I always joke around with my friends that although I’m 27, on the inside I’m much older. I’ve been hearing about this reddit thing for a while now. One of my previous roommates would always peruse it and giggle to himself, so I thought it was just funny posts and memes. The other day I followed a link on Twitter to reddit. It was a story about a 22 year old who was making $100k a year and couldn’t figure out why he was in debt and living paycheck to paycheck. Of course there were some pretty harsh comments, but for the most part everyone was giving him sound financial advice such as use Mint to track your expenses, trim the fat, pay down the debt, etc. I was quite impressed with the help these complete strangers were giving this guy who bared all to get his financial house in order.
After reading this feed of strangers helping a individual get his financial life in order, I decided to poke around reddit some more… and then I was hooked. My favorite subreddits are obviously r/personalfinance and r/financialindepedence. I highly recommend taking a spin through both of them. While doing so I found that Justin at Root of Good and Mr. Frugalwoods are avid commenters.
What I found great about reddit is that the posts and comments get voted up and down by other users, so by natural selection the “better” posts and comments float to the top of the page.
So I decided to walk through the waterfall and see how I tracked against the recommendation.
- Emergency fund – I currently have 3 to 6 months of expenses in a liquid online savings account yielding 0.99% APY. Check!
- Contribute to 401k up to company match – My contribution percentage will ensure I max out my 401k in 2015, therefore I definitely get the full employer match. Check again!
- Pay down high interest debt – The only debt I currently have is student loan debt at 3%. I’ve paid off all my student loans that were 4% and higher, so I consider this a win as well since I am choosing to milk this lower interest rate and pad my investments.
- Max out IRA – I will max out my Roth IRA this year. I kind of broke the path of the waterfall since I contributed to my 401k more than required to get the match before opening an IRA. I did this for two reasons, first my 401k plan through work only charges a $40 annual administrator fee whether you have $1 in it of $1 million, and second the plan is with Vanguard. Most people like to open an IRA before maxing out their 401k for more investment options and cheaper fees, but it was a wash for me.
- Max out 401k – Check! This will be the first year I do it though… better late than never!
- After-tax savings/investments – I definitely broke this rule of the waterfall. When I turned 18 I started a brokerage account and would buy some individual stocks from time to time up until recently. Now that I have become a self proclaimed Boglehead* I don’t plan on contributing to this account anymore. I will contribute any monies left after maxing out my retirement accounts to my Vanguard account and stick to low fee Vanguard index funds. If jlcollinsnh didn’t convince me before, reddit, Bogleheads, and a podcast interview with Rick Ferri** did. I don’t know if I’ll divest from all my individual stocks, but no new capital will be deployed to them going forward.
Do you enjoy the personal finance and financial independence community on reddit? What do you think of the savings waterfall? Do you follow the steps?
* – A Boglehead is a term intended to honor Vanguard founder and investor advocate John Bogle, and are investing enthusiasts who participate in the Bogleheads Forum.
** – Here is the Masters in Business podcast episode where Barry Ritholtz interviews Boglehead Rick Ferri. I highly recommend it.