20's and need help

[jimmyengland]

Looking for some sound financial advice. My wife and I both just got new jobs and are looking to save / invest for the future and we are wondering exactly how we should be spending our extra $$$$$

Here is our current situation
Both Age 26

Income - 75000 (combined)

Debt
Student Loan - 32000 currently @ 2.4%
Mortgage - 88000 @ 4.99
credit card - 0
Car loan - 0

Investments
401K - 4500 (previous employer) - both waiting to put money into new companies up to the 6% match once eligible.

Roth - 4500 (max for 07 - me) plus 500 for 08 i put this in a fidelity freedom 2045 was this a good choice?

Money Market savings - 11000

We now have extra cash as it is just the two of us and our monthly outgoing are relatively low.
1. Should we be paying down our mortgage? (We have been in our house a couple of years and plan to move somwewhere bigger in the next five years or so)
2.putting more money in investments?
3.More Savings?
4.Paying off student loans?
5.???????
Any advice would be great. Thanks for your help

[sweeps]

The rates on your student loan and mortgage are low (insanely low?), so your priority should be beefing up your emergency fund/savings, as well as increasing your investing -- your wife should max out a Roth for 2007.

Edited to add: Fidelity 2045 is a very good choice. (Don't listen to the anti-indexers in the crowd.)

[maat55]

Just because you can, I would invest 15% into Roth MF's and attack the mortgage. You should be saving an auto fund. I don't know what your car needs are but 500 a month should provide a decent car every 3 years. Your income is good for your age and you should be able to be debt free early in your 30's and still have a fine retirement portfolio with a little sacrifice up front. Keep the mentality you have now and you will do great.

[jIM_Ohio]

If moving in 5 years, I would invest anything you would use to paydown mortgage in a 50-50 balanced fund. You have a property you don't want, I would not try to pay it off, I would save to make sure you get a property you do want.

Being young I would advise that investing more now, and building this into your budget, even for only 10 years, will make a huge difference in your life.

[aida2003]

You should be saving an auto fund. I don't know what your car needs are but 500 a month should provide a decent car every 3 years. Your income is good for your age and you should be able to be debt free early in your 30's and still have a fine retirement portfolio with a little sacrifice up front.

I agree with saving for a car and paying cash for it, but I really disagree that you have to change a decent car every 3 years. If a car is reliable, I'd drive it for at least 5-10 years and in the meantime, addn'l money can be saved as "future baby expenses" (babies are super expensive), maxing out all retirement accounts, beefing up an E-fund, vacation 'fund', and taxable investments.

[disneysteve]

I wouldn't be prepaying the student loans or mortgage since the rates are so low. I'd hold on to those loans until they die a natural death.

Max Roths for each of your (that's $10,000 total this year). Once you are eligible for the 401ks, invest in those at least up to the point needed to get the full company match.

I think saving for your next car is a good idea but I disagree with maat55. Getting a new car every 3 years is ridiculous, IMO. A good quality car, properly maintained, should last a minimum of 100,000 miles which is about 7-8 years for the average driver. I've got a 1998 Toyota with 105K (and I bought that slightly used) and my wife has a 2000 Toyota with 103K (and we bought that used, too).

[sweeps]

I'd hold on to those loans until they die a natural death.

Well stated.

[anonymous_saver]

I agree with others that you shouldn't prepay on either the mortgage or the school loans. You have amazing rates! The only case where I would prepay one of those is if you don't yet have 20% equity in your home (although I suspect you do with such a low mortgage).

As for your emergency fund. $11,000 is a great start! How much are your expenses each month? How much of an emergency fund do you want (for example, my goal is 8 months worth)? Determine how much this # is, and then when you reach this goal start putting aside money towards a car fund down the road and also increase your 401(k) contributions as well.

I also agree that you should put up to your matches in your 401(k) and the maximum amount allowed in your Roth IRA's. Once you have a fully funded emergency fund, I would increase your 401(k) contributions.

How much of a bigger home are you likely to get in 5 years. What do you think your mortgage would be?

Look forward to hearing back from you.

[maat55]

aida2003

The 500 dollar car fund is based on replacing 2 cars, 1 every three years means each car is replaced every 6 years. Buying a 1 to 2 year old car, makes the cars 7 to 8 years old at sell.

[disneysteve]

The 500 dollar car fund is based on replacing 2 cars, 1 every three years means each car is replaced every 6 years. Buying a 1 to 2 year old car, makes the cars 7 to 8 years old at sell.

Sorry for misunderstanding that. I also thought you were suggesting a new car every 3 years.

[maat55]

It was just my laziness in not fully explaining the plan.

[atomicrc11]

You have a good emergency fund, I would look at opening a fund for longer term savings than your money market. Since you're already at Fidelity, I like the Fidelity Balanced Fund (FBALX). It is about 60% stocks and 40% bonds so it isn't there to get as high a gains as your Freedom 2045 fund, but it will be a little more stable so you can take money out should you need it.

[Tree0164]

The mortgage is a fixed rate-just seems low. Hope not an ARM.

I would max out your retirement savings-between the ROTH and your 401ks.

Also since you plan on moving in a few years to a bigger house-I would focus on some of savings towards to a bigger house fund!

You sound like you are in good financial shape!!

[jimmyengland]

Thanks for all your help,

The mortgage is 30 yr fixed at 4.99% - bought when the going was good in june 05.
The student loans are based off of inflation in the UK. It fluctuates however the highest I have seen is 4.2% and the lowest 1.8%. It locks in for 1 year periods at the current inflation rate (2.4 last time assessed). The repayments are based upon my salary and since the UK exchange is currently 2-1 it looks like i am earning chump change and my payments are actually lower than the interest. I am just matching the amount of the interest right now until i decide what to do so the principal does not rise...

As far as the car goes we brought a new car in 2005 and it is paid off. (should have brought used but there you go). We plan on having this car for approx 8-10 yrs providing no major problems arise. We do very little miles per year 10,000 max. (public transportation is a luxury)

My current house value is approx 100,000. So I do not have 20% equity. In five years we are looking to move to a much bigger house possibly 300,000 and to start a family.

Any more advice would be greatly appreciated on both our financial shape now and where we should put money in the future now you all know more about my situation and desires for the future. Thank you all!!!!

[jimmyengland]

does anyone else have any more advice on this?