‘My friends and family say I’m rich.’ I am 26 and make $100,000 a year living in St. Louis, where I pay $850 in rent. But I can’t afford to buy a home, and lose money when I invest. Would it be smart to hire a financial advisor?

Do you need a financial advisor if you feel overwhelmed with money?

Getty Images/iStockphoto

Questions: I am a 26 year old pharmacist making approximately $100,000 a year – take home pay is approximately $5600 a month – living in St. Louis. I contribute 4% to my employer’s 401l(k), which is the maximum match. I currently have about $25,000 in my savings account for emergency funds. My rent is $850/month which I shared with my boyfriend and I don’t have a car payment or credit card debt. But I graduated with $148,000 in total student loans at an average interest rate of about 5-6% (still in the interest free period though). I have been paying $4,000 a month since graduating to bring the total down to $113,000 currently. I want to start saving for a down payment on a house, so I recently reduced my student loan payment down to $2,000/month and have been putting $1,000/month into a taxable investment account and $500/month into a Roth IRA since the middle of ​​March 2022. But with the recent problems in the stock market, I have already lost some money.

I feel like the economy is going down and the housing market is in trouble so I’m wondering if I’m doing things right? Should I keep renting instead of worrying about saving for a home at this point and just keep putting $4,000 a month in loans until they are gone? Most of my friends and family say I’m “rich” because I make six figures, but I don’t feel that way considering all the debt and no money saved for a home. (Looking to hire a financial advisor? You can use this tool to be matched with an advisor who might meet your needs.)

Reply: It sounds like you’re feeling stressed about money and questioning your decisions, so we asked financial advisors and money professionals what you’re doing right and what you might want to change. And then we dive into whether it is a good idea for you to consider a financial advisor to help you.

First things first, though: The reason things can feel tight is because you’re a strong saver, and for that you deserve to be praised. However, it is important to prioritize, especially around your personal goals.

“I would base your savings rate toward a home and how much you can temporarily divert from student loan debt to a home on how much you think the home will cost,” says Joe Favorito, certified financial planner at Landmark Wealth Management. So that might mean if you think it will cost $500,000 to buy the home you want, you might want to put at least 20% down to avoid mortgage insurance, which means you’ll need to save around $100,000 over your emergency fund. That’s about $2,777 a month for three years with no earnings. “Then you’ll have at least six months of extra emergency funds based on what your living expenses will be once you own a home, including taxes, insurance, utilities and food,” says Favorito. In the end, it may pay off temporarily to divert some of the student loan money, but as your income grows, you can always pay extra principal, says Favorito. “Once you’ve secured a payout, target at least 10% of your gross income to retirement accounts on a consistent basis,” says Favorito. (Of course, always pay the minimum amount owed when student loan payments resume.)

Do you have questions for your financial advisor or do you want to hire a new one? Email your questions to picks@marketwatch.com.

But should you save for a house at all? Well, it depends. It can feel difficult to prioritize securing a long-term home, and a home is not always the best investment, partly because of the transport costs over time. It also might not be the right move for someone who might want to move soon or someone who doesn’t want to deal with maintaining a home. But there are also plenty of reasons to buy: “While renting is something that might allow you to live with a positive cash flow, if your goal is to get married and start a family, a home is a much more practical solution ,” says Favorito. “Once you have a fixed mortgage in place and your income grows over time, you’ll be able to meet some of the other savings and debt reduction goals.” That said, any money saved for a home should be invested in cash-like investments like money markets, CDs, or ultra-short-term bond funds, not in anything that would introduce volatility unless your home purchase is a number of years down the road. .

And you might want to look at paying off your student loan like this: It’s pretty much like buying an investment with a guaranteed return equal to the interest rate, because they would each have roughly the same impact on your cash flow, says certified financial planner Eric Figueroa of Hesperian Wealth. “I can’t predict the future, but high and rising inflation, high stock market valuations, negative stock market momentum, rising recession risk and rising interest rates seem to confirm your suspicion that the outlook for stock and bond returns is poor.” Figueroa says. Some pros say this may mean it might be a better idea to focus on paying down student loan debt rather than bolstering retirement savings beyond what you’re already doing (the match is worth getting, after all). That said, it’s not a universal position. What’s more, with such a positive cash flow, it may be worth considering refinancing your student loans.

Do you want to hire a financial advisor? You can use this tool to be matched with an advisor who may meet your needs.

Also, while interest rates are still frozen on student loans, this may be the perfect time to maintain your regular payment because it will all come out of the principal, some experts say. “If you can afford it, this is the only time you can eat for the principal [soley] by simply making your regular payment, which will accelerate your savings,” says Figueroa.

It’s also important to understand that when you’re invested in the market, you’ll suffer losses at some point, and at your age, your retirement accounts should have a growth orientation. “This means a broadly diversified allocation of at least 70% on the stock market. Don’t let market volatility scare you as it relates to long-term investing in things like your 401(k) and Roth IRAs, markets are very unpredictable in the short term, but statistically pretty consistent in the long term,” says Favorito. And while it’s difficult to do, Figueroa says, is to try your best to ignore your Roth IRA’s performance until you need it decades from now. “Just keep investing in long-term assets regularly over time. You don’t need the money right away for now, put the money to work,” says Figueroa.

Should you hire a financial advisor to help you?

Maybe. Pros says that in your case, a flat-fee advisor (some advisors charge a flat annual reimbursement fee that’s generally in the $2,000 to $7,500 range) or an hourly advisor (hourly rates are often around $200-$400 an hour) might be a good bet. These types of advisors can guide you through volatility, present your spending and savings priorities in a coherent way, and develop a financial plan you can follow. (Looking to hire a financial advisor? You can use this tool to be matched with an advisor who might meet your needs.)

“An hourly or retainer-based advisor can help you set up your savings plan and put your strategy in place on a more project basis. A retainer-fee advisor can help you set up your plan and help with ongoing monitoring and management,” says Zack Hubbard of Greenspring Advisors Here’s what an hourly financial advisor might cost, and here’s the question you should ask any advisor you might want to hire.

In the end, it’s up to you. Some investors love the help of a professional, especially in times of market volatility or when they have many competing financial demands, even if it will cost you. And some find that they can do it alone. Here’s what to ask an advisor you might want to hire.

  • Question edited for brevity and clarity

Do you have questions for your financial advisor or do you want to hire a new one? Email your questions to picks@marketwatch.com.

The advice, recommendations or rankings in this article are those of MarketWatch Picks and have not been reviewed or endorsed by our commercial partners.

Leave a Reply

Your email address will not be published. Required fields are marked *