{ "media_type": "text", "post_content": "Paid off my loans/credit card debt. I barely have any savings. Is the next move to shoot for a 6 month safety fund or to max out my 401k?", "post_id": "5efc0d3d984b2c00227b8041", "reply_count": 26, "vote_count": 5, "bowl_id": "552d1d24dc1c586b09d2d051", "bowl_name": "Consulting" }

Paid off my loans/credit card debt. I barely have any savings. Is the next move to shoot for a 6 month safety fund or to max out my 401k?

likehelpful
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6 month safety fund, no doubt. To be honest, you should’ve started with that rather than paying off debt

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Congrats on paying off your debt! Yes, would highly recommend creating a 6 month safety fund before maxing out 401k.

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In this climate, I’d save 9 months. Congrats!!!

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Hot take - if any of the following are true, pick the retirement: - you have not fully maxed what your company matches - you have family that can support you if you fall - you can live cheaply and 3 months is enough

likesmart

What he said. Definitely the match as it’s free money and will compound for when you retire, which is a long way away since you’re young and that’s good.

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6 month fund while also contributing enough to get matched on 401K

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Definitely the safety net. For your mental health if no other reason, knowing you will be ok is priceless.

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401k no question. That is pre-tax money which your employer matches. If you really really need that safety fund in an emergency, you can dip into your 401k.

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You make $105k. You can do both. Put 25% of your income towards 401k and save 10% for a safety net. Should be fine to survive on the remaining 65% I hope now that your debt is gone.

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I would get a financial planner to help you make that call!

funny

No need... this should be an easy decision.

I’d say, safety fund allocation after you get your 401k match. That 6% is a big deal.

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For context - I’m 24 and am earning 105k in a tier 1 city

“Consultant”

likefunny

How does one max out their 401k

$19,500 is the max this year

I would recommend put bigger proportion of the in the retirement account because of the tax advantages especially if you live in a high tax city. 10k in 401k equals ~ 6-7k in your bank account. Worst case you can pay the 10% penalty to withdraw. The CARES act currently suspended the penalty if you become unemployed.

I’d go 401k first bc technically you could tap that for a 10% penalty if you really needed to. But you could do a split until you get the minimum in the 401k to max out the company match.

Open a Roth IRA and max out this year’s contribution. Tax free growth and if you get in a pinch you can pull out the money you contribute (but not the earnings) without penalty

Agree on the retirement savings. If you have no debt then you have debt capacity. This is cheaper than the returns you’ll get on the retirement savings, especially if you have a company match, which is free money.

Get the 6% match maxed out first. That’s like ~$250 per pay period. Concurrently set up a new direct deposit for you salary taking 20%-30% of your paychecks straight to this high yield savings account (Marcus, Ally, etc) for your emergency fund. Do it fast as you are likely used to have a good chunk of your salary going towards paying debt, you won’t feel much once you do this. When life is in order, open an IRA and put 6k there every year. Please look at expense ratios (everything above 0.05% is expensive). for your 401k.. choose a target fund 2060 -2070 for IRA choose VTSAX

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