Starting a new job. Help me with retirement/debt planning please!
I would go with your alternative idea: get rid of the debt as fast as possible.    You have $32k of debt. It's a lot, but with your new $90k salary, do you think you could get rid of it all in 12 months? See if you can make that happen. Once the debt is gone, you'll be in a position to invest as much as you want and keep all your gains. You are worried about sacrificing future money in your investments, but if you eliminate the debt over the next year, this will be minimized. Just lose the debt. "Your initial plan (of minimizing your interest rate, and taking advantage of the 401(k) match) makes sense, except I would put the 401(k) money in a very low risk investment (such as a money market fund) while the stock market seems to be in a bear market.  How to decide when the stock market is in a bear market is a separate question. You earn a 100% return immediately on money that receives the company match -- provided that you stay at the company long enough for the company match to ""vest"".  This immediate 100% return far exceeds the 3.25% return by paying down debt. As long as it makes sense to keep your retirement funds in low-risk, low-return investments, it makes more sense to use your remaining free cash flow to pay down debts than to save extra money in retirement funds. After setting aside the 6% of your income that is eligible for the company match, you should be able to rapidly pay down your debts.  This will make it far easier for you to qualify for a mortgage later on.  Also, if you can pay off your debt in a couple years, you will minimize your risk from the proposed variable rate.  First, there will be fewer chances for the rate to go up.  Second, even if the rate does go up, you will not owe the money very long."
"First off, I highly recommend the book Get a Financial Life.  The basics of personal finance and money management are pretty straightforward, and this book does a great job with it.  It is very light reading, and it really geared for the young person starting their career.  It isn't the most current book (pre real-estate boom), but the recommendations in the book are still sound.  (update 8/28/2012: New edition of the book came out.) Now, with that out of the way, there's really two kinds of ""investing"" to think about: For most individuals, it is best to take care of #1 first.  Most people shouldn't even think about #2 until they have fully funded their retirement accounts, established an emergency fund, and gotten their debt under control. There are lots of financial incentives for retirement investing, both from your employer, and the government.  All the more reason to take care of #1 before #2! Your employer probably offers some kind of 401k (or equivalent, like a 403b) with a company-provided match.  This is a potential 100% return on your investment after the vesting period.  No investment you make on your own will ever match that.  Additionally, there are tax advantages to contributing to the 401k.  (The money you contribute doesn't count as taxable income.) The best way to start investing is to learn about your employer's retirement plan, and contribute enough to fully utilize the employer matching. Beyond this, there are also Individual Retirement Accounts (IRAs) you can open to contribute money to on your own.  You should open one of these and start contributing, but only after you have fully utilized the employer matching with the 401k.  The IRA won't give you that 100% ROI that the 401k will. Keep in mind that retirement investments are pretty much ""walled off"" from your day-to-day financial life.  Money that goes into a retirement account generally can't be touched until retirement age, unless you want to pay lots of taxes and penalties.  You generally don't want to put the money for your house down payment into a retirement account. One other thing to note:  Your 401K and your IRA is an account that you put money into.  Just because the money is sitting in the account doesn't necessarily mean it is invested.  You put the money into this account, and then you use this money for investments.  How you invest the retirement money is a topic unto itself.  Here is a good starting point.  If you want to ask questions about retirement portfolios, it is probably worth posting a new question." "As the comments above have been trying to get across, the prospective employer is offering to pay you for the bonus/unvested compensation that you would be losing by jumping ship right now to go work for them.  They are not offering to buy any securities that you already hold, regardless of whether they're profitable or unprofitable. Example 1. You participate in your current company's 401(k), and your company matches your contributions at 50%.  However, the matching funds are not yours immediately; they vest in 20%/year increments until you have been at the company for 5 years.  Let's say you've been there for 3 years and have contributed $50K to the plan.  Your company has matched you at $25K, but only 60% of that ($15K) has vested.  If you leave right now for the new employer, you're leaving $10K behind.  So the new employer might offer to ""buy out"" (i.e. pay you) that $10K to help encourage you to switch now.  You might then counter their offer by pointing out that if you stay where you are that $10K is coming to you tax-deferred, whereas their $10K signing bonus would be taxed.  So you ask for $15K instead. Example 2. You work for a Wall Street investment bank.  Each December you receive a performance bonus.  Since you began working there, your three yearly bonuses have been (in chronological order) $500K, $750K, and $1M.  It's June, so you've worked halfway towards your next bonus.  You have a lot of incentive to NOT leave your current employer.  A competing employer may offer to ""buy you out"" of your anticipated bonus by giving you a $1.25M signing bonus (since you'd almost certainly not be eligible for a performance bonus during your first year there).  You might negotiate with them and say ""I'm on track for $2M this year"", and then they would figure out if you're really worth that much to them. So you can see this all has to do with the prospective employer trying to compensate you for any income you're already counting on receiving from your current employer.  By jumping ship now you would be foregoing that guaranteed/expected income, so the competitor wants to remove that anchor that might be holding you back from making the move. Stocks/options that you already own are irrelevant to the prospective employer.  Since you wouldn't be giving those up by changing jobs, there's no reason for them to factor into the equation." "To answer the first part of your question: yes, I've done that!  I did even a bit more.  I once had a job that I wasn't sure I'd keep and the economy wasn't great either.  In case my next employer wouldn't let me contribute to a 401(k) from day one, and because I didn't want to underfund my retirement and be stuck with a higher tax bill - I ""front-loaded"" my 401(k) contributions to be maxed out before the end of the year.  (The contribution limits were lower than $16,500/year back then :-)) As for the reduced cash flow - you need of course a ""buffer"" account containing several months worth of living expenses to afford maxing out or ""front-loading"" 401(k) contributions.  You should be paying your bills out of such buffer account and not out of each paycheck.  As for the reduced cash flow - I think large-scale 401(k)/IRA contributions can crowd out other long-term saving  priorities such as saving for a house down payment and the trade-off between them is a real concern.  (If they're crowding out basic and discretionary consumer expenses, that's a totally different kind of problem, which you don't seem to have, which is great :-)) So about the trade-off between large-scale 401(k) contributions and saving for the down payment.  I'd say maxing out 401(k) can foster the savings culture that will eventually pay its dividends.  If, after several years of maxing out your 401(k) you decide that saving for the house is the top priority, you'll see money flow to the money-market account marked for the down payment at a substantial monthly rate, thanks to that savings culture. As for the increasing future earnings - no.  Most people I've known for a long time, if they saved 20% when they made $20K/year, they continued to save 20% or more when they later made $100K/year.  People who spent the entire paycheck while making $50K/year, always say, if only I got a raise to $60K/year, I'd save a few thousand.  But they eventually graduate to $100K/year and still spend the entire paycheck.  It's all about your savings culture. On the second part of your question - yes, Roth is a great tool, especially if you believe that the future tax rates will be higher (to fix the long-term budget deficits).  So, contributing to 401(k) to maximize the match, then max out Roth, as others suggested, is a great advice.  After you've done that, see what else you can do: more 401(k), saving for the house, etc." "I wrote Retirement Savings Ratio some time ago and 15% seemed the sweet spot. The 15% is 10% saved and 5% match, in my mind. The reason I link is to show a spreadsheet that shares my approach to the analysis.  You list a huge number of things to think about, all great. I'm near Duff's view although I shoot for 20X final  income so 4% of that is an 80% replacement. There's nothing magic about 80. If social security exists, it actually drops the required 80 from you to the 60 or so Duff lists, so we align.  The 'problems' with my sheet - no one gets exact 3% raises for 43 years, so one can go in and change that, maybe higher early on, then slow it down. Returns are 8% every year, so one must go to the sheet or their own plan and reassess how they are doing each year. Disclosure - we are now at 14X our income with a goal of 25 to replace 100%. So we need a cumulative 80% growth (as in S&P at 2500) or the years of deposits to get there. I am nearing 50.  Let me pick one of your questions - ""Your expenses go down at retirement, stay the same, or go up?"" - this is the $64K question. the 80% is an average guess. The general assumption is in this range. If we downsized right after the kid goes to college, we could retire on far less. So, to wrap up, online calculators and spreadsheets only go so far. Your questions are dead on. A planner should ask every one of these questions before assuming any ratio.  Edit - on re-read I am blown away by the list of questions you have here. It's great. And it shows how there's risk no matter what." First I must say that I'm not a Ramsey fan. Sometimes loans will make your financial situation significantly better. Especially if its a 0% loan. Generally, I do think that leveraging has its place, its the ab-use of loans what causes problems, not the use. Re your question - you're right in trying to first build up an emergency fund. You should have enough in it to be able to pay for yourself for at least half a year of unemployment or zero income. You only have one month. Your family member gave you money for free, which is admirable, but I'm sure there's a limit to everyone's generosity and he might not give it to you for free again, once you pay it off. Thus, you should be able to handle your future troubles on your own, and emergency fund is a crucial part of this. Pay as agreed, try not to be late, and you'll pay the loan off within 3 years. If you accumulate enough emergency fund, and you still have some extra left - pay some extra on the loan in order to pay it off early. Do make sure you take full advantage of the employer's 401k match. This has, IMHO, much higher priority than paying off the 0% loan early. "Your question is very broad. Whole books can and have been written on this topic. The right place to start is for you and your wife to sit down together and figure out your goals. Where do you want to be in 5 years, 25 years, 50 years? To quote Yogi Berra ""If you don't know where you are going, you'll end up someplace else."" Let's go backwards. 50 Years I'm guessing the answer is ""retired, living comfortably and not having to worry about money"". You say you work an unskilled government job. Does that job have a pension program? How about other retirement savings options? Will the pension be enough or do you need to start putting money into the other retirement savings options? Career wise, do you want to be working as in unskilled government jobs until you retire, or do you want to retire from something else? If so, how do you get there? Your goals here will affect both your 25 year plan and your 5 year plan. Finally, as you plan for death, which will happen eventually. What do you want to leave for your children? Likely the pension will not be transferred to your children, so if you want to leave them something, you need to start planning ahead. 25 Years At this stage in your life, you are likely talking, college for the children and possibly your wife back at work (could happen much earlier than this, e.g., when the kids are all in school). What do you want for your children in college? Do you want them to have the opportunity to go without having to take on debt? What savings options are there for your children's college? Also, likely with all your children out of the house at college, what do you and your wife want to do? Travel? Give to charity? Own your own home? 5 Years You mention having children and your wife staying at home with them. Can your family live on just your income? Can you do that and still achieve your 50 and 25 year goals? If not, further education or training on your part may be needed. Are you in debt? Would you like to be out of debt in the next 5-10 years? I know I've raised more questions than answers. This is due mostly to the nature of the question you've asked. It is very personal, and I don't know you. What I find most useful is to look at where I want to be in the near, mid and long term and then start to build a plan for how I get there. If you have older friends or family who are where you want to be when you reach their age, talk to them. Ask them how they got there. Also, there are tons of resources out there to help you. I won't suggest any specific books, but look around at the local library or look online. Read reviews of personal finance books. Read many and see how they can give you the advice you need to reach your specific goals. Good luck!" "With a healthy income its quite possible to contribute too much into 401Ks/IRAs.  For example, if your retired today and had 3 million or so, how much more would you need?  Would an extra million materially change your life?  Would it make you happier if you invested that extra in some rental properties or perhaps a business like a sandwich or ice cream shop where you have more direct control? This kind of discussion is possible as you indicate that you have taken care of your life financially.  It seems at odds with the negative press describing the woefully condition of the standard person's finances.  These articles ignore a very simple fact:  its because of bad behavior.  You, on the contrary, have behaved well and are in the process of reaping rewards.  This is where I feel your ""mental gymnastics"" originates.   Looking to engage in the rental market is no different then buying a franchise.  You are opening a business of your own.  You'll have to educate yourself and are likely to make a few mistakes that will cause you to write checks to solve.  Your goal is to minimize those mistakes.  After all, what do you know about the rental home business?  I am guessing not much.  Educate yourself.  Read and spend some money on taking knowledgeable people out for coffee.   In the end you should understand that although a poor decision may cost you money you cannot really make a bad decision.  Lets say you do buy a rental property, things go south, you sell for a loss, etc....  In the end the ""butchers bill"" is 50K or so.  Will that materially change your life?  Probably not.  The worst case is perhaps you have to work a year or two beyond the anticipated retirement age to make up that money.  No big deal." I have credit card debt of about $5000  That's the answer right there. You told us the 401(b) has no match. The next highest priority would be credit card debt that's costing you interest. You didn't mention the rate on the card, I'm assuming it's 8% or more.  As far as your balance sheet (the 'bottom line') is concerned, pay off a 10% debt is the same as earning 10% on your money. If anyone promises you a higher return with a different investment, I'd run the other way. We hope the market, i.e. the US stock market, as measured by a broad index, say the S&P 500, will return 8-10%/yr over the long term, but this isn't guaranteed. Paying off that credit card will save you the interest every year, and free up the payments to invest elsewhere.  In response to Marlene's comment - Crazy? No. Human nature and emotion is what it is. I honestly don't know how to address some of it. Years ago, I was in a similar situation with a reader who had a $5000 'emergency' account, yet had $5000 in credit card debt. I had a tough time getting my head around why it wasn't obvious this made no sense. In your case, I might suggest you pay the card down to below $1000 and have the credit line reduced. Paying high interest on $5K makes no sense at any point in one's life. At least a 20-something can dig his way out and learn a lesson. A pre-retiree shouldn't be throwing this money away. "What I would do, in this order: Get your taxes in order. Don't worry about fancy tricks to screw the tax man over; you've already admitted that you're literally making more money than you know what to do with, and a lot of that is supported, one way or another, by infrastructure that's supported by tax money.  Besides, your first priority is to establish basic security for yourself and your family.  Making sure you won't be subjected to stressful audits is an important part of that! Pay off any and all outstanding debts you may have.  This establishes a certain baseline standard of living for you: no matter what unexpected tragedies may come up, at least you won't have to deal with them while also keeping the wolves at bay at the same time! Max out a checking account. I believe the FDIC maximum insured value is $250,000.  Fill 'er up, get a debit card, and just sit on it.  This is a rainy day fund, highly liquid and immediately usable in case you lose your income. Put at least half of it into an IRA or other safe investments.  Bonds and reliable dividend-paying stocks are strongly preferred: having money is good but having income is much better, especially in retirement! Quality of life.  Splurge a little.  (Emphasis on a little!)  Look around your life. There are a few things that it would be nice if you just had, but you've never gotten around to getting.  Pick up a few of them, but don't go overboard.  Spending too much too quickly is a good way to end up with no money and no idea what happened to it.  Also, note that this isn't just for you; family members deserve some love too! Charitable giving.  If you have more money than you know what to do with, there are plenty of people out there who know exactly what to do--try to go on living and build a basic life for themselves--but have no money with which to do so.  Do your research.  Scam charities abound, as do more-or-less legitimate ones who actually do help those in need, but also end up sucking up a surprisingly high percentage of donations for ""administrative costs"".  Try and avoid these and send your money where it will actually do some good in the world. Reinvest in yourself.  You're running a business.  Make sure you have the best tools and training you can afford, now that you can afford more!" I am a firm believer in the idea of limiting debt as much as possible.  I would not recommend borrowing money for anything other than a reasonably sized mortgage.  As a result, my recommendations are going to be geared toward that goal. The top priorities for me, then, would be to make sure, first, that we don't have to go further into debt, and second, that we eliminate the debt that we already have as soon as possible. Here is how I would rate your list: A small emergency fund, perhaps $1000 USD, is going to ensure that, while you are funding other things, you don't end up so cash poor that, if something unexpected and urgent comes up, you are forced to add to your credit card debt.  Make this small fund your top priority, and it shouldn't take much more than a month or two to do it. Getting out of debt is important, but if your employer hands out free money, you have to take it.  It is just too good of a deal. Get rid of this debt as fast as possible.  When you are done, you'll have more income available to you than you've ever had before. Now that you have just gotten done eliminating your debt as fast as possible, don't stop there.  Take the income you had been throwing at your debt, and build up your emergency fund to a few months' worth of your expenses.  Finishing this fund up will enable you to withstand a small crisis without borrowing anything. You are now in a very strong position financially, and can confidently invest.  Deciding which type of retirement account is best for you depends on the details of your situation. Once you are contributing a healthy amount to your retirement funds, you may want to consider paying off your mortgage early. As I said before, I recommend getting down to the last step as quickly as possible.  Depending on how much debt you actually have, if you sacrifice for a year or two you could be debt free and in a position to keep all of your investment gains.  If you take your time paying off debt, like many people do, you could find yourself 10 years from now still making payments on your loans, still making car payments, and still needlessly sending interest to the banks, eating away at the gains you are making in your investments. If you aren't committed to eliminating your debt quickly, and plan on having payments for a long time, then skip this advice and put retirement savings at the top. Thanks /u/LupusSuperius . Great information. Do you have any terms  or articles(perhaps on investopedia or similar)you can recommend I search for how much debt is ideal to take on for a start up?  I'd like to learn more instead of getting you to do my homework if that makes sense.  My simulation is similar to Capsim. We've made two strategic decisions: 1. We went capital intensive in the first year to build up factory capacity. Year 1 we have very little R&amp;D, but year 2 we plan to increase R&amp;D budget.   Since it is a capital intensive year, should that capital expenditure be funded by debt entirely and I leave equity alone? I noticed this drives down my WACC, but I see a decrease in NPV because of increased interest payments. Also does it make sense to increase the debt to pay for R&amp;D as well? The way I see it paying for the manufacturing plant on debt isn't bad because you get an asset out of it at the end, but paying for a R&amp;D program seems foolish because in this simulation there's a chance your R&amp;D program fails and does not provide results, so we would  see no return on the debt in that case.   Thanks again. "Former financial analyst here, happy to help you. First off, you are right to not be entirely trusting of advisors and attorneys. They are usually trustworthy, but not always. And when you are new to this, the untrustworthy ones have a habit of reaching you first - you're their target market. I'll give you a little breakdown of how to plan, and a starting investment. First, figure out your future expenses. A LOT of that money may go to medical bills or associated care - don't forget the costs of modifications and customizations to items so you can have a better quality of life. Cars can be retrofit to assist you with a wheelchair, you can build a chair lift into a staircase, things like that which will be important for mobility - all depending on the lingering medical conditions. Mobility and independence will be critically important for you. Your past expenses are the best predictor of future expenses, so filter out the one-time legal and medical costs and use those to predict. Second, for investing there is a simple route to get into the stock market, and hopefully you will hear it a lot: Exchange Traded Funds (ETFs). You'll hear ""The S&P 500 increased by 80 points today..."" on the news; the S&P is a combination of 500 different stocks and is used to gauge the market overall. You can buy an exchange traded fund as a stock, and it's an investment in all those components. There's an ETF for almost anything, but the most popular ones are for those big indexes. I would suggest putting a few hundred thousand into an S&P 500 indexed ETF (do it at maybe $10,000 per month, so you spread the money out and ensure you don't buy at a market peak), and then let it sit there for many years. You can buy stocks through online brokerages like Scottrade or ETrade, and they make it fairly easy - they even have local offices that you can visit for help. Stocks are the easiest way to invest. Once you've done this, you can also open a IRA (a type of retirement account with special tax benefits) and contribute several thousand dollars to it per year. I'll be happy to give more advice if/when you need it, but there are a number of good books for beginning investors that can explain it better than I. I would suggest that you avoid real estate, especially if you expect to move overseas, as it is significantly more complicated and has maintenance costs and taxes." Keep in mind, this is a matter of preference, and the answers here are going to give you a look at the choices and the member's view on the positive/negative for each one.  My opinion is to put 20% down (to avoid PMI) if the bank will lend you the full 80%. Then, buy the house, move in, and furnish it. Keep track of your spending for 2 years minimum. It's the anti-budget. Not a list of constraints you have for each category of spending, but a rear-view mirror of what you spend. This will help tell you if, in the new house, you are still saving well beyond that 401(k) and other retirement accounts, or dipping into that large reserve.  At that point, start to think about where kids fit into your plans. People in million dollar homes tend to have child care that's 3-5x the cost the middle class has. (Disclosure - 10 years ago, our's cost $30K/year).  Today, your rate will be about 4%, and federal marginal tax rate of 25%+, meaning a real cost of 3%. Just under the long term inflation rate, 3.2% over the last 100 years. I am 53, and for my childhood right through college, the daily passbook rate was 5%. Long term government debt is also at a record low level. This is the chart for 30 year bonds.  I'd also suggest you get an understanding of the long term stock market return. Long term, 10%, but with periods as long as 10 years where the return can be negative.  Once you are at that point, 2-3 years in the house, you can look at the pile of cash, and have 3 choices.  We are in interesting times right now. For much of my life I'd have said the potential positive return wasn't worth the risk, but then the mortgage rate was well above 6-7%. Very different today. It would probably never make sense to do that. Why would you? You'll end up in the bankruptcy court either way, since you won't be able to pay off the loan, and you cannot maintain the monthly payments without getting into more debt. IRA is shielded from bankruptcies, in most States, so it will probably stay with you afterwards. In any case - it will provide you some income when you're old and cannot keep up working. Unfortunately, Federal student loans are also shielded, but the rest of you debt - isn't. I suggest trying to fix your budgets and see how you can improve your earnings to be able to maintain your payments. I can't understand how you could have racked up $140K student debt and have a career at which you earn $55K/year for an experienced employee. &gt; 73% of Americans were in the ‘top 20%’ for at least a year  Well, sure.  [The top 20% currently begins at $92,000](https://en.wikipedia.org/wiki/Income_in_the_United_States).  All an American needs to do to qualify for that 73% is sell their house with ~50% equity at some point in their life since the IRS considers that income.  Great logic of this article: liquidate your primary investment and \*poof\* you're wealthy.  Even [the authors of the study cited in this article say](http://news.cornell.edu/stories/2015/01/hirschl-research-finds-many-join-1-percent-few-stay-long):  *“It would be misguided to presume that top-level income attainment is solely a function of hard work, diligence and equality of opportunity,” they write. “A more nuanced interpretation includes the proposition that access to top-level income is influenced by historic patterns of race and class inequality.”*