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I have currently 10k in savings acc, rent an apartment for 1k/month, I don't have a 401(k) (I will start at the beginning of 2016). I'd love to buy a house or apartment next year and start a family in the next 2-5 years.

What's the best way to handle my savings and money?

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    Take a look at this answer: money.stackexchange.com/questions/47856/… – kponz Nov 17 '15 at 20:16
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    Written budget! If you are single, no debt and making 80k you should be able to save much more than 1k/month whether it's in a savings account or mutual funds. – AbraCadaver Nov 17 '15 at 20:58
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    Find "the one". Move in with him or her. Live off one income, save 100% of the second salary. Save for ~18 months. Use the savings as a downpayment on a house. Have babies. Be happy. I'm being very serious. – Rocky Nov 17 '15 at 21:07
  • What real estate market are you in? Is commuting by car an option -- or something you want to avoid? – Jasper Nov 18 '15 at 6:13
  • Don't you need another person to start a family? Your question is valid, but too much is missing. What does housing cost in your area? What is your area? If you save $10K/mo, why do you only have $10K saved? – JTP - Apologise to Monica Nov 19 '15 at 0:33
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The best thing to do right now is track your spending.

You know you're saving 1k a month, and you know you're spending 1k a month on rent. That's 24k so far. I presume you'll have some income tax taken out, let's assume it's another 6k to round us neatly up to 30k.

Since you earn 80k and you've spent 30k so far, you have another 50k unaccounted for. If you're in the USA I'd recommend using mint.com or a similar service to automatically track your transactions, or even just a spreadsheet if you don't like handing out your bank details (and you shouldn't).

After that, I agree with SoulsOpenSource's answer. Write a budget and try to figure out where the fat can be trimmed. When I started tracking I saw I was spending almost a hundred bucks every week on fast food, due to poor planning and laziness. I decided to cook more and plan better and now I'm spending less than half that - in the last year I've saved almost three thousand dollars!

If you want to save up for your future (and good on you if you do!) then there'll be some choices to make ahead. If you're spending a few hundred bucks on going out drinking every weekend, or you grab two coffees every day, or you buy fifty blurays a month (do people still buy blurays?), you'll have to ask yourself: Will I be happier spending money here than saving for my future?

  • If you're looking at my example thinking "well that's not a huge amount of money", you're right, it isn't. But I only earn 40k a year so that's almost 10% of my income. The more you earn the more fat there is to trim! – A. Sim Nov 18 '15 at 23:05
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    A. Sim -- You are greatly underestimating the amount of income and payroll taxes that the original poster pays. On an $ 80,000 annual income for a single U.S. taxpayer who takes the standard deduction and standard exemption, these come to about $ 20,000. The $ 20,000 does not include the employer's $ 7,000 share of the payroll taxes. The $ 20,000 also does not include any state or local income taxes. – Jasper Nov 20 '15 at 19:04
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    I'm not familiar with the USA's tax system, sorry. Regardless, the advice still applies, just move the numbers lower a bit. – A. Sim Nov 22 '15 at 21:47
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  • Start maxing out your 401(k). You're in your 30s, time to get serious about retirement.
  • At that price I would just keep renting until you actually need something bigger.
  • Make a budget and start working on that savings. In your situation, including the 401k contributions, a 50% savings rate of your take-home should not be a stretch. If its hard for you to save, figure out a monthly savings amount and set up an automatic deposit into your savings account. Then when you do buy a house you can put enough down to avoid PMI.
  • Avoid fancy cars, expensive cell phone plans, and basically anything that is a monthly payment that is not necessary.
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You are young so you have time on your side. This allows you to invest in more aggressive investments. I would do the following

1) Contribute at least what your company is willing to match on your 401k, if your company offers a Roth 401k use that instead of the normal 401k (When this becomes available to you)

2) Open a Roth IRA Contribute the maximum to this account ~$5500/year

3) Live below your means, setup a budget and try and save/invest a minimum of 50% of your salary, do not get used to spending more money. With each bonus or salary increase a minimum of 75% of it should go toward your savings/investment. This will keep you from rapidly increasing your spending budget.

3) Invest in real estate (this could be its own post). Being young and not too far out of college you have probably been moving every year and have not accumulated so much stuff that it makes moving difficult. I would utilize your FHA loan slot to buy a multifamily property (2-4 Units) for your first property using only 3.5% down payment (you can put more down if you like). Learn how to analyze properties first and find a great Realtor/Mentor. Then I would continue as a NOMAD investor. Where you move every year into a new owner occupied property and turn the previous into a rental. This allows you to put 3-5% down payment of properties that you would otherwise have to put 20-25% and since you are young you can afford the risk. You should check out this article/website as it is very informative and can show you the returns that you could earn. Young Professional Nomad

Good luck I am in a very similar situation

  • The linked scenario is very interesting, but leaves out many factors. It assumes a very high occupancy rate, it ignores the cost of property management, the risk of long vacancies, the risks of property market booms and busts, unpredictability of rent rates, whether your debt-to-income ratio will go too high for lenders to be willing to lend to you, whether lenders will trust your cost and revenue estimates, legal expenses, accounting expenses, out-of-pocket costs to close deals, out-of-pocket costs when mortgages are paid off, and the accrued tax liability from the depreciation deductions. – Jasper Nov 20 '15 at 18:55
  • I will say that the vacancy rate is really a factor of how well you manage your property. In the scenario listed you will be your own property manager. If you start looking for new tenants 90 days out you should be able to minimize the vacancy rate. If you look at a long enough term in history real estate has performed remarkably well so the 3% appreciation is conservative. If you are buying properties that at a minimum are break even cash flow they will negibibly influence your debt/income ratio after a couple years. The stock market in this example is stacked favorably 10% year over year? – Royce Quintana Nov 20 '15 at 23:43
  • My understanding is that a 4% vacancy rate is consistent with performing repairs between tenancies, and with confirming that one's rents are not leaving too much money on the table. If rents rise only 2% per year, a 3% per year appreciation rate requires falling interest rates. Interest rates are already very low. (On the other hand, people have been thinking that "interest rates are already very low" for 25 years now.) If the properties have break-even cashflow, they will tend to push your DTI toward 87%. True owner-occupied mortgages usually have DTI limits of 35%, 38%, or 43%. – Jasper Nov 20 '15 at 23:57
  • Do you mind elaborating on the significance of the 87%? – Royce Quintana Nov 21 '15 at 0:17
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    I understand, in your original comment you mentioned the ability to get a loan due to debt to income ratio, this is very different than the debt coverage ratio of the property. Debt to Income ratio has to take into account your personal wages against all of your other debts. A break even cash flow property is capable of servicing all of its own debt so it should not put a burden on your Debt to Income ratio. I will say that having a higher salary job does help easy the stress of qualifying for future loans though. I believe you have to have at least 1 year of rental history to count it. – Royce Quintana Nov 21 '15 at 1:02

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