so many decisions. 401k, invest, mortgage, college, emergency

[Account Closed]

Hi,

Me and my wife just moved to the US from the UK, and we're setting ourselves up financially. We're late to the game and should be more educated on the topic than we are, but that's where we are.

The issue we're having, is deciding how to use our cash. Specifically, these are the things I'm aware of that I need to consider:

1. 401k (contributing 15% currently, then employer adds too)
2. Emergency savings
3. investing (I know zero about this)
4. overpaying mortgage
5. childs college savings

The problem comes that we have no idea how best to spend the cash considering the above, and also with an eye on trying to retire early e.g. 55. Google helps zero here, because for every site recommending to do X, there are just as many recommending Y and Z.

So, if for example I have $1k spare a month, do I overpay my mortgage? pay extra in to 401k? split it up between a number of them? etc etc

Really hope someone may have suggestions as it's our #1 worry point in this new country.

[Neil Schoepp]

@Account Closed

Welcome both to the US and to Bigger Pockets (BP)

Though it's hard to offer specific advice without in depth knowledge of many things, I will offer what I do and what works for me. This is more to give you things to consider as oppose to things to do.

This is a real estate site so most if not all of us are very pro real estate and for good reason.

My general philosophy looks something like this.

Yes I have monies in IRA's but I'm not a very big fan of them. In my opinion they restrict my control and are tied way to close to the stock market which I don't have a very high confidence in presently.

Emergency funds are EXTREMELY important. I keep in cash 4 months of expenses in cash. I can pay everything from groceries, water, mortgages, clothing, everything for 4 months. If the world fell out from under me I could last twice that long if I had to. There are some that use the equity in their property as their emergency fund, as they view the emergency fund to be used for major surgery, septic field failing, boiler fails, etc. 

Investing does many things for you. Preserves and builds your wealth is the primary one. There are many avenues you can explore, you need to pick the ones your most comfortable with. We here at BP LOVE real estate as part of our portfolio. If you buy 100K of McDonald's stock you need 100K. If you buy a 100K property you can get in with anywhere from 10K  to 25K. So I can buy 4 properties (400K worth) with that same 100K. Used prudently, debt is not a bad word.

Right now I am not a proponent of paying down your mortgage. That money is costing you 3 or 4 %. There are plenty of ways to use your money to make much more than that. Why use your money to pay down 4% when it can easily earn you twice that.

The way I am saving for my child's college is through real estate. I have specific properties that I will use come college time. Whether I refi, take out a HELOC or sell depends on factors at the time of needing those funds.

To directly answer your question of "If I have 1k spare a month......." I would secure my emergency fund. That number is what ever your comfortable with. Some do 1 month expenses, some 6 months. Some just do a few grand so they can replace their auto, boiler, roof, etc.

After that I would look at investments. It's important to choose your investment strategy based on what your comfortable with, you need to be able to sleep at night. IRA's, Stocks, Bonds, precious metals, art, real estate etc. I tend to be comfortable with higher risk things that I can maximize my influence over.

This is the only thing I will write a guarantee on. If you do decide real estate is the way you would like to go, you will not find a better place than right here. The knowledge and helpfulness that awaits you right here is the best you will find anywhere. Blog post, Forum post and podcasts are all great places to start.

I will leave you with my golden rule, which I happened to learn right here..........

Trust but verify