My wife and I are in our mid 20's with a combined income of around $75k and a child on the way.

We have been (mostly) following Dave Ramsey and I'm happy to say we are consumer and student debt free (nearly 30k paid back over the past 2 years). The only debt we have is the car ($15k @ 1.9%) and the house (94k @ 3.5%, 30y fixed, FHA loan). Our house has appreciated significantly since we bought it 3 years ago so we should be able to get out of PMI in 2 years. We started using YNAB about 6 months ago and we are doing relatively well with budgeting. We currently only have one month of living expenses in savings (the rest have been going to debt) so that is obviously the first priority. After that I'm really not sure where to turn...

My employer does not offer a 401k or any other type of retirement plan and even if they did, I know nothing about investing. I'd like to start a 529 plan for our son as well as start investing for our retirement. Neither of our parents have any experience with investments, nor does anyone I would feel comfortable speaking about it with.

As walking blind into a "financial adviser" sounds like a good way to get raped, where would you recommend I get started?

First... get yourself to a good position before you do a college fund. Once you have met your personal objectives there may be some advantages, but there are far more people that would benefit from spending money on their own education and boosting their income versus saving it for their kids far in the future.

PMI is a big stink... great that it got you into your house but it's insurance that doesn't benefit you, it benefits your lender. It would be great to squash that by paying the principle down on your mortgage, but on the other hand a month of expenses is pretty skinny. Which to boost first is a matter of your risk preference... paying down the house will free up the PMI payment quicker which short of needing your savings will get you ahead quicker.

Once you are free of PMI, your debt is pretty healthy debt... so the focus should be on saving versus on paying any of your current debt off. Since your employers don't offer any easy regular savings plans it is a little harder to do, but you can set up automatic savings payments into Vanguard or something similar. It's absolutely easier to do if the money is saved before it hits the paycheck... but there's almost no benefit to a 401(k) if there isn't a match. Low rate debt on cars and houses is not a negative, it actually allows you to save more right now instead of having your savings in cars that depreciate.

It feel like it takes forever to save anything, but you really just have to put it on autopilot and have a long term strategy. Every dollar you save in your 20's and hold in the long run has enormous long term impact on your financial future. Your gut feeling about financial advisors is accurate... avoid them. Low fee broad index mutual funds will earn much higher return, and you generally can't buy those even in a 401(k).

Thanks takque.

Unfortunately PMI is required for 5 years from the time you purchase your home, regardless of equity. PMI can only be dropped once you have been in the home for 5 years and have achieved 20% LTV (which I have now)... At least that is what was required when I signed the paperwork.

Would you recommend setting up my own ETF/mutual fund account through vangaurd rather than an IRA? Perhaps most importantly do you have any books or resources you could recommend in order to make the decision myself?

Thanks again, like I said I really dont have many people to turn to on the subject.

actually you are doing exactly what you should be doing.  you have a handle on your finances, you know where you stand, and you can see that you not only have to transition towards a long term investment strategy but also plan for the arrival of your newborn and all that entails from a financial perspective.  keep working on increasing your emergency fund, honestly i think for most people that should be around six months -- it's OK to ladder some of it so it is not all sitting in cash, but six months is a good start point for most situations.  

work on educating yourself -- this is hugely important.  stay away from periodicals in general; magazines that proclaim "5 funds you should buy now!" are basically financial porn.  for this reason i suggest some texts based on asset allocation and the fundamentals of building a long term portfolio.  you will also want to look at some finance-related forums outside of ARFCOM.  bogleheads and fatwallet come to mind, you will get better info at those sites than you can here (just as you will get better firearms info here than at those sites).  

required reading should include
"all about asset allocation", [ferri]
"the bogleheads guide to investing", [larrimore, et al]
"the four pillars of investing", [bernstein]

these are not math books.  these texts instruct on the how and why to build a long term investment strategy.  asset allocation, primarily, is a fundamental concept you should work to understand.



you have some options:
- Trad IRA
- Roth IRA
- 529
etc

these are types of accounts, not "investments" per se.   you need to understand what to put into these accounts to make best use of your contributions over the long term.  the books above explain what mutual funds, index funds, bond funds, and other instruments are, and how to utilize them.  



there are several types of financial advisers.  the type you seek is called a "fee-only" financial planner.  what this means is that you pay that person a fee for their expertise in evaluating your financial position and their recommendations on a suitable investment strategy.  that's what they do, and that is all they do.  this differs in a polar fashion from other types of advisers who are more intimately involved with selecting investments for you and trading YOUR money.  there can be an inherent conflict of interest with the latter arrangement.

there is a ton of info on this subject...

http://www.forbes.com/sites/davidmarotta/2012/06/11/fee-only-financial-planner-whats-the-difference/


http://www.getrichslowly.org/blog/2010/06/09/the-best-way-to-pay-for-advice-the-advantages-of-a-fee-only-financial-advisor/


see also
http://www.napfa.org/
and
http://www.bankrate.com/finance/savings/financial-planners-not-just-for-millionaires-anymore-1.aspx

ar-jedi

first, mutual funds/etf's and Roth/Traditional IRA's are two totally different things.

IRA's (Roth or Traditional), and 401k's and 403b's, are "tax-advantaged" containers which hold investments. depending on which type you have, all have a degree of Teflon which insulates them in some manner from the IRS, either now, later, or both. hence the term "tax-advantaged". IRA's can be opened at the likes of Fidelity and Vanguard; the former charges no fees whatsoever.  401k's, as you know, are administered via a custodial account through your employer.

contrast that to a "taxable" container, such as a regular brokerage account or even a generic savings account. in this case, your yearly gains are reported to the IRS and you are taxed on them at certain rates depending on the type of gains. if you buy 10shares of Apple at $100 and sell 10shares at $200, the IRS is going to want part of the 10x$100 = $1000 gain that you have.

nevertheless, what i am trying to get across here is that an IRA (Roth or Traditional) is a container, aka an account, not an investment per se. you place money, which are called contributions, into an IRA and then you choose what investment(s) that money should be directed into. such investments include stocks, bonds, mutual funds, and so on. "cash" is also one possible type of investment, in this case it is held in a money market fund.

summary:
IRAs, 401k's, 403b's, etc --> containers, like a juice glass.
mutual funds, stocks, bonds, etc, --> investments that go into the containers, like orange juice.

as is the case with most folks, you may find yourself with two or more accounts -- some taxable (like your savings and brokerage account) and some tax-advantaged (like your IRA). in general, to lessen your tax burden during your working years you will want to place income producing securities (like dividend producing stocks, taxable bonds, and REITS) inside your tax-advantaged account, and place common stocks and ETFs in your taxable account. this is all part of a strategy called "asset allocation", which has been shown to be THE major contributor to investment success.

ar-jedi

ps

everyone starts off lacking financial acumen, much less financial experience. but, the first time you saw an AR15, and started to take it apart, you also had no idea what to do. and now, you can not only do it in the dark, but you can explain to others how it works and why it works the way it does. investing is no different. in the beginning, it looks like an immense set of unrelated gears in a giant transmission. for this reason i disauade you from concluding that it is "not-understandable" –– like most complex things, long term investing is made up of simple building blocks. which brings me to...

it is my belief that whether you choose to self-manage your long term investments /or/ pay someone to manage your long term investments you should have an understanding of how it is all supposed to work –– what options are available, what strategies are prudent at various life stages, and how the risk-vs-reward balance is attained. otherwise, you are truly deer hunting in the dark –– and as a result the odds of coming home with venison are basically nil.

The only thing I would like to add to the good info you got was that as complicated as this stuff seems, it isn't, it's about discipline of long term investing and not chasing returns. Yes, there are a million account types each with its own rules that constantly change. But you don't need any of them. If you open a regular old account with a low fee firm like Vanguard and buy index funds you'll beat the majority of the market on returns. You might be able to squeek out another few points of return based on what the tax code does 40 years from now... but there's no way of knowing that now.

I sincerely appreciate the advice I've received. I'm sure this board sees a lot of "what is the best gun for a newbie" type questions.

I'll admit that it is a bit overwhelming (as any new interest/hobby/life change) but the AR analogy did hit home. I studied business in college and thanks to a few finance courses, I do have a passable understanding on the HOW to evaluate a potential stock or fund, however the WHY's and the WHATS are all new to me.

Understanding asset allocation sounds like a good start. I have around 2 years before I start pumping much of our income into investment accounts as I accelerate payments on our mortgage to get rid of PMI by Feb 2017. As it turns out I need 22% LTV of the original loan, not of the homes appraised value. Shouldn't be too bad at all and the rest of our income will go into building a 6-10 month emergency fund. Perhaps I'll jump in sooner (albeit with smaller contributions) once I feel more comfortable.

Thank you again.

I wouldn't concern myself with picking individual stocks, at least not for a while.  ar-jedi as usual posted tons of great advice and references you can check out.  My only advice is to start a Roth IRA for both you and your wife and put as much as you can afford in them.  The earlier you start the better.  I would recommend just investing in a Vanguard target retirement fund at least to get you started.  Once you've done more research and feel more comfortable you may want to switch to a handful of individual funds.  I've been more than happy with the target retirement fund for the last few years and honestly I'm not very concerned with changing anything for a while. Again, it's more important that you start early!

http://www.bogleheads.org/wiki/Lazy_portfolios

ar-jedi

Being knowledgeable about what you want is a big step.  

http://www.amazon.com/Four-Pillars-Investing-Building-Portfolio-ebook/dp/B0041842TW/ref=sr_1_1?ie=UTF8&qid=1421827382&sr=8-1&keywords=four+pillars+of+investing

http://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore-ebook/dp/B00JUV01RW/ref=pd_sim_kstore_9?ie=UTF8&refRID=10AAW6CEY9BPJE87VJXN

http://www.amazon.com/About-Asset-Allocation-Second-Edition-ebook/dp/B003ZUXQBW/ref=pd_sim_kstore_3?ie=UTF8&refRID=1YT6K9A1ST6H6W7FB622

Few books I read that helped me out.

go to vanguard.com an open up an account, start with the S&P 500 index fund, then maybe add the growth index, small cap index, REIT index, etc - think index funds to start - you can also use fidelity, t rowe, etc..

the point is you dont need an advisor, get in the game, read and learn, don't pay anyone

its sad so many people (you mentioned your parents) dont know much about investing, you can do this, but you have to start

Listen to ar-jedi.

You are doing very well so far, but it's time to get your retirement investment accounts moving along.
I would recommend changing the order of his reading list to put "The Boglehead's Guide To Investing" to the top.
Read the whole reading list before you make any moves.
Once you are done with that reading list you should have a good grasp on where you are going.
At that point go to the forums at bogleheads.org and you will be able to read, ask and understand what is going on.

Do you recommend investing in a Vanguard target retirement fund in place of a Roth IRA?  Or start a Roth IRA and then put the rest in a Vanguard retirement account?  What's the best place to do a Roth IRA?

I'm in a similar place as the OP, except we make more, although we have more expenses (tri-state area).  We both contribute to our 401ks (beyond the max employer contribution), but are weary of starting after-tax investment because we plan on purchasing a home in the next year or so and could use the cash.

You seem very confused on what a Roth IRA is.

The IRA (either Traditional or Roth) is nothing more than a bucket; a type of account.  The IRA can be held at a variety of custodians, but it's purpose is for retirement assets.  IRAs can contain things like CDs, stocks, bonds, mutual funds, cash, investment real estate and a bunch of other things.

I would highly recommend reading some of ar-jedi's reading list.  Reading those few books can easily save the average guy tens of thousands of dollars.

Vanguard is a company who offers IRAs, as well as other types of accounts. A Roth IRA is a type of account in which you can hold various assets. Roth IRAs currently grow tax-free; you pay no taxes on the earnings when you withdraw them for retirement or certain under other circumstances.

Vanguard offers target retirement funds, which are mutual funds that hold a mix of stocks and bonds (in the form of other mutual funds actually). You can hold these in your Roth IRA that you open with them. https://investor.vanguard.com/mutual-funds/target-retirement/#/

So open a Roth IRA at Vanguard, select one of the target retirement funds based on your timeline or risk tolerance, and buy it. At the link there is both a link to where to open an account and a phone number.

One nice feature of a Roth IRA that you hopefully won't need to use is the ability to withdraw contributions (but not earnings) at any time. So if say you put in 5000 and the value becomes 6000 you can withdraw 5000 without penalty. That can help in an emergency, but you shouldn't plan on raiding your retirement.

I think it sounds like you have a good handle on what you need and where you're going. As other have said, concentrate on saving for YOUR retirement before you think about a 529. If you put your kid through college but have no retirement and are forced to be a burden onto your children, how generous of you was that? Also, check to see if your state even allows deductions for a 529. With the new proposed plans to tax withdrawals on new contributions to a 529, I don't see any value to that plan over a taxable account.

For your retirement I would suggest a ROTH. You're only in the 15% tax bracket so there would be a great benefit to you. Max it out for both you and your wife if possible.

ETA: For the Roth I would suggest index funds with a low cost basis. I like Vanguard but there are other brokerage accounts out there that are good. Find one you like.

Thank you all, again. I've learned more in the past few days than I have in my entire life. Now I have a few books on the kindle to tear through

I am still debating whether or not to pay off the car (return to the debt snowball payments) before I begin investing. On one hand the interest savings are small, however it would free up significant cash to invest monthly. I believe this is a Dave Ramsey vs. Everyone else question?

If you need the emotional boost to pay off the car, then do it. At 1.9 the rate is so low I wouldn't bother. You should be able to easily beat out the 1.9 in any investment. Hell, you can get 2.25 on a 5 year CD at Barclays right now. I wouldn't bust my ass to pay off anything at 1.9 unless you just wanted to have the debt gone.

You can read a bunch of books, but the key is basics first, then advanced, then expert.

Basics is no consumer debt (live within your means, no credit card debt), emergency cash (yes a wad of cash in your immediate control - not invested or in a remote location), a liquid/near liquid balanced safety fund to at least 6 mo expenses, and non-liquid long term savings (retirement).

Advanced is extending the above beyond the basics (in modern economy, as debt free as possible and seriously recommend extending the safety fund to 12 mo. or more), and starting on intermediate term investments and business investments, while still having a job working for others.

Expert is after you have achieved financial independence (i.e., don't need a job to pay your bills).

Find the games Cashflow 101 and 201.  Play them.

ETA:  Per the car loan, whether you pay it off depends on your cashflow.  1.9% is very low and you can probably beat it easily - BUT if that's 1.9% in a $800-1000 monthly payment with high principal still outstanding, then the impact of the total payment to your cashflow could be horrendous in a crisis like job loss, or even switching jobs.  If it were me, I'd throw some into paying it off early, but not all - balancing it with ramping up my safety fund and ensuring my tax leveraged retirement plans were maxed out.

You might find something of value in this

It's pretty straightforward, no mumbo jumbo, not particularly long.

I see ar-jedi referenced another Bernstein work above.

no one listens to me.  

ar-jedi

that is not how i understand roth IRA to work

http://www.fool.com/money/allaboutiras/allaboutiras07.htm

Any contributions to a ROTH can be withdrawn penalty free at any time. Earnings within the ROTH would be taxed at your marginal tax rate + the penalty.

If you rollover a traditional IRA to a ROTH, you can not withdraw the new contributions for 5 years without incurring a penalty

Any contributions to a ROTH can be withdrawn penalty free at any time. Earnings within the ROTH would be taxed (ETA: prior to 59 1/2) at your marginal tax rate + the penalty.

If you rollover a traditional IRA to a ROTH, you can not withdraw the new contributions for 5 years without incurring a penalty

Get a financial education.  Turn off the TV.  Read some books and find out what's going on and how it will affect you.  The time you spend in learning will make you wiser in the ways of money.