To give some quick context, I am 23 and have been working full time since graduating last May. A rough idea of my budget is as follows:
| Gross Pay | 8600/month |
|---|---|
| 401k | 2040 |
| HSA | 350 |
| Insurance Cost | 60 |
| Take Home Pay | 4600 |
| Rent + Utilities | 1500 |
| Insurance (car/renters) | 100 |
| Groceries/Food | 250 |
| Phone/Gas/Other | 250 |
| Roth IRA | 625 |
| Leftover (Savings) | ~2000 |
I live in a fairly LCOL area so bills are quite low, I don't have any debt, and my emergency fund is sitting around 40k (I'd like to maybe move half of this somewhere more productive?). I don't plan on buying a house anytime soon, and my only major expense coming up could be a cooler car but this is necessary at all, I just like cars.
Main question for yall is what the best use of this extra savings would be. Should it just go to a traditional brokerage, real estate, or anything else I should keep in mind? I'm aware if I maintain this my whole career I'd retire with more than I could possibly spend, so I'm not opposed to using this for some benefit now but I'm not completely sure what the best approach would be.
What to do with extra savings each month?
byu/Forsaken_Mortgage_15 inpersonalfinance
Posted by Forsaken_Mortgage_15
11 Comments
Sounds like you are asking about a framework for what to do with money.
Start with reviewing the Prime Directive in the PF Wiki. It will answer your question and many other questions you didn’t realize you should be asking.
* https://www.reddit.com//r/personalfinance/wiki/commontopics
Start here: https://www.reddit.com/r/personalfinance/wiki/commontopics.
Damn bro you’re basically winning at 23, that’s wild
For the extra 2k I’d probably just dump most of it into a taxable brokerage with index funds – boring but it works. Maybe keep like 500 for the car fund if you’re actually gonna pull the trigger on something fun
Also yeah definitely move like 20k of that emergency fund into investments, 40k is way overkill unless you’re planning for the apocalypse
Linked below is the FOO by the money guy. It basically goes through where your next dollar of savings should go. For what to invest in would be simple index fund, the easiest would be to use a target date retirement fund, if you want to create your own portfolio the boglehead 3 fund portfolio is great, you can learn about that on the boglehead wiki, it is a great resource.
https://moneyguy.com/guide/foo/
Start sinking $400/mo into a car fund, basically a car payment where you earn interest on it, not the bank. If you’re using a budgeting app, that’s trivial to do. If not, a lot of online banks will offer “buckets” for things like that. If yours doesn’t, then idk just write it down somewhere. If there are other big expenses that you expect in the next 5 years or so, do the same for them. I’ve got a vacation fund that fills up and then gets spent down, but my spouse and I like to travel.
Make sure your emergency savings are in a HYSA with decent interest (3% or more).
After that, brokerage is optimal.
Save a little spend a little. Nice work!
Put some of it in a Roth IRA. Use some to travel. Travel is much harder and a different experience once you have kids.
I’d focus on a down payment for a house. The more you put down, the lower your mortgage.
If your 401k or IRA is maxed out put remainder in a Vanguard fund like total stock market.
Put your emergency fund in a Vanguard cash money market account. Keep it at 6 months of expenses or more.
Wow, six figures at 23yo in a LCOL area is impressive. What do you do and what’s your educational background?
My wife and I focused hard on getting a house downpayment saved up as fast as possible early in our careers. It was the best financial decision we ever made.
You’re absolutely killing it —
My first thought/what I see missing — a Roth IRA — *especially* if you say you don’t have any near-term desire to houseshop. And even if you do? No reason you can’t do both.
Based on what you say — you’re eligible to open an *Individual* Roth IRA on top of your existing (employer, I’m assuming) 401k.
The limit is $7k for 2025 – under 50…. $7.5k for 2026 — but you can actually open the account and essentially still make 2025 contributions until tax day.
Especially at age 23? Yowza… you don’t need to any kind of FIRE person or whatever — fully funding a max Roth at 23 (and 24 and…).
***Do*** keep in mind – it will be money you cannot get at for a long time, so do consider whether your plans may change… Later/as the years progress – and your income changes – there are eligibility limits.
But for now?
You can still open a Roth IRA (Fidelity, Schwab, Vanguard – or even avail yourself of fintechs like Wealthfront/Betterment/et al). You have until April 15 to contribute up to $7k into it and have it technically count as a 2025 contribution (there are no real tax implications, as you’d be contributing money already taxed). The max changed to $7.5k in 2026 — so you could even hit the 2025 and 2026 max just out of the EF (if you’re comfortable with it going down to 25.5K), but you’ve got until *next tax day* (April 15, 2027) to do the 2026 max.
No costs to sweat – all the platforms *will* offer you robo-managed options, but at your age? You could also just toss it all at an S&P 500 ETF and not touch it.
But yowza — I gotta tell you. If I had a time machine to tell 23 yo me to do this? Now at 52? Maxing a Roth at 23 (and 24)? I’d be writing this from a villa in Santa Monaco.