OT: Personal Finance

[Pharmacy Kid]

I'm looking to see what more I can do financially for my age at 28.

INCOME
My gross income 72k (after taxes and tsp)
Maxed Roth IRA
Contribute to tsp $16500/year

EXPENSE/DEBT
My monthly expenses $2000-3000
- $90 cell phone, $50 internet, $160 gas $120 piano lessons, $150 utilities, $100 pet expenses, $250 food, $75 clothes/shoes, $1oo auto-related stuff
- the rest is spent on travel or random purchases from Amazon/Slickdeals
My monthly debts $1300 (mortgage plus student loan)

MY ASSETS
Checking/Savings - $5000
TSP - $75,000
Roth IRA - $57,000
Fidelity Stocks - $25,000
Lending Club $10,000
House - $40,000 equity
Car - $5000

MY DEBTS
Mortgage - $110,000 @ 3%
Student loan $120,000 @6.8%

Before some of you tell me to pay off student loans, I have five more years to work with my agency and the remaining student loans will be forgiven. So I am making the minimum monthly payment of $330 for five more years.

Every month, I have about $1000 - $1500 extra money after all expenses. I am thinking if I should pay my house off early or invest more in fidelity stocks.

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[Momus]

Looks good, but the monthly expenses could be better. I see you have 2-3k expenses/mo, does that include housing? At $2-3k if you are single with no kids/family, and if it is not including monthly mortgage, that's pretty high. I'd like to see the detail on that. I will also increase the cash/emergency saving to at least 6 months of your current monthly expense. $5k cash represents only 2 months of emergency saving.

I am not a fan of picking individual stocks. Index fund only for me. I do not like to prepay my mortgage early as you can get more return investing the difference, but everyone is different. Sometimes, reducing debt is better if you are one of those who can't tolerate debt. Lacking discipline, most will fail to save/invest the difference and choose spending the excess cash instead. You should know who you are.

 

[Pharmacy Kid]

I added some details for my expenses which do not include student loans/mortgage. My monthly expenses are usually ~$2000, but international vacations will occasionally bring it up.

My stocks have been good overall. Bought Apple at 95, Solar City at 21, and a bunch of Fidelity Funds. I just bought Nintendo last week. Hopefully it will soar after they release the Switch.

 

[abcpharm]

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[abcpharm]

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[lord999]

If you're using MWR for travel, it's the best you can do with the habit. What is the likelihood that your assignment will change when you make O-5 (forcing an involuntary PCS) and/or wanting to return after service is done drives whether you pay off your house or not. Biggest difference I can see is converting to Roth TSP if you're traditional at your salary level, though it hurts in the immediate term rather than using the money to invest. If it helps, you'll never make that little again when you're out. Depending on things, I think the tax risk reduction is better than future returns after this market goes.

https://www.tsp.gov/PlanParticipation/EligibilityAndContributions/TaxTreatment/index.html

 

[pezdispenser]

- Your gross income seems low. Is that after deducting the 16.5k TSP? Have you considered moonlighting? I do some and it adds up to a nice extra $45k/yr.

- Consider doing your stock trading inside your Roth IRA. That way you won't have to pay any taxes or worry about short- or long-term gains. You can withdraw your principal at any time without tax or penalty, but not your gains until 59.5 y/o.

- To pay off mortgage or to invest? I think you should do both! I don't like to only think about growing your balance sheet (assets minus liabilities = net worth) which is basically what proponents of investing over paying off a mortgage are doing. You should also balance that with your cash flow and lifestyle (spending). Having a paid off mortgage obviously improves your cash flow dramatically, and is such a major achievement and milestone that it greatly improves your well-being and lifestyle as well. For example, after I paid off my mortgage, I found that I no longer worry about whether I will have enough money for the future, or if I'm spending too much, so I just spend it and enjoy life.

 

[BenJammin]

What is Lending Club? I've never heard of it. Are they good for casual investing?

 

[rxdawg21]

What is Lending Club? I've never heard of it. Are they good for casual investing?

Its peer to peer lending (P2P). You are literally giving loans to Americans like a bank. You only give a portion of it. Some people have been successful. I have stayed clear, and will considering household debt is back to 2008 levels.

 

[lord999]

That salary is about correct for an O-4 (more than what I thought was typical). And that's out of a 60 hour work week, btw.

 

[beautifulrobot]

That salary is about correct for an O-4 (more than what I thought was typical). And that's out of a 60 hour work week, btw.

Still seems kind of low, base salary for an O-4 with at least 3 years of service is $68,196 (2017 rate), and then add $15,000 for pharmacist specialty pay, that gets you to $83k without including BAH and BAS (non-taxable, but still part of gross income). Even at the lower end of the spectrum, BAH is around $1300/month for an O-4 without dependents, and BAS is $246.24/month - that's another $1550/month or $18,600/yr (tax-free), unless Pharmacy Kid isn't getting BAH due to living in government housing while also having a mortgage on another property...

In terms of financial advice, I don't have much to recommend, definitely not an investment guru like some of the other folks here. Personally, I max out my TSP contributions to $18,000, and it seems like that would be something fairly easy and simple for you to do since you already contribute $16,500 to TSP.

Also, although it's probably obvious, definitely stay with the old retirement plan if you intend to put in 20 years. With the new blended retirement plan it only makes sense if you plan to leave the uniformed services in less than 20 years or do not plan on being alive much longer after you retire (or if you are extra paranoid that the government will not fulfill its promise to PHS retirees and will cut us off at some point, and having more money in your TSP account makes you feel like you have better control over your money - either way you're taking a risk, I suppose). Even with the matching, there is no way you can invest enough in TSP and get a ROI that will make up for the 20% drop in retirement payments for life (from 50% of base salary in the old plan to 40% in the new plan).

 

[ldiot]

Looks okay to me but I'd probably have the lending club money in stocks personally. I know my employer allows me to set up direct deposit in multiple accounts at once either by a set dollar amount or as a percentage of the paycheck so if you want to limit your spending you could have them direct deposit a set amount into your checking for your monthly expenses and the rest into a savings account that you can invest periodically. It might even be possible to have it go directly into your brokerage account. I think that might be a useful way to limit some excess spending at the grocery store/Amazon/etc... at least it's something that I plan to utilize when I'm out of school. It's kind of a lazy way to budget, you cannot spend what's not there.

 

[beautifulrobot]

Looks okay to me but I'd probably have the lending club money in stocks personally. I know my employer allows me to set up direct deposit in multiple accounts at once either by a set dollar amount or as a percentage of the paycheck so if you want to limit your spending you could have them direct deposit a set amount into your checking for your monthly expenses and the rest into a savings account that you can invest periodically. It might even be possible to have it go directly into your brokerage account. I think that might be a useful way to limit some excess spending at the grocery store/Amazon/etc... at least it's something that I plan to utilize when I'm out of school. It's kind of a lazy way to budget, you cannot spend what's not there.

That's a good point, and just reminded me of US Treasury Savings Bonds... (it was one of the examples of direct deposits Payroll mentioned during Officer Basic Course...). Does anyone here invest in Treasury saving bonds? Any thoughts? Seems like a good way to go if you're looking for low-risk investments...

 

[ldiot]

That's a good point, and just reminded me of US Treasury Savings Bonds... (it was one of the examples of direct deposits Payroll mentioned during Officer Basic Course...). Does anyone here invest in Treasury saving bonds? Any thoughts? Seems like a good way to go if you're looking for low-risk investments...

I'm not even sure that the return beats inflation to be honest. If you re looking for low risk I think buying a bond ETF or even throwing it at your mortgage would be a better ROI.

 

[Pharmacy Kid]

I did my math wrong. My take home pay is $72000 after taxes and TSP.

So what I decided to do after reading comments here and at bogleheads is
1. max out my tsp (just sent the form yesterday)
2. set up monthly automatic transfers from checking to savings in the amount of $1000 - that will force me to save and build up $12000 rainy day fund
3. (try to) spend less at amazon and slickdeals
4. keep traveling

 

[Momus]

I did my math wrong. My take home pay is $72000 after taxes and TSP.

So what I decided to do after reading comments here and at bogleheads is
1. max out my tsp (just sent the form yesterday)
2. set up monthly automatic transfers from checking to savings in the amount of $1000 - that will force me to save and build up $12000 rainy day fund
3. (try to) spend less at amazon and slickdeals
4. keep traveling

Yea, that's the only thing I see that's quite high. Too little on emergency saving & expenses at $1kish fixed (which is reasonable) based on the detail you provided, but then it balloons up to 3k/month, try to cut on some frivolous stuff. If you don't use the item more than 10 times a year skip it, can you live without it? Delay it "maybe next yr I'll get it". Soon, you will change your mind and think you don't need it. More new tech/features don't necessarily add value. Less stock picking. Keep stashing away $ & max all retirement account. I think you are doing well.

 

[Dred Pirate]

You are doing things good - minimal debt - just those pesky student loans. Low mortgage - good investments. Plus you are living life and traveling - and not borrowing or sacrificing to do it.

Set up auto payments into a savings - money market - ya the interest sucks - but you want 6 months cash on hand (6 months of expenses, not 6 months of net income).

With your extra money after that - pay off your mortgage - ya - the interest rate is super low, but I would want to have a home free and clear - now, if you will likely move in a few years, I may not be as aggressive towards that and instead save up more money to cover a down payment on a second home (depending on how fast you think you can sell your current place) - or I would put money into an index fund (provided your tax sheltered plans are all maxed out)

 

[NewRPh2006]

Emergency fund (3-6 month), yep. Then pay off house first to reduce your risk/liability. Low interest rate on the house doesn't matter. A debt is a liability period. Would not invest in individual stocks. OK to do a little, but would move bulk of fidelity money into index funds (e.g. FSTMX). This will give you tons of diversification, more protection against risk. For instance, you mentioned Apple stock. They are in the spotlight. If news comes out of some type of Apple data breach? Stock tanks. Not good for you. Single stocks can be too volatile. You obviously enjoyed tremendous returns so far since you bought Apple at 95, but keep in mind those sharp upturns come with the possibility of sharp downturns. If I were you, probably would not sell the Apple stock since returns have been so phenomenal for you, but as an outsider looking in I don't like single stocks. Hope that helps. If you do pay your house off early, then make sure all extra payments go directly to principle. Don't want to mistakenly pre-pay interest,