This may sound like a brag thread, but I legitimately want advice. Hence why it's posted here and not GD.

So I just paid off my 5.625% interest rate student loan yesterday. It feels great to have that paid off 5 years after graduation.

Now what's next?

I'm 27 y.o. employed as an engineer. I have 5 months of cash saved (5 months of paychecks, a month or two more if you look at it as expenses coverage). I've been maxing out a Roth IRA since 2014 (I'm at the point where I'm saving through the year for next year's; for example, I'm like $500 shy of the $5,500 for 2018), contribute 7% to my Roth 401k, and my employer contributes 5% to my traditional 401k. I own a house with a 3.000% 15-year mortgage (13 years left) and have 40% equity in the home after 20% down, 2 years of payments, and appreciation due to the hot market. I have a 2013 GMC Sierra that I bought CPO with a 1.99% interest, 72-month loan and have 48 months left.

At this point, I don't really want to pay ahead on my mortgage or auto loan as they're so low interest. I'm looking at what I should do next. I have a girlfriend, but don't plan on getting married for at least 3 years. Kids are further off than that.

I'm thinking I'll work on some home improvements and maybe save a little up for a wedding. Beyond that I'll look at increasing my 401k contributions. What else should I be looking to do to set me up for future financial freedom?

1.  Much larger emergency fund.  five months is not enough.  
2.  After that, I'm torn on more towards retirement or paying down debts.  Perhaps some of each.

Honestly, you are doing it right.

I would pay the house down, but that is just personal preference.

Vote for a little of each.  Switch the student loan stream to debt and knock it down.  Add some to savings, but look at the debt interest rate, that's how much you're earning or avoiding paying someone else.

ETA:  I would pay all short term debt down first, mortgage is another issue.  I would have more emergency savings.

My only short term debt is my truck at 1.99%. That's such low interest that I'd rather boost my retirement or savings.

Agree with that, 1.99% is almost free money.  I would increase savings vs paying down mortgage in the short term.

Max your 401k next. Does your gf max her Roth? If you two are committed to a long term relationship  and will marry her, I would max hers as well.

Depending on your tax brackets and your anticipated bracket at retirement you may be better off maxing the 401k before the roth.  You may also be able to do a backdoor Roth by paying tax on your 401k contributions and rolling it in.

I like VTI and VOO for long term funds with Vanguard. FSTVX is a good one with Fidelity. 

I know vanguard lets you trade their etf's at no cost if they hold your brokerage account. You may want to put money in a standard brokerage account if all your tax advantaged accounts are maxed out.

My suggestion is to use low cost ETF's and mutual funds. History has shown that beating the market is improbable and the numbers that do beat the market probably just got lucky. It's better to focus on low overhead and tax avoidance. 

Personally I hold a small amount of btc as a dollar hedge. It's a gamble, but I've made my initial investment back and plan to hold what's left for the long term. I expect it's value will crash soon and if that happens I'll probably put a little back in. 

Invest the money you've been paying off the loan with.

Check out Dave Ramsey.

While mathematically you can make more in the stock market, there is something about the emotional feeling that goes along with becoming debt free and living a life style where you save for things before you buy them rather than swiping a credit card and dealing with payment later.

I would max out the 401K then use the rest of the money to pay off your home and vehicle. It will take you a few years but you should be completely debt free within the next few years.

Then start having serious talks with your GF, if you plan to marry her you need to be on the same page. You can either work together towards a common goal or you can work against each other. A married middle class husband and wife who both believe strongly in saving and invest can easily reach millionaire status. But if you are not working together, ie one person is saving but there other is spending it just as fast and you are destine for a bitter marriage and a retirement dependent on social security and other government handouts.

FWIW my wife and I are both engineers and are in our early 30s. We got married right out of college and in the first year of our marriage we were -$285,000 in debt (student loans, 2 cars and a house) but 7 years later we have a net worth close to a half million dollars. If you live a frugal life style, save and invest wisely you can retire a millionaire in your mid 40s, at least that's my plan. When most people are hitting their mid life crisis and just starting to think about opening a 401K, saving for their kids college, paying off debt, etc... you will be shopping to vacation homes, traveling the world and enjoying your early retirement.

When you spread out your surplus amongst all the different debts, the progress seems almost stagnant. I would focus on eliminating one debt with the surplus.

Also I would make it a future goal to buy your next vehicle with cash. Obviously invest your savings for this vehicle to take advantage of the stock market. When you spend all that money at once on a vehicle, you will likely be more critical of the purchase. You would be wise to also consider that you will no longer be exercising that capital in the stock market, therefore foregoing potential future earnings.

Just my $0.02. You're doing pretty good though.

So you are contributing 7% of your pay into a Roth 401k, is that getting you to the $18,000 max contribution?  

What are your goals?  Wanting to retire early?  Work until they force you to leave?

I'm with you on forgoing accelerated debt repayment in your case.  After maxing out your tax-advantaged space, the next step would be to save in just a taxable brokerage account through your preferred provider.  Alternatively, if you have any interest in investing in rental real estate something more stable like an online savings account would be an option depending on how soon you think you'd be needing the down payment.

I may be more aggressive than most, but I'd rather have my money working for me than losing to inflation sitting in savings so I don't currently have an emergency fund in the traditional sense.  I have a HELOC on my home that is available for large unexpected items that we can't cash-flow in two months, which fit my risk profile.  Should the meltdown happen and that is taken away then I would build up a small cash position.

The quickest way to financial freedom is to spend less.  Your spending is the thing that you can most easily control, and the less you spend the more you can save, and the less you will have to save to be financially independent.

Pretty vague.

Set a list of goals. Actually write them down. Where do you want to be at 65? 45? 35?

Work backwards from there, make a plan.

Its not a brag thread bc you havent accomplished anything, but you arent a fuckup and have a decent start.

It all depends on the life you want to have.

For a lot of folks like my brother, living a regular life, having a family, modest house, and modest retirement is what he dreamed of. He'll retire with maybe a million in the bank and probably work until he is 65. Thats great and he is happy.

Me, im 29 and hungry. I think about success every hour of every day. It consumes me. If i hit 50 and had the same trajectory as my brother id probably eat a pistol. Thats just not for me. Thats also great and im happy.

Another example is one of my customers at my old job. He is 38 and runs his family farm which currently is around 40,000 acres and 16 dairies with around 110,000 milk cows and 100,000 replacement cows, calves and beef cattle. They produce probably around 1% of all the milk in the us i would guess without doing the figures. I asked him one time what his goal was, how many cows did he want to milk by the time he was done. "All of them". He was dead serious. Thats a man with focus.

So, set your goals and figure an equation to get there.

I compare it to going to the gym. Right now you are going to the gym and exercising. Hitting on some fine bitchez, getting a little sweaty, but not focused. You'll get in shape a bit over time but you arent training. Maybe one day you'll nail that blonde milf with a nice tight body and call her your gym wife. You'll make a thread on here then get banned for other stuff later on.

Training is the guy in there with a spreadsheet that has his head down moving stacks day in and day out. He knows where he is going and how to get there. If he plateaus, he backs off regroups, then goes hard again.

Good luck, you have a decent start. What you make of it is your choice. You cant reach your goals if you have none.

I own rentals, several small businesses with family partners,  farmground, and a little retirement. I've been nearly bankrupt once, divorced,  and battled health problems from stress. I only do the 4% matching at my day job bc i can make much more on other investments. My 401k is where money goes to die.

Thats not for everyone but I'm happy and live the life i chose.

While I will agree 1.99% is a low rate I am sure your savings are earning less than that. You said you save each year for the next years Roth contribution. So you have your money sitting in the bank earning maybe .25% and are paying 1.99% on a loan that you could pay off. Either way it doesn't amount to much in terms of dollars but I absolutely hate paying interest. If I were you I would pay off the truck tomorrow and never borrow for a stupid vehicle ever again in your life. I would even cash out some of my emergency savings to do so if need be because you will be able to build it back up quickly with no car payment and no student loan payment.

Let's say your emergency fund has 15k in it and you have 5k set aside for your Roth next year and you owe 10k on your truck - that close?

Now pretend you have 10k in your emergency fund and no roth savings but your truck was paid off. Would you rush out and borrow 10k so that you could add 5k to your emergency fund and have 15k and add 5k to your Roth savings for next year? It doesn't make sense when you look at it that way but that is essentially what you are doing by not paying off the truck.

My best advice when it comes to finance regardless of your views on debt is look at everything as a whole and don't just choose the way things are as a default. Analyze it and figure out the best way you can allocate what you have.

Don't seek advice from wage slaves unless you desire to become a wage slave.  How much income does the equity in your house yield?  Refinance the equity out of your primary residence and invest it in single family rental houses or multifamily if you can come up with $100K.  Flame away.

I've looked at Dave Ramsey, but I don't need the emotional boost. I'm also an engineer and very analytical about things. My emotions don't play a role in my decisions most times. Many people would call me cold hearted.

Luckily, the GF is very much on the same page. She isn't putting away as heavily for retirement, but she spends even less money than I do. She doesn't shop for clothes (I recently told her she needed to buy new work shoes because hers were trashed), she doesn't wear makeup, and she doesn't wear jewelry.

I need to triple my 401k percentage to max it out. I intend to keep increasing contributions until I can reach that point. I want to retire by 50.

My monthly savings to build up next year's Roth IRA contribution are invested in ETFs. I've already made more than 1.99% on them this year.

This is a banner year for stocks. Will you be ok with that strategy in a down year when you lose say 5% on that money plus pay your 1.99% effectively losing 7%?

Stocks are great for the long haul but are not a good place to park money you need in a year.

I am not sure what Dave Ramsey has to do with emotions. His strategies are proven and have worked for thousands of people. I don't agree with 100% of what he says but most of it is spot on. Being debt free is awesome. I am very analytical as well and used to do things way differently but changed about ten years ago and it really changed my life for the better. You certainly don't have problems with debt and seem to be doing good but being debt free really changes the way you live your life.

As to earning a spread on your investment vs a debt you are leaving out a key factor in your calculations which is risk. An investment paying over 1.99% isn't guaranteed. Also the earnings it makes are taxed which you need to factor in as you can't deduct the interest you pay on your truck. I feel confident the market will go up long term but over shorter periods it is a crap shoot.

Why did you pay off your student loan? 5.625% too high for you to beat? What if your truck note was 4.9%, 3.9%, 2.9% - would you pay it off then? Did you do some calculations that 1.9% is ok or is it just a default decision based on what you have?

You said paying off the student loan made you feel great. I promise that feeling is even better when you owe no one. Maybe that is getting "emotional" but you are the one that said it made you feel great.

When I paid off my student loans, my credit score went down 20 points because my "portfolio was less diversified"

What does your non-retirement investment portfolio look like?

Great job man.  I would see if there is anything else you can do easily to hide from the tax man.  Do you have an HSA account or could you?  That would hide more and you don't pay taxes on both ends.  Save your receipts for healthcare costs and you can pull out that equivalent whenever you want.  Most of my reits are held in the hsa.  Sounds like you have your finances laid out pretty well.  I would increase your taxable investments, it would double as more cash reserves if you have a big opportunity open up.  Being a numbers guy if you had an interest in real estate you might examine that area closer.  That's if I was you, if it was me I would ditch that car focus on the house payoff, and look at a low cost phone carrier like ting.  I really like not owing a soul on this earth

Nada at this point. I've been stuffing everything into my tax-advantaged retirement accounts and my student loan.

At the moment, I think I will be increasing my 401k contributions. I can triple those before I reach the annual max.

That's what I would do, I would make changes to my budget and max my contributions to the 401k first, then focus on getting the car paid off. Then put the car payment money on top of house payment and get that down. Then focus on other investments after house is paid for.

Cheap interest is great, but being debt free makes one really hesitate on taking on debt.

Personally, I wish I had invested in property 20 years ago in areas which were on the outskirts of urban areas in expanding population areas.

They aren't making more land.

Bigger nest egg.  You will need it someday, and you don't know when.

You are doing it right.  The compound interest wherever you decide to save your money will pay off big time in the long run.

True but if you look around it is fucking everywhere. What is funny is a friend of mine who is probably one of the top ranch land realtors in the nation told me that.

I'm very similar to you (Engineer, focused on the future, etc.) just older and farther into the process.  While the auto loan is relatively cheap money, trust me, even as an engineer, the boost from not having a car payment goes a long way, especially into your disposable cash that you can have on hand for your emergency fund.   Not sure of your family plans either, but getting that cash built up is going to be helpful in the future.

My wife and I worked really hard to get to a point where we have purchased our last 4 vehicles with cash (trade in + cash for difference), completely paid to finish our basement with cash (our banker didn't like that!), and have had the flexibility for my wife to take off a good amount of time from work and cut back her hours while we started a family.

The only debt I'm ok with is mortgage debt, and like you, with the mortgage rates being so low am less focused on paying off early, and more focused now on building cash and retirement income.   I've been very clear with my financial advisor that I want to be able to financially retire at 50, even though I'll probably work longer if I'm able to and enjoying it since I like what I do.   We've pushed that age out a bit since we had our children later in life and I realized that I'll probably want to be working when the youngest is in college so that everything I've worked for in retirement can stay there and I can hopefully cash-flow some of the college expenses.


ETA:  The suggestion about buying land is a good one, and depending on what you do, you might look at something that can get your money making money for you in ways other than interest.   A lot of things are easy...some lower risk rental properties, mini-storage sheds, small ice cream franchise, etc.   Land purchases are longer term, unless you can find some relatively inexpensive farm land that you can cash rent.  But with that it will take a long time to return that initial capital outlay.

You are well ahead of the game, so don't take your eye of the ball!

If you do plan on having kids, you can start a 529 now in your name.  When you have kids, change the beneficiary to their name.

I'm trying to be retirement eligible about the time my kid is starting college.  In order to do that, college has to be overly funded.

Bought at the right time, and in the right place, it can be the best investment you can make. Bought at the wrong time or wrong place it can be the worst. One thing it offers is physical presence and value, unlike a lot of stocks etc.

Anecdotal story: in his senior year of high-school my brother scraped together every penny he had to buy 80 acres of farm-ground that our family had been farming for over 30 years. The owner passed and his family wanted to sell it to us, my dad couldn't afford it because he had bought over a hundred acres the year before. I had different plans for my life so I wasn't interested. A few years later farming turned from an unprofitable fools errand to very profitable, farmland prices began to rise and today, less than 2 decades later that farmground is worth about 600% of what he paid for it. Now speaking purely from the gain in value, that isn't a very good income, but figure that over the course of the last 15 years he's been able to make a meager $15k+/yr income off of that 80 acres alone, he did VERY well buying a piece of unimproved property.

Your overall financial situation looks good and I think you have a handle on what you are doing with one big exception:  The Roth 401K.
Why Roth???  At your income level (I'm assuming taxable income based on comments) there is significant tax benefits to having pre-tax funds available to withdraw in retirement vs. paying the taxes at a higher rate today.

Do you fully understand the way tax brackets work?  Currently you are likely in the upper 25% bracket with your last dollar.  That means it cost you $0.25 to put $0.75 in to the r401K.  In retirement you will be losing if you are not filling at least to the top of the 15% bracket from taxable sources.

Secondly:  7% is a bit low.  If you were contributing to a traditional 401K you could put 10% and see no real effect on take home pay.  I would suggest putting 15% traditional (limits allowing of course).

-I do agree with not paying down the current debts.  If you are comfortable with it then they aren't significant in rates to make it worthwhile.  You can always pay them off later if you choose.
-Speaking of:  Build your emergency fund higher.  Look for about 12 months expenses.  Beyond that start a CD Ladder for things in the future like the next vehicle, wedding and associated expenses, etc.

I do understand the tax brackets and I'm trying to use them to my advantage. I am currently just below the top of the 25% single filing. However, my projected pension alone will put me in the 25% bracket if I file single. Even filing jointly, my pension will be half or more of the 15% bracket. Add social security on top of that and I'll likely never be in the 15% bracket again in my life.

The other reason for the Roth IRA and Roth 401k were as secondary safety nets. As I'm still young, I didn't have an emergency fund right out of college. I still had a well-paying job and my parents could help if I ever was in a major bind, but I wanted to at least be able to help myself. I was using the Roth as a method to have penalty-free cash in an emergency before my emergency fund was set up. I didn't expect I'd ever need it between my strict budget and my parents being there if I needed, but I wanted the safety while still being able to start retirement savings early.

I know 7% is low, but I've also saved for and bought a house, remodeled a failing bathroom with cash, and paid off a student loan. Overall, I'm currently saving 14% of my gross for retirement, and my company matches my 401K 100% up to 5% effectively giving me 19% of my gross for retirement. I'm planning to increase the 7% now that my student loan is paid off and when I get raises each year.

Lastly, I can't find a CD that is paying more interest than my Ally savings account at 1.15% without a very large opening deposit, or a long maturity date.

Free money ?
Do you work for a large firm, ask about discounted stock purchase plan.

I worked at AECOM/URS Corp. and they had a company stock buying program. If you signed up they would give you a discount on all purchases of company stock.
It was an automatic profit of 20%, I did better in that than our 401k. Buy, hold, sell a % when stock was up  , repeat.

Pay off truck early. Then work on house.

I'd start a taxable account with something like vanguard buy some funds and individual stocks, I started doing that back in the 90s and now my taxable is more than my 401k

You are 27.

If I could travel in a time machine and punch my 27 year old self in the face before imparting some advice, it would be reduce spending and MAX out that 401(k).

Stop buying depreciating shit (like your truck) on credit.

Max out that 401(k).

The idea here is to buy yourself financial independence at an early age.  Then you can do what you want.  Keep working if, and only if, you want to keep working.  Do something else if you want.

Financial independence happens when your investment returns surpass your monthly expenses.  There are two sides to that equation, cutting expenses and maximizing savings.

The Shockingly Simple Math Behind Early Retirement
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

I should have read further before commenting.  

I see you want to retire at 50.  Definitely take a look at the Mr. Money Mustache web site (I linked it directly above).  

Your goal of maxing the 401(k) is exactly what I would do if I were in your shoes today.  Your 50 year old self will thank your 27 year old self.

Very few 27 year olds have your prudence and foresight.  Enjoy the fruits of being intelligent and wise.  Get at it.  Your goal of tripling the percentage and reaching the max should be the driving factor in every spending and financial decision you make from here on out.

Get efficient with your money.  You are an ENGINEER.  Act like one with your finances.

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

Made hot.  It's a good short read. 

I've read Mr. Money Mustache before and enjoy his posts.

I finally hit $200k net worth today. That's been a milestone I've been pushing for a watching it grow closer. That's a $250k swing in 5 years and it's only accelerating.

I have a couple changes coming in the next few months with the roommates moving out and the gf moving in. I'll be rearranging my budget tomorrow with the lack of roommate rent.

I'm quite diligent about tracking my money and sticking to a budget. I use Mint and track every single financial transaction and account. I have a very strict monthly budget and haven't exceed it for over 2 years now. My finances are like a game to me and I'm trying to get the biggest number I can.

14 years ago I was in your nearly exact shoes.

27 years old, engineer, not married with a solid PE income and rising while I started tracking my net worth.

It was eye-opening walking around the office and talking with coworkers about their situations. Just learning where they were in life financially.

It seemed there were two camps:
1) household incomes north of $150k meanwhile their net worth was $0! Professional white collar borderline living paycheck to paycheck. These folks had car loans, student loans, house loans and "paid off the credit card every month". They were essentially financial zeroed out
2) Second camp were the folks who had rocking 401-k's, no debt, lived on a spending plan (i prefer spending plan vs budget) and had a handle on things. These people were typically worth $250k quick and the numbers were rising fast. I also suspect there were some engineers I worked with who probably had $1,000,000 401-k's. Old timers who talked about maxing out as early as possible.

It was amazing, inspiring and motivating. Changed my life as well as reading a few good books on the topics of growth "Millionaire Next Door"


With that said, If I was in your shoes, I would:
Tighten the spending plan with a few goals:
1) 401k money to get the match
2) Max out Roth IRA (I don't recommend a roth401k as that precludes you from a regular roth)
3) Turn back to the 401k, hammer it until the max $18,000 per year. This also pulls down your tax footprint.

If you still have vehicle debt, I'd do steps #1+#2 while making a strong effort to paying off the vehicle. Reason being as you'll never get the time back, opportunity cost, of the Roth and the match money.

This should be done quick as in 6 months or so. Once that's paid off, then go full bore on the step 3. Max that thing out. It's amazing to watch the balance
everyday chip away higher.

My path had a 2002 Chevy Z71. Once I paid that off the math changed completely. I was living on $50kish and making professional engineer money. When payroll would run every two weeks, I always laughed watching the gap between expenses and leftover money. Meanwhile, in my excel spreadsheet, i updated the high water marks every day for Roth and 401k balances.

My life changed after that.

edit: interest rates don't mean squat when we are talking short periods of time, small money then thinking about big money. But the ability to have a bigger shovel and cash flow is the key.

Nice work.  That's an impressive swing for five years, especially considering the median household income for 2016 is about $56,500. 

I have always told people (look at the windfall thread) that any new found money should not be considered for any of your living expenses, unless you are perilously close to default or desperate needs. In your case since you have extra cash because you are no longer paying student loans, do not apply it to you mortgage. Do not apply it to your 401k, etc.

Since you do not have any non-retirement investment I would put it there. My reason is that you have learned to live within a budget that include a student loan. It should not change. Whatever you do with the newly found student loan cash should invest/grow in isolation from the rest. Any additional contributions to your 401k or mortgage should come from your raises at work.

That's just my opinion.

Why do you recommend increasing my taxable imvestments prior to maxing out my tax-advantaged retirement savings? Is it so I have more flexibility in the future prior to retirement? I already have 5 months of salary, or about 6-7 months of living expenses saved in my emergency fund.

One problem with a person like you is you don't fit the standard investing model.  You might want to retire early and the tax advantaged accounts have severe restrictions on this.  I think of it as another form of diversification.  If I could guarantee you a 12% return on your money but it was everything you have and you can't get at it for 50 years it's not as exciting

 maximize tax advantaged retirement accounts first.  There are lots of ways to get at money in 401(k)s and IRAs before 59.5 years of age.  

http://www.biglawinvestor.com/how-to-get-your-money-before-59/

That should get you started.

Maximize the tax advantaged accounts, now, while your income is high and your income tax is high.

Not what I meant at all.

You are saving 14% of your income.  That is a problem for your stated goal.  An engineer solves problems.  Tracking things is great but does not do anything practical.  Engineers are about practical solutions.  Now apply a solution.  Get that savings rate up higher.  More like 33%.  Higher?  50%.

The MMM link posted earlier tells you what your savings rate needs to be to meet your goal.  Use it, engineer.