Tuesday, January 27, 2015

My Financial Plan

Hello Cash Turtles! I figured today I would post about my financial plan so you could all know where I’m coming from. Take it with a grain of salt, and I’m sure I’ll end up changing it quite often. If you have any questions or critiques, leave them in the comments below, or email me.

A Quick Overview: The steps on top take precedence over all of the other steps below them. If any of the higher steps are no longer satisfied (i.e. less money in a savings account), I will drop everything and focus on that. For an explanation of the different account types and why they’re ranked the way they are, see my financial planning article.

Right now I am contributing to a Traditional 401k, Roth IRA, and Traditional IRA. The traditional 401k lowers my tax bracket (I pay less taxes now). For the IRAs, I contribute to the traditional IRA up until I hit the deduction limit, and the remainder goes into my Roth. I will be going over all of this in a future article Traditional vs Roth… huh? If you have questions before then, please reach out to me and I”ll be more than happy to go into detail

  1. Max out 401(k) contributions up to the employer match (if there is one)
    • For example, my employer matches 100% of the first 4% of my pay that I contribute. So if I put in 4% of my salary to a 401k, my employer would double that.
    • Employer contributions to a 401(k) are put into a separate account and aren’t part of the annual limit
  2. Have ~$2,000 in Vanilla brick and mortar Savings (Keep $$$ at ~1 months of expenses, maybe a little higher ($2,000 a month for me))
    • This was my first account, tied to all my loans, CC accounts, checks etc.
    • I might keep less, depending on how comfortable I comfortable am with decreasing it.
    • This step isn’t necessary if you don’t want it to be. If you are in debt, you should probably pay it off rather than save this.
    • I use them for getting change for laundry, the ability to write checks… that’s pretty much the only reason.
  3. Have ~$6,000 in “high yield” savings account (Keep $$$ at ~3-4 months expenses ($2,000 a month for me))
    • See my savings account article <<here>>
    • Semi-liquid. Cash, but harder to get at then TD bank (takes 2-3 business days to transfer).
    • Ideally the interest rate is way better than your brick and mortar bank. Anywhere from .75% to around 1.2%.
    • You don’t want money to decrease in value. 
    • Depending on your comfort level, you can transfer funds from here to:
  4. Put ~$4,000 in Betterment to start
    • See my Betterment article <<here>>
    • Betterment is an automated investment tool. In a nutshell, you contribute money to your account and they automatically invest it in a diversified portfolio of stocks and bonds. You set the ratio of stocks and bonds, they do the rest. The added expense for this convenience is 0.35%.
    • EVENTUALLY, this is a long term goal, have $10,000+ 
    • Depending on how comfortable you get with risk, you can always transfer money from the savings account to Betterment
  5. Max Out HSA Contributions (While contributing to Betterment investment account)
    • You can contribute to an HSA if you have a qualifying high-deductible health insurance plan.
    • Money goes in pre-tax, grows tax free, and can be withdrawn tax free as long as it’s used for a qualified medical expense.
    • Mine needs to have $2,000 in it before I can be invested. Depending, you might want to max IRA before this.
    • See my <<HSA Article>> for more information on HSAs
  6. Max out IRA contributions. Betterment seems to be a better option than Scottrade (assuming no free trades). Vanguard is best.
    • Individual Retirement Arrangement. See article <<here>>
    • Scottrade Roth IRA: Play money account. Account value should be 5% of the total of IRAs and 401ks. MAX!
    • Betterment Roth IRA: For storing money, this was before I had enough money for a Vanguard IRA. Probably gonna roll over.
    • Vanguard Traditional IRA: Vanguard funds!! For hiding from high expense ratios.
    • 2015 limit is $5,500
  7. Max out 401k contributions
    • This is the last tax advantaged account we have left to max out, so we should do so.
    • See my 401(k) article <<here>
  8. Contribute to a taxable investment account
    • As I’ve mentioned time and time again, we should avoid paying taxes unless we have to. 
    • Still, we should still be investing any leftover money we have, and this is the last way for us to do that

Hopefully that helps some of you with your own financial plans! My plan is by no means final, and it probably isn’t even the best one out there. Let me know if you have any questions or comments!

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