How To Distribute My Money as a 27 Year Old

Question

Hi everyone,

I have been working as a travel nurse for the last 8 months and have started to save a bit of money now. I recently bought a starter home that I plan on turning into a rental within 2 years. Besides the mortgage, I have no other debt.

I’m finally learning about how a Roth IRA works so I plan on maxing that out yearly. I also just found out about how a high yield savings account works so I will be utilizing that as well.

My question is: how do I properly portion out my monthly income? I net roughly 12k a month. Originally, I was going to try and pay my house off asap. My mortgage is 1300$/month but I was going to pay an additional 4k a month towards principal. Now I'm debating on if that’s a good idea or if I should put more towards my high yield savings account.

I should probably get a financial advisor but I wanted to see what everyone’s thoughts were before I went ahead and did that lol. Thanks so much in advance!!

Jeremy H. · Answer

First - don't get a financial advisor - unless you get a professional that you pay by the hour. The commission of these regular chumps being "financial advisors" is mind boggling to me...

Now I'll tell you how I do it:

401K - Max out - why? 22500 deduction straight from the get

HSA - Max out - why? 7700 deduction straight from the get

Roth IRA - You'll likely have to do a backdoor conversion if you make over 150k I believe it is - this is no problem and vanguard makes it super easy - 6k a year do it as early in the year as you can and do this every year. Tax free growth

Regular Savings/Emergency fund - I save around 4 months expenses here - I don't touch this money - could put it in a HYSA as well

My checking may have 10-15k in it for spending money/projects/rehabs but I pretty much stay broke as far as checking/savings accounts go. Everything is going somewhere.

Whatever I have left goes in an S&P 500 tracker in vanguard and LPL financial. I contribute monthly for myself and for my daughter. I stopped my daughters at 30k and will let it grow for the next 15-20 years then gift it to her.

Probably doesn't make sense to pay off your house early - you'll be forgoing a lot of opportunity to invest here and you're making that money illiquid - it will cost you if you want to access it. I personally put 3% down on my house - 4.25% rate and am in no hurry to pay it off. It was a foreclosure, so I got a BPO and removed PMI and can take a HELOC on it since it's been renovated.

When I want to buy real estate I either use a 401k loan (good for 50k or 50%, whichever is less, once in 12 months) hard money loan or transfer some from the brokerage accounts. If I transfer money from my brokerage account and my brokerage account has gone down - cool I'll take the loss and report it on my taxes and carry it forward. When I refi the house I pay the brokerage account back - usually happens within 6 months to a year depending.

Now this is how I have self taught myself to do it - not advice or necessarily how you should do it, but this is how I do it. I will be adding an education 529 plan this year as well.

Daniel Murphy · Answer

First of all, congrats on putting yourself in such a positive financial position! Second, since you are new to real estate, realize that these recommendations (and your needs) will shift with time as you gain more knowledge & comfort.

Generally, I would not recommend you to pay your house off quicker than anticipated. Especially if you're on this forum, you are likely interested in buying more real estate.

Based on your post, My guess is that you have ample reserves set aside in the high yield savings.  Generally, I would recommend

1) save enough in your company plan to get your employer match (free money)

2) next save enough to max out your Roth if you still qualify.  (note - I would NOT do a backdoor Roth conversion unless you have someone deeply review your income/tax situation)

3-4 months of emergency reserves should be sufficient.  As you gain more knowledge / experience, you will likely want to adjust this. Too much cash = potentially losing out on investing opportunities.  Too little cash = possibly exposing yourself to a surprise when something needs repairs.

As you build up various financial "buckets", you can normally scale down your savings amount as you have access to other funds in emergencies (401k loan, home equity line of credit or other short term debt options).

If you're building up all of these & still have cash leftover, I would consider a taxable brokerage account & using a broad based index fund.  The market is depressed right now. If you don't plan to move or buy another property for a year or more, you could put yourself in a good position by buying stocks that are low.

Gregory Schwartz · Answer

This is my personal strategic approach when it comes to managing my finances. Hopefully you find it helpful also. I take into account the time frame in which I plan to use the money. Consequently, I have created various accounts that align with these time frames.

• 0-1 Month - Checking Account/Credit Card: In this account, I maintain just enough funds to cover my monthly living expenses. I diligently pay off my credit card balance every month to avoid accruing interest.
• 
• 1-12 Months - Short-Term Savings Account: This account is designated for covering anticipated annual expenses, such as vacations, Christmas gifts, and car maintenance expenses like purchasing new tires. Essentially, it serves as a repository for expenses that can be planned for but don't occur monthly.
• 
• 1-5 Years - Investment Savings Account: The funds in this account are specifically earmarked for building up capital to invest in real estate. 
• 
• 10+ Years - Retirement Account: This account is dedicated to securing my financial future during retirement. It serves as a long-term investment vehicle, ensuring I have sufficient funds to support myself when I reach that stage of life.
• 
• Never (hopefully) - Emergency Account: As a responsible financial planner, I strive to build up a safety net by accumulating 3-6 months' worth of living expenses in this account. The purpose is to have a financial buffer to rely on in case of unexpected emergencies or hardships. Ideally, I hope never to have to tap into this account.

During the early stages of adulthood, I prioritized paying off loans before allocating money to my Investment Account. I hold a strong aversion to consumer debt. However, when it comes to my mortgage, I have chosen not to prioritize early repayment, as I do not personally feel the urgency to do so.

By organizing my money in this manner, I aim to establish a solid financial foundation, cater to short- and long-term goals, and maintain stability in the face of unforeseen circumstances. It is my belief that this strategic approach to money management provides me with a well-rounded financial plan for the future. Its up to you to decide how much to allocate to each account each month. Once I've fully funded an account or have excess money in any given month it gets dumped into the Investment Account.

Devin Peterson · Answer

Im not a financial advisor and you should definitely contact one and a CPA, but don't be too eager to pay off that mortgage!!!

Jeff Nash · Answer

Hi Christin, in general I don’t usually advise to pay off a mortgage (not sure what your interest rate is) more quickly as that is “good debt”. There is an opportunity cost of not allocating your savings to other options that might otherwise enable you to earn more by way of capital appreciation and/or income.  You are young and normally people nearing retirement will be more concerned with paying off debt sooner.  @Denver McClure works frequently with clients in your line of work so it might be beneficial to connect with him.