I've been lurking around this forum for a few months now and see there are some quite savvy investors and entrepreneurs on here. Specifically, those that have invested for some time and those that are able to create consistent cash flow.

Not exactly sure how to phrase this but my question is: If you were just starting out in your 30's, what would y'all be looking to do to now in this current climate in order to secure a financial future?

Case Study: My wife and I together have a take home pay of about $9000. We have finally paid off all of our student loans so our current obligations are:

• Mortgage = $2350 (26%)
• DayCare = $1200 (13.33%)
• Car Loan = $800 (9%)
• Car Insurance = $180 (2%)
• Utilities (Electric Water, Trash, Security) = $350 (4%)
• Internet + TV/Streaming = $200 (2.25%)
• Phone = $100 (1%)
• Groceries = $600 (7%)
• Gas + Tolls = $800** (9%)
• TOTAL = $6600 (73%)

**Was not planning on working where I am currently working but pandemic circumstances changed that so I now live far away from where I work.

My wife is 100% remote and my commute is about 50 mins (1h 40m if I don't take tolls and my time is more valuable to me to spend with with our 18 month old son) so this work distance is clearly not making sense. We complete two years at our current home at the end of November and are thus planning to move closer to my work to cut down on that expense (was able to discuss this and get valuable insight from the Real Estate forum so thanks to those who contributed to that). We have about $360k left on our mortgage and we think that we can sell our home in the $500-520k range based on comps in the area. Additionally, we were in a car accident last May and have had some unexpected medical bills associated with that (I have worked hard to bring it to under $4000). So my game plan is to put about $120k as the down payment for the next house and use the extra $20k to pay off the medical debt and have something in savings.

So back to my initial question, if these were the cards you were dealt, how would you go about saving and investing for the future? I have read a quite a bit about about Warren Buffet and options trading/the wheel. And while that sounds promising, I don't think I currently have the capital to start any wheels. Is it better to just stick my money in the S&P 500 and a few ETFs? Would a cash out refinance of my current home and renting it out be a better long term-solution to let that asset continue to grow?

I know I am not in the worst possible financial situation but would like any feedback/suggestions to be in a better one so that my family isn't living paycheck to paycheck. Any wisdom that your experiences, past mistakes, worthwhile risks taken that y'all can impart would be greatly appreciated. Thanks in advance.

The opinions on selling/buying homes right now are all over the place. I don't see a 50 minute commute being the worst commute ever. You can use it to call friends/family, listen to podcasts, books on tape, other self-development concepts that free up time when you get home.

$9,000 take home is good, not great. That's exactly where my wife and I are and I can't imagine taking on a larger mortgage payment than I currently have, which is about $1,700.

Be careful, and make sure you feel really good about it - you don't have a ton of wiggle room.

Pay that car off and drive it forever
Assume you don't have pmi?
529 for the kiddo?
I wouldn't jump into the wheel unless you are planning to dedicate yourself to learning trading.
I-bonds
Are you doing the basic stuff (401k match, fsa/hsa, dcfsa, roth, max 401k)?

Reduce mortgage. Reduce daycare. Both look high for that income IMO. But what do I know? I'm Just some rando on the internet.

I agree that our phone and internet bills are on the higher end. Wife needs fast home internet and unlimited calls/texts for work. And, unfortunately, her work (small company, <20 employees) doesn't want to reimburse for this bc they are "already saving you money in gas for commute." Like you said, it's minimal but every little bit counts

I actually don't mind the commute. It's the amount I am paying in tolls and gas that is killing me. When gas was super expensive, we had a month where we spent $1000 on just gas & tolls.

We aren't too far off from paying off the car. About two years left. We kinda got screwed bc we needed a car after the accident and there was such a shortage, dealerships could charge whatever they wanted. It's a nice SUV that our family can grow into so, yes, I do plan on having the car for a long time once we finish paying it off.

We have not started a 529 for our kid yet, but I am interested in it. I have an investing account with TD Ameritrade and I'm assuming I can open one with them.

We both have 401K that we max out the matching. I put in more into that bc I figured it would be better there than in my savings account where we are more likely to spend it. Wife has an HSA for her. My son and I are on my health insurance. I work for a hospital system so we have decent coverage.

I mention The Wheel bc I've read several people do well there and generate decent "passive income" from that which I think is the ultimate goal. Have your money make you money so you don't have to give your time to your job.

We're trying reduce our mortgage with the next house. Unfortunately, a good daycare isn't coming much cheaper. My wife tried the stay at home + WFH life for 6 months and our son requires too much attention at this point for that to work in our current situation.

I think you're doing fine. Hustle while you're young, getting a little overextended keeps you hungry. One of the tenets of FIRE is "build the life you want, then save for it" (something like that). Your daycare is a lot cheaper than mine, if you have all the car you're going to need for 10 years and all the house you're going to need for 20, focus on limiting lifestyle creep and watch your nw grow as some of those expenses shrink (and hopefully you figure out how to make more money over time).
Generally the rule of thumb is to max out your 401k employer match, then max out a roth, then come back around and increase 401k. If either of your employers has a dependent care fsa definitely take advantage of that, it's like a 35% discount on daycare

Charismatic Megafauna said:

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I think you're doing fine. Hustle while you're young, getting a little overextended keeps you hungry. One of the tenets of FIRE is "build the life you want, then save for it" (something like that). Your daycare is a lot cheaper than mine, if you have all the car you're going to need for 10 years and all the house you're going to need for 20, focus on limiting lifestyle creep and watch your nw grow as some of those expenses shrink (and hopefully you figure out how to make more money over time).
Generally the rule of thumb is to max out your 401k employer match, then max out a roth, then come back around and increase 401k. If either of your employers has a dependent care fsa definitely take advantage of that, it's like a 35% discount on daycare

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It's like a 35% discount on the first $5k of daycare, which for most people, including the op, is less than 5 months. Some employers took advantage of the temporary increase, but don't think most did.

But regardless, I agree. If your employer offers it, take advantage of it.

htxag09 said:

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It's like a 35% discount on the first $5k of daycare

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I didn't say how much daycare!

Maybe I'm missing something but I feel like we're missing half the picture. How much are you currently saving and what do your current investments look like (or savings acct)? You mention saving some of the equity to have some savings which makes me think it's very low?

JobSecurity said:

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Maybe I'm missing something but I feel like we're missing half the picture. How much are you currently saving and what do your current investments look like (or savings acct)? You mention saving some of the equity to have some savings which makes me think it's very low?

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Agree with this point. If I were your age and was able to save and invest a modest amount I would build an portfolio of dividend king stocks being sure to reinvest the dividends in the same stocks. The compounding effect over 20+ years would create a significant nest egg. While you would have to pay capital gains on the dividends, better now while you are early in your career. This would be outside your 401k plan, through a standard brokerage account.

You are correct. The rest of our money has basically gone to pay off our debts (wife brought some credit card debt into the marriage, student loans, medical bills, etc).

I have about $5000 in the stock market ($4000 in Apple, Amazon, Disney, Google, Microsoft, Waste Management and $1000 in ETFs QQQ, SPY, and VOO). Your suspicions are correct as I only have $1000 in our savings (which scares me tbh. The back of my mind likes to remind me that we don't really have an emergency fund at this point). My wife has her own 401k which I do not know how much it has off the top of my head, but mine has a little over $65k in it. And a buddy of mine who works for Fisher Investments told me to open a Brokerage account linked to my 401k. It is my understanding I can use this account to invest 401k money but not really sure how to use or take advantage of that so that sits empty. And a 529 for my son has been looked and discussed with the wife but we have not moved forward on that front.

I can figure out how to cut costs. And I really think our financial lives will be better once we aren't spending so much on gas/tolls. But what should I do with that money? Letting it sit in a savings account at a bank sounds stupid to me. Is it better to continue to slowly add to my stock market positions? And if so, individual stocks or ETFs? Are my current positions even diversified enough? Or is my money better served in real estate? Try to rent out my current home and move to where my commute is shorter?

If you were in my position and knowing what you know now, what would you do to set up your family for success?

So instead of adding more to my 401K, decrease my contribution amount so that it matches my employer's max (which is 6%; I currently contribute 12%), and use that money to fund the brokerage account I already have, and use that account to invest in king dividend stocks (stocks that have increased their dividend amount for 50+ years). Reinvest the dividend back into the stock and let that grow in addition to my 401K.

Would I pay capital gains on the dividends every year or when I take the money out?

What kind of interest is on that debt?

Honestly, I would build that emergency fund up first. $1,000 won't cover a trip to the ER for a broken arm.

Thinking about another kid?

Also, look to invest in yourselves. 9k take home is definitely not poverty level but if you took every dollar of that remaining take home, you're not going to achieve financial independence. Not in your 30s.

If you invested $2,070 (23% @ 9k/month) for 20 years at 6% gains (adjusted for inflation), you'd have just under $1mm. Same risk level, that $1mm will only generate $60k/year of appreciation/earnings.

You're going to have to make some BIG time risky investments… like lose it all or hit a double or triple to get to independence.

Lots of people do it on here with real estate but they're not doing it with passive real estate - they're flipping themselves. You'll need at least 50k for a down payment on rental property, so start saving now for 2-3 years to get your first one going that MAYBE cash flows positive.

Not trying to piss in your cereal, but you need to figure out a way to make more money or spend way, way less. You're way better off than the vast majority of Americans for having $1k in savings… you actually need about 20-30k.

I would keep investing in your 401k to reduce tax liability. Focus on paying down high % debt. And everytime you get a raise or pay something off, invest more.

Also, think about how to make more money if you really want to have independence otherwise you'll be fine with investing the 2k/month until you're in your 60s.

Very basic questions:

What are typical home prices where you're moving to?

How are the rents in your current area? How much maintenance will your current house require going forward? We have several rental properties and things come up - for example, had to have a tree cut at one last month, had to have a new sewer line to the street at another, new water heater at another. Keep in mind that you might have months of vacancies between tenants unless you are in an area that is super lacking in rentals.

Can you swing 2 mortgage payments? That would be hard for most people.

Can you get a job closer & stay where you are?

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If you were in my position and knowing what you know now, what would you do to set up your family for success?

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Here's what I did. Years ago, I liquidated the mutual funds in my IRA and bought a handful of stocks. Nothing crazy, but primarily big Tech. I did a bit of trading in 2020, because the swings were profitable, but have gone back to my original routine (buy and hold). Also, I have a Roth, and increase it via the backdoor. I also have a regular brokerage account and follow the same methodology

Now that I'm close to retirement, I've reduced my exposure in the Tech arena and have focused on dividend plays, particularly in Oil, Mid-streams, and the Financial sector.

My point is this...I was never able to beat the S&P 500 until I invested in individual stocks. Invest the time and study and you'll find gems. You'll be surprised what may not look sexy to some is a diamond in the rough. Case in point....Tractor Supply. Doesn't grab the headlines like Microsoft, Apple, or Amazon...but it's been a great stock.

I guess I'm very fortunate that I won't be one who has to rely on Social Security to enjoy a comfortable life after work.

Good luck with whatever you do.

YNWA.2013 said:

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So instead of adding more to my 401K, decrease my contribution amount so that it matches my employer's max (which is 6%; I currently contribute 12%), and use that money to fund the brokerage account I already have, and use that account to invest in king dividend stocks (stocks that have increased their dividend amount for 50+ years). Reinvest the dividend back into the stock and let that grow in addition to my 401K.

Would I pay capital gains on the dividends every year or when I take the money out?

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I would not decrease your 401k saving, I would reallocate to dividend kings in your brokerage account, start the dividend reinvestment process and continue a program of buying dividend kings with excess cash you have from your job.

Also, to your question, you would not have money to take out, you would have an ever increasing set of shares in the dividend paying companies every year to sell (or preferably hold). So your long term cash out would actually be selling the shares (and paying long term capital gain on the cost basis of the shares sold if you hold more than a year) or stopping the reinvestment which would then pay you the reoccurring cash generated by the dividend paying stocks (also taxed at the long term capital gain rate).

Keep in mind you would want companies that pay "qualified" dividends (most do but check to be sure) instead of ordinary dividends as qualified are taxed at the lower long term capital gains rate. You also want to be careful as some stocks are often described as though they are dividend payers, such as real estate trusts (REITs) and multiple limited partnerships (MLPs - which are common in the oil and gas services sector ) - but don't pay qualified dividends and as such their payments are taxed as ordinary income. MLPs, for instance will be touted for their high quarterly payout but actually may be paying return on capital and not a dividend.

My thoughts are based on the following: 1. your apparent age: if you are in your early 30's dividend reinvestment gives you a long runway to build a big pile of dividend paying stock thru reinvestment, and you can do it while you are presumably in a lower tax bracket (which helps on the capital gains taxes you pay). 2. That you seemed to already have resources in a brokerage account (you asked about ETFs and S&P), and 3. You asked about generating income - stopping the reinvestment process in the future allows you to receive the dividend payments as cash and at relatively low tax rate, which will be helpful at retirement (or allow for an earlier retirement)

In the funds vs stonks discussion, you guys are talking about doing this in a roth, right? I keep seeing "regular brokerage" and thinking otherwise

Op you gotta build an emergency fund like yesterday. If you're paying down debt aggressively slow that down until you have a couple months expenses in CASH and don't touch it. Without an emergency fund a financial hiccup (plumbing, roof, etc) can result in bad debt that can follow you around for a long time. A real emergency fund is one of the keys to financial resilience

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In the funds vs stocks discussion, you guys are talking about doing this in a roth, right? I keep seeing "regular brokerage" and thinking otherwise

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In my scenario, I have a regular IRA, a Roth IRA, and a regular Brokerage account. I believe it's prudent to have all three. Just my opinion though.

I'm just making sure we're in agreement that you make use of the tax advantaged options first

Charismatic Megafauna said:

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I think you're doing fine. Hustle while you're young, getting a little overextended keeps you hungry. One of the tenets of FIRE is "build the life you want, then save for it" (something like that). Your daycare is a lot cheaper than mine, if you have all the car you're going to need for 10 years and all the house you're going to need for 20, focus on limiting lifestyle creep and watch your nw grow as some of those expenses shrink (and hopefully you figure out how to make more money over time).
Generally the rule of thumb is to max out your 401k employer match, then max out a roth, then come back around and increase 401k. If either of your employers has a dependent care fsa definitely take advantage of that, it's like a 35% discount on daycare

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I'm also on the "build then save" bandwagon. I'm a few years older than OP and hope to FI by 40. We're in a higher cost of living locale with one in pre-K @ $1,800 / mo. So I get the care squeeze.

Just another anecdote, but here's our strategy:

• Roths: Normal reasons for capital gains reasons / backdoor if you make too much (check with your employer for mega option, my firm offers it) / can become your retire early vehicle via conversions and pulling principal
• Max 401(k)s: Tax deferral so it does also help on your taxes in addition to the normal employer match
• Taxable: You mention options, I wouldn't. The wheel is a lot of maintenance. I do write puts for income in our taxable, but again, lots of hands on.
• Keep it simple: I don't pick stocks. Low cost index funds only. IF you're looking to juice returns a bit, it's no secret that I leverage. Again via index funds TQQQ/UPRO/PSLDX. I started here: Lifecycle Investing.
• You can only trim so far. Making more has been our focus. No better time than now to knock on some doors and benchmark what you're currently making.
• Minimize maintenance items (really squeeze power, insurance, phones, etc.) and maximize what brings you happiness (like travel - then get into the points game; if you have a hobby - make sure you budget some dollars; want more time - cleaners are so worth it).

This may be a dumb question: But what do y'all mean by "backdoor?"

I can assure you...it's NOT a dumb question...as I had to ask that question myself at one time.

Here's a backdoor Roth...

You are limited as to the amount of money you can invest annually directly into a Roth. However, you are not limited in the amount of money you can pull from your regular IRA and transfer into your Roth. Of course, you'll pay the taxes in the year you move the funds out of your IRA, but you now have the benefit of putting a significant amount of money into your Roth, hence the name 'backdoor.'

I started doing this a few years ago and it's crazy to look at your Roth account and realize all that money is tax free.

All this said, the Democrats in Congress are looking to close the backdoor Roth, particularly in high wage earners. Also, I would not be surprised if someday, the Democrats look to tinker with the Roth IRA as a means of generating additional tax dollars.

I may have missed a few points, but welcome other to chime in.

ToddyHill said:

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I can assure you...it's NOT a dumb question...as I had to ask that question myself at one time.

Here's a backdoor Roth...

You are limited as to the amount of money you can invest annually directly into a Roth. However, you are not limited in the amount of money you can pull from your regular IRA and transfer into your Roth. Of course, you'll pay the taxes in the year you move the funds out of your IRA, but you now have the benefit of putting a significant amount of money into your Roth, hence the name 'backdoor.'

I started doing this a few years ago and it's crazy to look at your Roth account and realize all that money is tax free.

All this said, the Democrats in Congress are looking to close the backdoor Roth, particularly in high wage earners. Also, I would not be surprised if someday, the Democrats look to tinker with the Roth IRA as a means of generating additional tax dollars.

I may have missed a few points, but welcome other to chime in.

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You backdoor if you're ineligible because of the MAGI limits for a Roth IRA.

You mega to increase the contribution limit from $6k to whatever the net of $61k less your 401(k) contribution + Employer contribution. Your employer plan must permit after-tax contributions and permit in-plan conversions/distributions.

I may have missed this, but where are things like "entertainment", "dining", "clothing", "home maintenance", etc?

Unless you guys are different than most Americans, that should be eating up a decent portion of the remainder.

We have basically spent the rest of our money paying off our debts. But, we usually spend:

• $600 on groceries
• $100 on fitness
• $200 on baby items
• $200-$300 on entertainment
• and another $100 or so into a vacation fund

I have had a United Credit Card for years so we rack up a few miles through that and my wife has a card that gives her points on hotels. So we try to maximize that when we are able to take a trip.