your credit score is.
Reply Helpful Comment? 0 0
This comment has been rated as unhelpful by Slickdeals users
Joined Aug 2011
L6: Expert
1,115 Posts
208 Reputation
#5
Quote from theST0RM
:
Enough that the OP could get his car repaired it case it breaks down after paying it off. Those of us who lived through the Great Recession learned that a line of credit may not always be available when you most need it no matter how great your credit score is.
You would have those paid-off credit cards to use in an emergency. Are you saying that if someone was completely out of debt but had no savings you would advise them to go and take money out from a credit card and pay the high-interest rates so they can have some savings in the bank? That is essentially the same thing. Plus the money you would save from paying off the credit cards first could probably pay for quite a bit of car repairs.
Reply Helpful Comment? 0 0
This comment has been rated as unhelpful by Slickdeals users
Joined Dec 2012
L3: Novice
139 Posts
37 Reputation
#6
Quote from Ccox00
:
Hey all, I am seeking guidance on the best way to prepare for my eventual retirement. I am 47 and currently have no type of retirement plan/retirement savings, etc, in place. I do however have some cash from selling a house and am wondering what my best play might be. Considering paying off my car or current home. Thanks in advance for any advice.
Depends on the interest rate from my point of view. If the home and car interest rates are <6%, then I'd be eyeing a Roth as my plan.
I like the roth if you are in the 12% tax bracket. If you are in the next bracket up, then I could go either roth or IRA...but more on that later.
Both have a max annual amount of $6500 for 2019 and you have to have earned income (most people earn money from their job, thus that is earned income).

I say a roth as I like the idea of putting monies into a retirement account and then if a rainy day emergency really comes up, a roth allows you to pull your contributions back out without any penalty. Thus, I use a Roth as my retirement+emergency fund savings.
Reply Helpful Comment? 0 0
This comment has been rated as unhelpful by Slickdeals users
Joined Dec 2005
L6: Expert
1,425 Posts
1,145 Reputation
#7
Quote from NateRules
:
You would have those paid-off credit cards to use in an emergency.
During the credit crisis, people had their accounts closed, but they still had to pay off the balance due.

Quote from NateRules
:
Are you saying that if someone was completely out of debt but had no savings you would advise them to go and take money out from a credit card and pay the high-interest rates so they can have some savings in the bank? That is essentially the same thing. Plus the money you would save from paying off the credit cards first could probably pay for quite a bit of car repairs.
You are putting words in my mouth. I'm saying one should S-A-V-E enough of their income to get through a financial hardship without adding to the person's current debt load. If a person can't set aside some cash and not touch it, then he/she likely doesn't have the discipline to possess a credit card and not charge it back up. This and other forums are filled with folks who have poured all their available money into paying off their credit cards/car/house or saving for retirement, but they can't afford a simple car repair without putting themselves in further debt. We shouldn't be reaching for the credit card every time things go south. Does taking my advice mean someone might pay more interest in the short term? Yes, but it will create a good habit that can last a lifetime.
Reply Helpful Comment? 0 0
This comment has been rated as unhelpful by Slickdeals users
Joined Sep 2006
L7: Teacher
2,235 Posts
942 Reputation
#8
For money target retirement (considering retirng today), I would have to have no debt whatsoever, and have the following
30k emergency fund
300k health care / long term care insurance expense
300k for housing (paid off)
2M for stock/fund investment earnings.

This will allow me to travel (cruise, airbnb, or stealth camping depending how long you want the money to last), have reasonable living style each year and do things (garage inventor, attending college classes, volunteering at the animal shelter) that I like without any financial worry.

Pay off all debts before even thinking about retiring. It just sounds like a messed-up priority when you are thinking about saving/retirement and there is still monthly debt payment draining your ability to save.

Once you have no debt, start saving by budgeting and cut costs. Live like a college student in a dorm. The more sacrifice you make now the better breathing room you will have in the future. On a 100k annual salary for a single person, I would aim for a frugal enough life that costs no more than 10k a year on living expense. You may need to sell the house again and move to the country side and start eating beans and rice and find cheap things that interest you to balance your life's wants.

Also watch the following Dave Ramsey's video (45min long) to get a sense of what it really takes to save for retirement.
https://www.youtube.com/watch?v=h-fcI7W-ucY

Have a networth-age check on
https://dqydj.com/net-worth-by-ag...ed-states/

47 with no retirement savings (assuming zero net worth) puts you at around 10% between age 45-49 bracket. Good thing you still have some time to catch up. If you can save 60k a year and with consistent investing, you can still reach net worth of 1M+ for retirement in 10 years.
Reply Helpful Comment? 0 0
Last edited by teetee1 November 26, 2019 at 12:51 AM.

Sign up for a Slickdeals account to remove this ad.

This comment has been rated as unhelpful by Slickdeals users
Joined Nov 2005
L10: Grand Master
30,365 Posts
3,908 Reputation
#9
Well DR starts out with a smaller "rainy day" fund which is intended to cover the occasional one-off thing like your car or house needing major repairs. Then get to work on debt reduction, then increase rainy day fund, then start retirement investing.

The idea is that you can put every cent of $$ toward debt but if your car needs $500 worth of work, what good is a paid down balance when you'll just have to put the car repair on the (high interest) credit card again? That said, the value of the rainy day fund isn't some magic number. Further on, it makes sense to have months of expenses intended to cover, say, a job loss or major health issue.

I part ways with DR on his whole "snowball" idea where he'll tell you with a straight face you should pay off a $10k car loan @ 2% before an $11k CC bill at 18%. That's just idiotic.
Reply Helpful Comment? 0 0
This comment has been rated as unhelpful by Slickdeals users
Joined Jan 2004
Here's to the future
25,068 Posts
707 Reputation
#10
Quote from Dr. J
:

I part ways with DR on his whole "snowball" idea where he'll tell you with a straight face you should pay off a $10k car loan @ 2% before an $11k CC bill at 18%. That's just idiotic.
The snowball approach may have a long term result of paying a little more interest, but it will also result in a higher percentage of success in getting out of debt. Most debt examples won't be to the extreme as the one you give. In the end it is about what works to keep someone who is buried in debt progressing towards getting out of debt. It's more about psychology than it is about the optimal decision to reduce the bottom line. Motivation goes a long way to sticking to a plan, and the snowball approach shouldn't be discounted in the sense of accomplishment it provides when even a small milestone is reached.

Anyone who hasn't experienced the sense of hopelessness of being mired in debt probably wouldn't be able to comprehend why it makes sense or why it works.
Reply Helpful Comment? 0 0
I like what she said, not what it means.
This comment has been rated as unhelpful by Slickdeals users
Joined Nov 2005
L10: Grand Master
30,365 Posts
3,908 Reputation
#11
Quote from Iaaaiws
:
The snowball approach may have a long term result of paying a little more interest, but it will also result in a higher percentage of success in getting out of debt. Most debt examples won't be to the extreme as the one you give. In the end it is about what works to keep someone who is buried in debt progressing towards getting out of debt. It's more about psychology than it is about the optimal decision to reduce the bottom line. Motivation goes a long way to sticking to a plan, and the snowball approach shouldn't be discounted in the sense of accomplishment it provides when even a small milestone is reached.

Anyone who hasn't experienced the sense of hopelessness of being mired in debt probably wouldn't be able to comprehend why it makes sense or why it works.
I realize the mental aspect but also realize:
- In listening to his show, most people his approach appeals to are in debt up the wazoo in many types, so I can see "mental wins" being more important than fiscal sense
- I've literally heard him make similar arguments in the past (e.g. pay off a low-rate loan JUST BECAUSE it's lower value). Why? The key to "baby steps" is they are idiotically simple to follow. Allow ANY decision making and his "baby steps" fall apart. So he *cannot* tell you that you should put your $$ to the highest rate because it might contradict his method. I've also never heard him be honest about that - he will say something to the effect that "snowballing" is about mental wins but I've never heard him to come clean and say "this method doesn't make financial sense and you'll likely wind up paying more in interest BUT...." [his show went out of my market about a year ago but I was a pretty regular listener then]

A general rule of thumb about money is - put it towards the higher rate. Doesn't matter if it's savings or debt or even spending (inflation). Of course there are caveats - like risk, which is where the rainy day fund comes in.
Reply Helpful Comment? 0 0
This comment has been rated as unhelpful by Slickdeals users
Joined Jan 2004
Here's to the future
25,068 Posts
707 Reputation
#12
Quote from Dr. J
:
I realize the mental aspect but also realize:
- In listening to his show, most people his approach appeals to are in debt up the wazoo in many types, so I can see "mental wins" being more important than fiscal sense
- I've literally heard him make similar arguments in the past (e.g. pay off a low-rate loan JUST BECAUSE it's lower value). Why? The key to "baby steps" is they are idiotically simple to follow. Allow ANY decision making and his "baby steps" fall apart. So he *cannot* tell you that you should put your $$ to the highest rate because it might contradict his method. I've also never heard him be honest about that - he will say something to the effect that "snowballing" is about mental wins but I've never heard him to come clean and say "this method doesn't make financial sense and you'll likely wind up paying more in interest BUT...." [his show went out of my market about a year ago but I was a pretty regular listener then]

A general rule of thumb about money is - put it towards the higher rate. Doesn't matter if it's savings or debt or even spending (inflation). Of course there are caveats - like risk, which is where the rainy day fund comes in.
The thing is, if someone had the natural ability to follow the general rules of thumb about money they wouldn't find themselves mired in debt to begin with. Ramsey doesn't try to teach common sense, which would be a losing battle. He is trying to teach how to change behaviors and get out of debt. I actually used the snowball method myself to dig my way out of debt quite a few years ago. In fact that was before I ever heard of Dave Ramsey or the snowball method or even realized why it was working. Trying to tackle the highest interest rate first approach hadn't gotten me anywhere.

I made a lot of poor choices in the past with money and credit and have learned a lot about what not to do. I likely still make some pretty poor financial choices now but at least I do it debt-free. laugh out loud
Reply Helpful Comment? 0 0
This comment has been rated as unhelpful by Slickdeals users
Joined Nov 2017
New User
7 Posts
10 Reputation
Original Poster
#13
Quote from theST0RM
:
First and foremost, you need to have a rainy day fund worth 3-12 months of your living expenses. This should be in a liquid savings account. Online banks typically pay the most interest. I have mine at All America Bank, but there is Ally, Salem Five, etc. Some banks remain more competitive than others. Here is a list: https://www.doctorofcredit.com/hi...gs-to-get/.

Next, pay off your debts such as car loans, credit cards, etc.. Mortgages are generally considered good debt since real estate generally appreciates over time, so it is excluded.

Whatever you have left over, you can start saving for retirement by opening a traditional or Roth IRA with $6k each year. Traditional is pre-tax. Roth is after tax, and you can also withdraw your contributions to a Roth at any time penalty free. There are many discussions and debates online about which type is better. You have until April 15, 2020 to deposit money for the 2019 tax year. I would recommend investing it in a Boglehead 3 fund [bogleheads.org] or lazy portfolio [bogleheads.org]. It is a great time to start as many brokerages no longer charge trading fees.

Finally, if your employer has a retirement plan such as a 401k, sign up for it. You are getting a late start, so contribute as much as you can. Many employers match your contributions to a certain amount which is essentially free money.

Hope that helps.
Thank you! Lots to consider and to follow up on. I really appreciate your advice.
Reply Helpful Comment? 0 0
This comment has been rated as unhelpful by Slickdeals users
Joined Nov 2003
L6: Expert
1,224 Posts
#14
Have you considered working with a financial coach?
Reply Helpful Comment? 0 0
This comment has been rated as unhelpful by Slickdeals users
Joined Sep 2017
L2: Beginner
47 Posts
26 Reputation
#15
Ccox00, how well do you keep track of your income and expenditures?

i always suggest that people keep an accurate spreadsheet of every dollar that comes in and every dollar that goes out. no estimates or fudging allowed. by strict and honest. you can't tell how much you can save unless you know how much you really have. many people simply don't realize (or lie to themselves) how much they spend. once you see (or admit) how much money you're spending, you can start work on a plan that lets you save money.

is your lack of savings due to lack of self-control, lack of employer-sponsored retirement options, lack of income, or something else? you don't have to tell us, but you should ask yourself.
Reply Helpful Comment? 0 0
Page 1 of 1
1
Join the Conversation
Add a Comment
 
Link Copied to Clipboard