I'm 23yo kicking of my financial journey, any advice?

Submitted by lions239 t3_127x6sk in personalfinance

*I have reviewed the Wiki, including the Prime Directive. I will explore YouTube and other resources, but I would like some feedback, please.*

As a first-generation person in America, I don't know where to turn to for advice. I would appreciate some knowledgable folks reviewing where I am at and offering any feedback, thank you!

  • 23yo, graduated college 2021, IL
  • ~25k in federal student loans
  • $78k salary, employed for 1.5 years
  • Roth 401k via employer: ~20k, currently 12% contribution, but I only need 5% to take full advantage of company match (100% for first 3%, 50% for next 2%)
  • HSA: ~3k, contributing the max allowed
  • Company stock RSUs: current value ~20k, once all unvested holdings are vested in the next 2/3 years the value should be ~70k
  • 70k saved, but not in HYSA or stocks or anything where my money is working for me

From what I've learned in this community before posting:

  • Noting I've paid off high interest debt: my private student loans.
  • I will move all $$$ to HYSA and establish $X within the account is for an emergency fund since I had not had a number in mind before for this or accounted for it.
  • I will look into opening a Roth IRA and perhaps reduce my Roth 401k contribution only to the company match.
  • What's next? I don't want to rent and have been thinking about buying a condo. I have a remote job, and I do not see myself ever moving away from the area. However, I am concerned in today's workforce with layoffs happening so often. I am concerned with current interest rates for mortgages, extremely high and growing HOA fees in many condos, and the lack of appreciation for most condos in my area when looking at the last ~20 years. (3 credit cards, very good credit score, no cc debt)

TIA for any feedback, comments or suggestions. I look forward to starting my financial journey and learning more about how to succeed in these times, and hopefully I can spread the knowledge to friends and family as well.

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SeaEnergy6869 t1_jeg9zd6 wrote

Just follow the flowchart and otherwise live your life how you would most enjoy it instead of overthinking it

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lions239 OP t1_jegaoxg wrote

This comment honestly means a lot. Where I'm at in life isn't making me happy, and I really want to move but throwing away 2k in rent every month is holding me back which is what has ultimately lead me to question and learn about my finances. I rented for a year after college, which is normal and most people do it for years and years, so maybe I should consider that again instead of stressing, and instead hold off on making any big decisions...

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Pandasrqt t1_jeh1phx wrote

Dude, you are absolutely crushing it right now. You're doing better financially than most of my friends who are in their 30s. You have the drive and knowledge to do well financially in life, you don't need to stress the details as much.

Do what makes you happy first and foremost, you only have one life to live, so make it count. If you think buying a condo where you live right now will make you happy, and you're financially comfortable with it, do it! Sure, you could lose your job tomorrow and need to figure things out. But you could also be hit by a bus tomorrow and not be here anymore. Live your life and spend your money on things that make you fulfilled (within reason of course, but I don't think you need to worry about that given your current financial literacy).

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frozenwaffle549 t1_jegbiwj wrote

Well, I can tell you are well on your well to becoming a millionaire by the time you are in your forties lol, so good job being so diligent. You could back off on your Roth 401k and your HSA in order to fund this home purchase. While you can use the HSA as another retirement vehicle, I would recommend just having enough to cover any out-of-pocket maximums and put the rest in your IRA so you have more variety. It may be best to rent since you are so young and remote no need to rush into a condo because of interest rates or the economy. Try this calculator.

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frozenwaffle549 t1_jegbpnn wrote

I forgot to mention you are killing it. Don't forget to enjoy some of it. You may find out that your future spouse hates the condo you purchased lol

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lions239 OP t1_jegd4jp wrote

Haha, we will see about that. In the game of life when it comes to that, I am much, much farther behind.

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frozenwaffle549 t1_jegf7rr wrote

Well, I can tell you it doesn't get any easier as you age. So spends some of that money to experience new things and meet new people. You will be MUCH more interesting that way. You won't earn 78k your whole life; it will go up.

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lions239 OP t1_jegidpw wrote

You're definitely right. I've been trading an entire life in exchange for living far away at home and it hasn't done me any good. I'll have the rest of my life to save money. I guess now I just need to take these words and make them reality.

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frozenwaffle549 t1_jegjrr4 wrote

Just from reading your "Financial Stats" it was obvious you lived like no one else in order to, later on, live like no one else. You paid the price now go reclaim the some sort of life you don't currently have. You are already ahead of 80% of Americans take the WIN.

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lions239 OP t1_jegcglj wrote

Wow judging from my lack of knowledge on a lot of those variables in the calculator, I definitely have a lot more to learn before I even consider buying. It's just rents are skyrocketing where I live and just using the Zillow estimates of mortgage, interest, insurance and HOA, depending on the condo, it comes out to less than or about the same as renting in the area.

Online it says my rate of return on the Roth 401k is 0.55%, is this normal? It seems low?Your ballpark of "becoming a millionaire" is that possible with these retirement accounts? Or should I be out there now slowly learning also about other ways to invest?

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frozenwaffle549 t1_jeggp1o wrote

I can see why you think comparing the bottom number is the same, but it's not comparing apples to apples. There are a lot of hidden costs the owner bears.

You may be looking at a time horizon that is too small. At .55% you might as well keep it under your mattress lol, but a quick search says the "American Funds 2060 Trgt Date Retire R6" over the last 5 years has returned 14.89%. I would suggest you open an account with vanguard and get a target date fund from them (VTTSX) and pay lower in fees (0.43 VS .08%) also read the book " I will teach you to be rich" by Ramit Sethi.

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lions239 OP t1_jegiuz5 wrote

Oh yeah the time horizon is just the over the amount of time I've had the 401k, so about a year and a half. Thanks for the book rec, I'll check it out!

As for the other rec, would one of the ways I would accomplish this is by reducing my Roth 401k contribution to the company match and then using that money? What kind of "account" do I open with them? Is that what a Roth IRA would be or this is something different?

Also, for my federal student loans, should I just pay those off monthly once it resumes? Any reason to explore just paying them all off at once right now?

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frozenwaffle549 t1_jeglikn wrote

When you read the book it will explain it in more detail but yes. The Roth 401k option is an employer-sponsored retirement account and the Roth IRA as the name suggest is an Individual Retirement Account.

Again, I would recommend reading the book first but yes you would open an account with them that is an IRA, not the brokerage one. Then use the money you have to max it or at least work up to a goal of a total of 15-20% of your gross salary.

As for the student loans technically you are legally and morally obligated to repay the loans but politics being politics I would hate for you to be holding the bag when the president wipes away student debt in order to buy votes. So I would set aside just enough to pay it in full and see which way the wind will blow on that decision. (My money is on its not happening)

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lions239 OP t1_jegnasw wrote

Awesome, thanks for all the insight.

I doubt anything will actually be canceled, I don't expect it to be. So I guess when the time comes where no more pauses or cancellations are in sight, then I will just pay it off in one time with what I set aside to avoid the interest.

Last question, I know this is discussed a lot and I've been reading here and online, but in the short term, my first course of action will be to open a HYSA. Any advice there? I've gathered that Ally, Capital One, Discover seem to be the most popular even if there are others with higher rates, but these seem to be the ones people stick to since the rates are "safer" and won't decrease as much as others may. Is this the route I should go?

After reading a bit more, perhaps I should consider Ally's No Penalty CD... and maybe do ~65k of my ~74k?

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frozenwaffle549 t1_jegstqc wrote

HYSA doesn’t matter who you go with. The purpose of the account is to play defensive and be liquid. If you want lock up your money that’s fine but if you are spending time making a decision between like 4.5% and 4.75%. Then you are wasting your time and thinking too small.

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homeboi808 t1_jegbu2f wrote

What funds have you chosen for your 401k?

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lions239 OP t1_jegcsl9 wrote

So here is where I am greatly inexperienced. Online it says my "annualized rate of return" is 0.55% (I believe this was honestly negative last time I checked) & that 100% is in "American Funds 2060 Trgt Date Retire R6"

I have no idea what this means nor do I believe I ever selected anything when I set this up, maybe it was just the default?

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homeboi808 t1_jegelmj wrote

> American Funds 2060 Trgt Date Retire R6

Target date funds have the retirement year in the name (so 2060) and it invests into stocks/bonds/etc. and the more closely the date approaches it changes the allocation more to bonds and less to stocks (just imagine people 1 year out from retirement with everything in stocks and then Covid hit and they lose hundreds of thousands).

It’s a hands-off approach. Because it is more safe, it has less gains than just say a fund tracking the S&P 500, but that’s the price you pay.

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lions239 OP t1_jegj9lc wrote

What's your personal recommendation? Sounds like I'm in the safe bet but S&P 500 might be riskier but with greater returns? Are these the most commonly used options? Is this something I can change easily? If so, would I need to track things closely to see when to change it back and forth? Or once you pick, you pick and it just sits?

I'm willing to put in the time to educate myself using online resources, but do you think I would ever need to entertain consulting or hiring a financial planner?

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homeboi808 t1_jegl3aj wrote

Index funds mostly are damn close to the index they follow. Just Google “S&P 500 price” and change the time-frames and you can see the performance. Besides S&P 500 there is also Total US Market and some others. It depends on what funds are offered, but you should be able to click on the ones available and see their performance and the fees (labeled “expense ratio”, you want this below 1% or even below 0.1%).

You yourself can just transition to bonds (should also be in the list of offerings) as you get older.

> Is this something I can change easily?

For mine, I can transfer 20%/yr from one fund to another (but I can change future contributions with no limit), the limit isn’t something I knew it just was a pop-up message when I went to do it. Meaning if I have everything in A and want to fully tradition to B, it would take 5 years. But yours may be different options.

You can also contact whoever is in charge of your retirement.

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Longjumping-Nature70 t1_jegtk91 wrote

You are doing well. You have way more of a handle than I did at your age. I just threw darts while trying to figure it out. Of course, the internet was just beginning

Do not worry about the layoffs. Layoffs go in a streak. In one or two years(tops), there will be no layoffs for another decade and it will only be hiring. 2009 to 2021, companies hired like mad, now it is time to pay the piper. By the start of 2024, I am willing to wager hiring begins again.

IMHO, when young you need to worry about surviving first.

Contributing anything to retirement is better than nothing. But contributing the max to retirement could mean living hand to mouth. I realize you are not contributing the max, but it is a good chunk. None of us know then the time clock ends. Life is meant to be lived.

I say cutback on the ROTH 401k contributions, maybe to 8%. If you like the 12%, then go for it.

For me, my goal was to always lessen my debt. Not sure what your rate is on student loans, but since I have seen some with 11.25%, ouch. As I recall, my student loans were at 8%. We paid our student loans in full. My loans were not in the 5 integers though.

I always figured if I lowered my debt, I could allocate the money to build wealth. I own mutual funds, dividend reinvestment plans, stocks, and iBONDS. Do not buy iBONDS.

Buy a ROTH IRA and put it into a mutual fund.

The RSUs are nice, but my advice is to keep 50% of them if you believe in the company and sell 50%. I speak from experience on losing out on a bundle of cash because my spouse told me I could no longer sell stuff because of the tax consequences. I was using the money for home improvements.

Fine. I sold none of it after that and watched it crash to -95% from the high when I cashed out. I lost $400,000 or so. After that I told my spouse I no longer accept advice from them.

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lions239 OP t1_jegug40 wrote

Thanks for the insight, I really appreciate it.

I paid off my private student loans (they were like 8%), and now the federal ones I have left.. I think they're around 4%?

I think for the short term, I will open a savings account with Ally until I open the Roth IRA.

Many suggest to go to Vanguard for a Roth IRA, what are your thoughts on where I should start with that? Is there a best time to open one? Do I contribute money all at once and max out or periodically put money in? How do you choose which fund to put it in?

I appreciate the advice on the stocks, hopefully I can get to the point of deciding what to do with them if I stay long enough for all of it to vest!

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dice32 t1_jegxgfn wrote

Become a famous musician or actor.

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