Things To Do When You're Debt Free (Financial Advice)

[Maven]

In a couple months I'm going to zero out all my debt. I've had this happen once before, but I took that as an opportunity to buy a car that was outside my price range. Fast forward six years and some difficult life circumstances, and I'm almost back in the clear.

I'm 33. I have no savings or investments. It is not my current plan to purchases a car (sold last one to make end's meet) or a house. My income, as long as I stay employed, could see as much as $2000 a month to stow away thanks to an almost Ascetic lifestyle. According to a website financial planner, if I put that much away, I could have enough to live off of for retirement by the time I'm 70. 

What would you do -- with how things are today? Obviously I need to get an emergency fund going, but after that, is it all down to just how much risk I'm willing to accept in my investments while stuffing the maximum into a 401k?

[Paelos]

Heh we have such old fart topics now.

I'd invest the money. I'd put it into various mutual funds that cover my bases with the bulk of it in large cap funds. The rest of my funds would be mid and low cap with varying degress of risk. Also, I'd have some straight dividend producing blue chip stocks that I plan to hold for 20 years (Coke, GM, GE, Wells Fargo, etc.)

[schild]

I come from a family of investors and money managers and I have no idea what do. ¯\_(ツ)_/¯

[Abagadro]

IRA (traditional or roth depending on when you think your tax burden will be highest, now or during retirement, or some in each). Broad market index funds or target retirement dates funds that gradually shift into bonds as you near your target date.  Reinvest the dividends back into the funds.  Look for low-cost funds (I recommend Vanguard). Keep about 5-10 percent in liquid money market account or short-term CDs. 

[01101010]

Hookers and blow. You could die tomorrow so get it while you can. 

[Shannow]

Does your company match 401k contributions? If they do MAX the FUCK out of your free money.

Second your 33, fuck cash, fuck CDs, fuck bonds in the ass, there's no point (seriously if you don't need this money in the next 12 months why are you zeroing your chance of return??). Come back to this in 10 years and change then.

What is your tax bracket right now? I'd suggest maxing a ROTH IRA contribution.

Also fuck Vanguard funds in the ass. Do some research, find good PERFORMING funds. Look for funds that constantly outperform their peers. Remember fund performance (say on Morningstar.com) is quoted net of their internal expenses. Focusing on cost in the absence of value is a waste of fucking time.

Small caps, internationals, real estate, mid caps, large caps. You want equities at this age. 100%. Fuck it. Oh maybe some commodities or something, oil/gas etc High Risk/High Return, you're young , you can take the risk.

Next, at this is the most important piece of advice. Don't fucking watch it. Make the allocation and open your statement in about 5 years. Seriously. If you can wait 10 , wait 10. You won't do any good second guessing yourself. People suck at investing. Even people who does this professionally suck at it.

(btw I believe in tactical management for older folks, pre-retirees and retirees, buy and hold is fucking great if your 33 though)

Past performance does not guarantee future results.  :D

[rattran]

Hookers and blow. You could die tomorrow so get it while you can. 

Truth.

[ajax34i]

How's your (or your family's) house?  Anything need fixing up, replacing, updating?  Roof, heating / air conditioning, basement, water system, trees outside?

[Morat20]

Put half of it away. Heck, see a professional if you want, but they'll push "their" product. Again, if you want no brainer -- pick a target date retirement fun. I use Vanguard myself. Try to stick to passively managed funds with straight fees, no percentage shit. Active managed funds are bullshit anyways.

Anyways, stick away half a month in one of those (or heck, split between two or three if you want) and then ignore it. Maybe check it once a year, just to keep tabs, but don't change shit around. It's already balanced for your age and retirement date. You don't need to dick with it.

If you work for a company with a 401k plan, make sure you're sticking enough away to get their full match (if they give one). Many will match in company stock, so diversify out of that as quickly as possible. You don't want like 20% of your plan in company stock.

1000 a month towards savings is doable. If you end the month with 500 more in cash, just stick it into savings. Every couple of months, you can clean out some of your savings (but not all, you want some cash reserves for things like broken car or such) and put it into a Roth IRA (or whatever the post-tax one is) or into a regular investment account or whatever.

The key to me was never being so frugal I couldn't stick to it, and always having enough resources to weather a few crises' without having to tap into my funds. (Just this year, after a decade of having it, I finally had to tap my emergency CD -- just a few thousand that rolled over every year, that I kept because it was JUST enough hassle to cash that I'd only do it if I really needed the money. And I do, because lawyers are fucking expensive.)

*shrug*. It takes awhile for the miracle of compound interest to work out, though.

[Torinak]

In a couple months I'm going to zero out all my debt. I've had this happen once before, but I took that as an opportunity to buy a car that was outside my price range. Fast forward six years and some difficult life circumstances, and I'm almost back in the clear.

I'm 33. I have no savings or investments. It is not my current plan to purchases a car (sold last one to make end's meet) or a house. My income, as long as I stay employed, could see as much as $2000 a month to stow away thanks to an almost Ascetic lifestyle. According to a website financial planner, if I put that much away, I could have enough to live off of for retirement by the time I'm 70. 

What would you do -- with how things are today? Obviously I need to get an emergency fund going, but after that, is it all down to just how much risk I'm willing to accept in my investments while stuffing the maximum into a 401k?

Being debt-free is awesome--congrats!

There's a metric crapton of good advice on the Boglehead's wiki; see Getting Started for an overview.

Build up an emergency fund of 3-6+ months of cash, and max out all tax-advantaged accounts (401k) you can, at an absolute minimum to get the full match from your employer.

Slow and steady wins the race. "Boring" investments like broad-based low-fee stock and bond index funds are much more likely to serve you well than trying to find something "hot". A balanced passive portfolio has the huge advantage that you can pretty much ignore it, too; just keep putting money into it and one day you've won the game and can have a cat-food-free retirement.

Fees really really matter. A few percent difference in fees is the difference between keeping everything you earn versus giving away half or more to some already-rich financial advisor or expensive fund company. If you keep plugging away with saving and investing until retirement age, that could be the difference in a million dollars of fees!

Chasing the hottest performers from the past is a great way to lose everything. There's a reason why the phrase "Past performance is no guarantee of future results" shows up all over the place.

Don't bother with exotic investments. Don't try to pick stocks. Don't invest in anything you don't understand or that you couldn't explain to a child. Financiers add complexity to make it easier for them to earn money at your expense.

And for God's sake, don't ever buy a variable annuity or whole/permanent life insurance!

[Surlyboi]

Without going into deep detail on shittons of research, I'd say Morat and Torinak's suggestions are the easiest to follow and the least painful and will probably give you the most bang for your buck. Literally and well as figuratively.

That said, Vanguard is good now but keep an eye on it. I know too many Aston Martin driving, adderal/coke fiends there to put blind faith in them but if I feel they're starting to fall off, I'll shoot off a warning flare.

[Strazos]

Hmmm, interesting timing on this thread - I'm really close to zeroing-out my school loans. The credit card debt I racked up in college (mild by most measures) and when I first got my current job (suits and temporary lodgings can get pricey) has been zeroed-out for maybe a year now, and I clear the balances out each month.

So at this point, I'm chucking about $500 into my Thrift Savings Plan (gov't quasi-401k), a chunk of which my employer matches. I have a pension as well that will pay me a nice chunk of my final salary when I retire and hit whatever the age is (63.5?). Other than that...I don't really have expenses at this point: I don't pay rent, I have a small car payment for my new car (I could have paid cash, but...I wasn't comfortable dropping that much all at once), car insurance is paid once a year in an unfortunately-large chunk...no wife/kids.

This sounds silly, but I literally don't know wtf to do with the rest cash that is accumulating in my bank account. I'll have to look into some of the previous stuff, but I'm really pretty clueless about finances, and the stock market really makes no sense to me whatsoever.

If I wanted to look into some of the mentioned financial products...where would I even go to inquire about them? Would help if it's all possible online, because it's not like I can walk down the street to some kind of branch office.

stealthedit: No schild, I'm not buying you hookers. Or blow.

[Morat20]

The key to financial products boils down to a few things:

1) Don't speculate. DON'T SPECULATE. That means don't buy stuff expecting it to be worth more next month or next week. If you're thinking "I'll buy low, sell high!" back away. It's not a place for anyone casual.

2) Liquidity is what you need to know -- "How easily can I convert this to cash, what are my potential losses?". Three to six months cash, try to keep really liquid. Six month or year CD's (your bank or credit union has those). The rate of return is generally shit, but if you need the cash you just lose some of the interest you've accrued over the last month or so. It's basically pays a bit better than a savings account, and is a good place to keep your serious emergency funds.

You'll want some money in a savings account, but that's more for balancing stuff month to month -- like say you plan a vacation, so you're paying out a lot more a month than normal for a month or two. Then you fill it back up.

The bulk of your money, the stuff you basically see as 'I don't need this for years or retirement" you sock away in investments. You can probably find a decent financial consultant to help you figure out where you need to invest, because it really boils down to your specific situation and your age more than anything.

But that stuff? That's like...painful to get at, if you need the money. If it's in regular investments, you can take a serious loss because you might pull it out during a market down turn. If it's in 401ks, you're taking huge penalties to withdraw (plus paying taxes on it), but you can also loan it to yourself.

I guess what you really need is to find a flat-fee based financial advisor -- you pay him for his advice and time. Give him your situation, and he can recommend funds or strategies.

Just..avoid actively managed funds (it's worse than passively managed shit, and costs more in fees), look for flat-fees not percentages and make sure they're along the lines of what others are charging, and make sure it's diversified. Over the long run, you're investing in the economy -- not Apple. You don't want all your eggs in one basket.

If you want simple, you can look at index funds. They're collections of stocks that mimic things like the S&P 500, so it's broad -- it'll go up exactly as the S&P does (and down).

Just remember -- you don't lose money until you withdraw it. If the market goes to shit? It just means you're buying share of your fund or whatever for cheaper. More for less money! Worst -- the WORST -- thing you can do is yank your funds when the market sinks. (This is assuming diversification. If you're all in some single stock, well -- that may be different. Companies can go out of business. If the S&P 500 goes bankrupt, money is useless anyways).

[lamaros]

Give it to me. I'll invest in sports betting and give you 15% a year.

[Torinak]

The bulk of your money, the stuff you basically see as 'I don't need this for years or retirement" you sock away in investments. You can probably find a decent financial consultant to help you figure out where you need to invest, because it really boils down to your specific situation and your age more than anything.

...

I guess what you really need is to find a flat-fee based financial advisor -- you pay him for his advice and time. Give him your situation, and he can recommend funds or strategies.

It's easy to learn how to manage one's own investments, without having to pay a financial advisor. Nearly all "financial advisors" are actually salesmen--those "investment" and "retirement advisor" places you see in so many strip malls are staffed with salesmen, for example.

Note that a "flat fee" financial advisor can take you to the cleaners in all kinds of way. They can recommend funds with a front load (pay 5.75% of your money for the privilege of buying the fund), a back-end load (pay even more for the privilege of selling), high 12b-1 fees (kickbacks to the broker who sold you the mutual fund), or push you toward grossly inappropriate investments that sound good (MLPs, annuities or life insurance under a dozen different names, privately-traded REITs, muni bonds when you're in a low tax bracket, etc). On top of all of that, they may also require a "flat fee" of assets under management, taking some of your total investments (not earnings!) every year.

If you do decide you have to have a financial advisor, make sure to get a signed statement from them saying that they have a fiduciary duty toward you. Odds are they won't give you one, because they're actually salesmen and don't want to have any kind of legal obligation to look out for your interests. Also make sure they give you a full list of every way they make money from you; they probably won't want to give you this either.

Expect to pay $500-1000 for a consultant with a financial advisor, or about $200-300/hour for an hourly consultation (probably with a certain minimum number of hours). If they're good, unless your situation is incredibly complex (hint: it's not!) they'll probably recommend a portfolio of a few broad index stock funds and a few bond funds, in a ratio based on your age (100 or 110 - age as percentage in stock, with the rest in bonds, seems to be popular these days).

That said, there are a few cases where a financial advisor (who has a fiduciary duty!) is appropriate, IMO:

(1) if one comes into a large amount of money (millions) and has never had any kind of money before nor any ideas about how to handle it
(2) if one is highly prone to panicking at every twitch of the market, or would jump at every fad. A good financial advisor can help keep you from buying high and selling low. A not-so-good one will do just that for you, taking fees at every step of the way.

Ultimately, nobody cares about your money as much as you do. Spending time learning the basics (enough to grant confidence one can handle a basic portfolio oneself) will probably save literally tens to hundreds of thousands of dollars between now and retirement.

[Teleku]

Such a weird concept to me.   I've been debt free my entire life (hurray California educational socialism).   I've basically spent all my extra money on the 'hookers and blow' type options.  

Now that I work for the government, and make even more money than my single, no-family self knows what to do with, I put the maximum allowed ($17,500) a year into the governments version of a 401k (the TSP).  Also started putting an extra couple hundred a pay check into its Roth side, since apparently that doesn't count against the cap.  The money I've put in seems to be growing at a pretty good rate, so as others have suggested, take the 401k route.  Seems to be the easiest/safest.  30 years of that, I should have a pretty damn big nest egg for retirement.

I've considered further investing some of my extra money into stocks on my own, but that seems like way to much /effort.

[UnSub]

Some people have mentioned this above, but too many people focus purely on the wealth accumulation side of investment and not much at all on the protection side. Protecting your lifestyle now is important.

I'm not in the US, so please excuse me if the terminology I use below is different. Also, you should take this as general, rather than specific, financial advice.

If you don't already, pick up income protection insurance and total and permanent disability insurance (plus death insurance, if you have dependents). Your income is great now, but you get hit by a bus or a virus that means you can't work and you're stuffed.

And get a will if you have dependents. Estate planning is important.

And after that... I don't think anyone has proved that there's a better strategy than diversification. Pick a few passively managed funds that cover areas you understand and have a spread of asset classes (i.e. don't pour all your money into biotech and don't put all your money into fixed term deposits either) and then let them do their thing. Review once a year, barring major market movements.

It was said above - go for passive fund management rather than active. No actively managed fund beats the market over the long term and they cost a lot more to be part of. Index funds have already been mentioned - they keep things simple.

And yeah, be careful of financial planners. At one point I was qualified to be one, but it really meant, "Sell people parts of a small range of financial products approved by my employer; you get paid by the number of people you sign up". A bad financial plan can easily ruin you; even a good financial plan might cost you a fortune in hidden fees over its life time.

[Merusk]

And for God's sake, don't ever buy a variable annuity or whole/permanent life insurance!

Heh, I shared this lifehacker article on Facebook the other day:
Five Money Mistakes Even Good Savers Make

A friend shared it off of my post and the FIRST comment one of her friends made was, "you can also save a lot by buying a whole life insurance plan!"   I've never wanted a "slap a fool through the internet" button more. Dumb, dumb dumb man.

So, Maven, Congrats!  Read up and follow the financial advice us old men are sharing with you because it's valuable. However, don't forget to save some of this windfall for yourself. Doing nothing but saving, saving, and more saving can make people snap and binge spend their way in to another debt hole.

So in addition to what Morat and Torinak have said but use tip #3 above - multiple accounts - above and have a "fun" account.  Maybe you won't spend it all the time, but its nice to have a fund for frivolities like, "hey I want to fund that KS project" or  "Man, I'm going to take an impromptu vacation this month" that you aren't dipping into long-term savings or emergency funds to utilize. (mine is how I bought a ridiculously overpriced hockey jersey without panicking)

[Merusk]

If I wanted to look into some of the mentioned financial products...where would I even go to inquire about them? Would help if it's all possible online, because it's not like I can walk down the street to some kind of branch office.

Who manages the government 401(k) or whatever it is? Do you have a brokerage account with them? There should be someone who can help you there, I'd think.

If not, I've seen a lot of financial services companies over the years because I've had 6 employers myself since college and the wife has had another 6. Of them all I've liked Fidelity's services and interface the most. I started my rollover with them and if I do a Roth vs. just shoving everything I can pre-tax in it will also be with them. You can open an account with them online and start moving money into it.  https://www.fidelity.com/

You can also use most of their research tools without an account. If you're really as clueless as you say you are, start at the learning center and read: https://www.fidelity.com/learning-center

[Maven]

Lots of great advice and information to review and take in. Thank you everyone.

[rk47]

Give it to me. I'll invest in sports betting and give you 15% a year.

Are you for real sir?
I believe in F13 honor and just cleared my study loan yesterday. 

[Ironwood]

We should merge this thread to the 'Give money to your mates' thread.

[Signe]

I have no debt, no credit and no money.  I could be Irish.

[Evildrider]

Buy gold coins and a chest.  Start your own personal pirate booty.

[tazelbain]

Invest in Liberty

[UnSub]

Buy gold coins and a chest.  Start your own personal pirate booty.

Caution: activity may attract pirates, leprachauns and dragons.

[UnSub]

Slightly more seriously, the only other bit of advice I thought of was only get tax advice off tax-specialised accountants. Tax is too complicated a mine field to get advice from a financial planner (or anyone else) who just dabbles in that area.

[Sky]

Buy gold coins and a chest.  Start your own personal pirate booty.

And a reformed HYDRA agent dressed as a parrot.

[Shannow]

Outside of coming into a large inheritance, wierd legal situation or owning your own business don't be paying for a tax advisor or a financial advisor at this age. No need.

Btw once you've made your investment decisions, stick with them. 80% of investment returns are determined by investor behaviour NOT the things they invest in. If your interested as to the whys of that little statistic read up on behavioral finance. Start opening your statements and considering changes around 45. 

[Yegolev]

Silver prices are very low right now.

[shiznitz]

In a couple months I'm going to zero out all my debt. I've had this happen once before, but I took that as an opportunity to buy a car that was outside my price range. Fast forward six years and some difficult life circumstances, and I'm almost back in the clear.

I'm 33. I have no savings or investments. It is not my current plan to purchases a car (sold last one to make end's meet) or a house. My income, as long as I stay employed, could see as much as $2000 a month to stow away thanks to an almost Ascetic lifestyle. According to a website financial planner, if I put that much away, I could have enough to live off of for retirement by the time I'm 70.  

What would you do -- with how things are today? Obviously I need to get an emergency fund going, but after that, is it all down to just how much risk I'm willing to accept in my investments while stuffing the maximum into a 401k?

Given your age and the fact that you have no savings, I would just go with a target date funds.  Pick a 30 year, 40 year and 50 year and split your savings - 10% of gross income - among them.  Target date funds programmatically reduce risk (i.e. stock exposure) over their life, ending in short term bonds.  

It might be tempting to go all stocks for 5-10 years to try and catch up but given that you have zero invested now and stocks have done very well for several years makes that a risky choice.  You do not have a lot of time to recoup market related losses.  You need slow and steady returns and the maximum amount of annual contributions that you can stomach.

The good news is that 33 isn't too late.

[ShenMolo]

Everyone else has covered investments, so I'll suggest this:

Look at your expenses and create a plan to eliminate them. This will buy you freedom without worrying about a job, or the stock market or sleazy investment counselors.

Buy some land and build a small house, or a cheap house or condo and pay cash or pay it off asap. With no mortgage and no rent, you basically can do whatever you want.

Your car is paid off, that's great. Drive it for 10 more years.

Continue to live a semi-ascetic lifestyle, valuing experiences over STUFF.

If you get your monthly expenses low enough, you can basically semi retire right now. Work when/how you want to, wherever you want to.

[Merusk]

Continue to live a semi-ascetic lifestyle, valuing experiences o
If you get your monthly expenses low enough, you can basically semi retire right now. Work when/how you want to, wherever you want to.*

* For as long as you're healthy.

Young people who 'retire early' forget they've got 60-80 years more living to do.  That's a LOT of time to develop diseases your savings will eat.

[Numtini]

With no mortgage and no rent, you basically can do whatever you want.

I can't possibly express how lovely it is to have paid off our mortgage.

[Logain]

Just wanted to reiterate the diversification point, regardless of the specific investment vehicles you choose. Don't want to see what you manage to save get wiped out in the next crashageddon.