I’m 29 and live with my mom in a rented RV in California. I have an emergency fund of $ 25,000 and $ 26,000 in a Roth IRA. What should I save for next?

I feel good financially as a single 29-year-old who unfortunately is still a roommate with my mother. We divide everything in the middle and I live mainly with her because it is very expensive to live alone in my city, and it also helps to relieve a lot of financial stress for my mother and me.

Honestly, we live in a motorhome – washer and dryer included – and the rent is significantly cheaper and we have more space and actual parking spaces compared to the typical apartments in my area. I have no car loan, no credit card and no student debt.

I have a $ 25,000 emergency fund in a high-yield savings account. I have $ 26,000 in a Roth IRA (my employer offers no retirement benefits), $ 6,000 in my robo-advisor investment account, $ 4,000 in a savings account and $ 1,300 in my check.

I prioritized paying off my car in two years and saving a hefty emergency fund because you honestly never know what might happen, and I do not plan to learn the hard way. But now that those goals have been met, I really do not know what to save for next.

My main goal is to have a net worth of at least $ 100,000 because I always read what a good number to meet, and I’m worried because I’m behind with pension funds, so I opened a robo-advisor account specifically for retirement purposes.

“I will probably save forever to come up with a decent down payment for a home in California. But rents are also continuing to rise.

But what happens next? I know people say I should save for a house in California, but I do not see it as a reality. I never grew up with the dream of owning a house so I never really had that expectation.

Since I do not have a boyfriend, fiancé, husband or children, I know I have a little more freedom but honestly, Quentin, what should I save for? The $ 4,000 that is in my savings account is fun money, but whatever I withdraw, I exchange them so that they are never emptied.

Once I’ve reached the goal of having a net value of $ 100,000, I just do not know what to save for next? A house? I’ll probably save forever to come up with a decent down payment for a home in California. But rents are also continuing to rise.

I plan to apply for a new job for the county that offers higher salary, a possible pension and benefits, especially a pension plan, so I expect to still live below my means with even more money left over. But I only have a clue what to do with it.

Motorhome girl

Dear debt free girl,

The absence of expectations that you refer to in your letter is like little invisible ropes made by hand in Lilliput that hold us back. We hardly feel them jerking us because we do not always know they are there. We get up every morning and go through our lives, not really comfortable in the belief that that job is not for us, or that degree, or even that house.

But based on what you have told me about creating your own Roth IRA, emergency fund and high-yield savings account, you have many expectations. Owning your own home is out of reach for you right now, but I think it may be on your journey if you continue to do what you do: think ahead, save and plan to gradually work your way up to a job that has better salary and, preferably, a 401 (k) with an employer matching.

I asked David K. Golbahar, a director of the global consulting firm JS Held in Los Angeles, California, about your situation. “Unfortunately, she’s hanging on to cash for an awful lot of time. I’m first suggesting that I use US Treasury bonds that are currently inflation-adjusted. The minimum holding period is 5 years, but that makes sense in her position. I would diversify her holdings with some of these bonds. . ”

For $ 25,000, he suggests spending six months on a 3 or 6 month CD or high-yield interest-bearing account, and the rest on a brokerage or other investment account to earn more over time. When you have a down payment, Golbahar says that a rental property – something you can put a deposit on and manage for passive income – can help you reach your goal of owning a home faster.

Larry Pon, a financial planner based in Redwood City, California, has high hopes for you. “You are only 29 years old and a lot of life to live! Congratulations on what you have accomplished so far. I have been in practice for 36 years and I have not yet met anyone who has saved too much money. You do well with your short-term savings and emergency fund. ”

“I think a moderate allocation can make sense for your investment account. That way, you do not take too much risk by being aggressive or not earning an adequate return by being conservative,” he says, adding, “If the new job offers an HSA -qualified medical plan, take advantage of HSA (Heath Savings Account). This is a great way to save money for your future medical needs on a tax-free basis. “

High cost of living

It’s not easy to live in California because of the cost of living and high house prices, and it’s not easy to look at what other people have – and don’t have. Inequality in the state has increased over the past decade. California’s economy surpasses most states, but its level of income inequality exceeds all but 5 states, according to the Public Policy Institute of California, a nonprofit based in San Francisco.

“Families at the top of California’s income distribution have 12.3 times the income of bottom families – $ 262,000 versus $ 21,000 for the 90th and 10th percentiles, respectively, in 2018 – measured before taxes and safety net programs,” the PPIC said in a report that was released last year. “Inequality exists throughout the state. The policies of the current government significantly reduce the gap between rich and poor.”

This is important because (a) that gap must be closed to help more people achieve a higher quality of life, (b) you are not alone and (c) while you may have less than the richest in the state, you also have more than many people. You have already achieved so much, and your ability to save will help you against that down payment. Since many New Yorkers and Angelenos burn money on rent, it’s smart to live with your mother. (Besides, she will not stay forever.)

Most people have not reached their maximum income strength at 29. They have not actually come close to that. When you are 20, fully fund your retirement account, pay off student debt, make sure you have an emergency fund of 3 to 6 months of expenses, and track your monthly expenses. You do all this – on your own – and may even exceed your income.

You do not know what is around the corner. The economy is growing in cycles and you can – in 5 or 10 years from now – find yourself in a position to gain a foothold on the real estate ladder in California or elsewhere. Your life will only get bigger and have new experiences. You may end up in California, or you may not. There is so much in front of you, and you are preparing for the unknown.

When it comes to your pension investments, do not underestimate the miracle of compound interest. You make money on your initial investment and money on your investment return. This is the profit from the reinvested interest rate. It takes time, but the only thing you have on your side – something that unfortunately many do not have who are considering home ownership and retirement – is time.

The older you get, the more years are behind you, and the faster the ride. It is also wise to use some of your expenses to travel and see other parts of the country and eventually other parts of the world. It will inspire and change you. Keep doing what you are doing. It will be worth it. You will notice that I also changed your sobriquet. You have zero debt. In 2022, it is no small feat.

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