How should I structure my finances to take advantage of having zero debt?

Submitted by AmishDrew t3_1000997 in personalfinance

I'm 28 and want to structure my finances to take better advantage of an admittedly fortunate situation.

I have no debt or loans and my only major expense is my rent which is ~20% of my monthly income. I want to tighten up my spending and structure my savings/investments to build a comfortable nest egg for long-term. What advice, accounts, and strategies do you recommend for someone in my position?

Current accounts (allocating ~5600 monthly income after rent):

  • Roth 401k - 1,000/month
  • Passive investment account - 500/month
  • HYSA -1,000/month (building to 3 months expenses)
  • Individual Stocks - 100-500/month

TIA!

2

Comments

You must log in or register to comment.

sonnyfab t1_j2eo7vy wrote

Why are you using a taxable brokerage account for investing when you haven't maximized your tax advantaged accounts?

3

AmishDrew OP t1_j2eoyor wrote

I set it up with extra cash from various windfalls. I've been blindly contributing to my 401K since starting employment and admittedly need to use a better strategy for that account. Should I maximize my 401K contributions before contributing to any other brokerage accounts?

1

Loutro-Fift t1_j2eq6ub wrote

Yes. 401k first and foremost. Max it out

2

AmishDrew OP t1_j2es5u4 wrote

Thanks for the advice! Did some quick math and I'm gonna up my 401K contributions to 1875 to meet the 22500 yearly max :)

1

Suspicious-Kiwi123 t1_j2ewehk wrote

If you have access to a 401k with match, contribute up to to that level. Then Roth IRA (or Backdoor depending on income level) up to $6,500/year. Then back to 401k up to the max. Then HSA (if your Health Care Plan allows). Then taxable account.

Follow the Prime Directive Flow Chart: https://i.imgur.com/lSoUQr2.png

2

AmishDrew OP t1_j2f4564 wrote

Awesome! This is super helpful. Just curious what is the benefit of 401k -> Roth IRA max -> 401k max vs 401k max outright?

2

Suspicious-Kiwi123 t1_j2f5784 wrote

Because all of your earnings in Roth IRA are 100% tax free. This can and should be significant since you are starting at age 28.

If you maxed out Roth IRA w/ $6500 annually from age 28 to age 67, you would have $3,000,000 tax free at age 67 (at S&P 500 historical 10% annual return)

1