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Post: The Moneyist: I am 29 and live with my mother in a rented mobile home in California. I have a $25K emergency fund and $26K in a Roth IRA. What should I save for next?

Dear Quentin,

I am doing OK financially as a single 29-year-old who unfortunately is still roommates with my mom. We split everything down the middle and I mainly stay with her since it is very expensive to live on your own in my city, and it also helps relieve a lot of financial stress on my mom and me.

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

I have an emergency fund of $25,000 in a high-yield savings account. I have $26,000 in a Roth IRA (my employer doesn’t offer any retirement benefits), $6,000 in my robo-adviser investment account, $4,000 in a savings account, and $1,300 in my checking.

I made it a priority to pay off my car in two years, and to save a hefty emergency fund because you honestly never know what could happen, and I don’t plan to learn the hard way. But now that those goals are met I really don’t know what to save up for next. 

My main aim is to have a net worth of at least $100,000 as I always read how that’s a good number to meet, and I am concerned since I am behind in retirement funds, so I opened a robo-advisor account specifically for retirement purposes.

‘I’ll probably be saving for eternity to come up with a decent down payment for a home in California. But rents also keep rising.’

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

As I have no boyfriend, fiancé, husband or kids, I know I have a little bit more freedom but honestly, Quentin, what should I save up for? The $4,000 in my savings account is fun money, but whatever I take out, I replace it so it’s never drained.

Once I hit that goal of having a net worth of $100,000, I just don’t know what to save for next? A house? I’ll probably be saving for eternity to come up with a decent down payment for a home in California. But rents also keep rising.

I am planning to seek a new job working for the county that offers higher pay, a possible pension and benefits, specifically a retirement plan, so I am expecting to still live below my means with even more cash left over. But I’m just clueless what to do with it.

Mobile Home Girl

Dear Debt-Free Girl,

The absence of expectations you refer to in your letter are like tiny invisible ropes made handcrafted in Lilliput that hold us back. We barely feel them tugging at us because we don’t always know they’re there. We get up every morning and go through our life, not quite comfortable in the belief that that job is not for us, or that graduate degree, or even that house.

But from what you have told me about setting up your own Roth IRA, emergency fund and high-yield savings account, you have plenty of expectations. Owning your own home is out of reach for you at this moment, but I believe it can be on your journey if you keep doing what you’re doing: thinking ahead, saving and planning to gradually work your way up to a job that has better pay and, ideally, a 401(k) with an employer match.

I asked David K. Golbahar, a director at global consultancy J.S. Held in Los Angeles, Calif. about your situation. “Unfortunately, she’s hanging on to cash a terrible time. I first suggest I bonds with the U.S. Treasury that are currently inflation adjusted. The minimum holding period is 5 years, but it makes sense in her position. I’d diversify her holdings with some of those bonds.”

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

Larry Pon, a financial planner based in Redwood City, Calif., has great 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 yet to meet someone who has saved too much money. You are doing great on your short-term savings and emergency fund.”

“I think a moderate allocation may make sense for your investment account. This way you are not taking too much risk by being aggressive or not earning adequate returns by being conservative,” he says, adding, “If the new job offers an HSA Qualified Medical Plan, take advantage of the 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 due to the cost of living and soaring 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 outperforms 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 the income distribution in California have 12.3 times the income of families at the bottom — $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 released last year. “The disparity is present throughout the state. Current government policies substantially narrow the gap between rich and poor.”

This is important because (a) that gap needs to 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 wealthiest in the state, you also have more than many people. You have achieved so much already, and your ability to save helps you toward that downpayment. As many New Yorkers and Angelenos burn money on rent, the fact that you live with your mother is smart. (Plus, she won’t be around forever.)

Most people have not reached their peak earning power at 29. Indeed, they have not come close to it. In your 20s, fully fund your retirement account, pay down student debt, make sure you have an emergency fund of 3 to 6 months of expenses, and track your monthly expenditures. You are doing all of that — off your own back — and possibly even outperforming relative to your income. 

You don’t know what’s around the corner. The economy grows in cycles and you may — in 5 or 10 years from now — find yourself in a position to get a foot on the property ladder in California or elsewhere. Your life will only get bigger and have new experiences. You may end up living in California, or you may not. There is so much ahead for you, and you are preparing for that unknown.

As for your retirement investments, don’t underestimate the miracle of compound interest. You earn money on your initial investment, and money on your investment’s return. That’s the gain from the reinvested interest. It takes time, but the one thing you have on your side — something that unfortunately many people don’t have who are thinking about home ownership and retirement — is time. 

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

Check out the Moneyist private Facebook group, where we look for answers to life’s thorniest money issues. Readers write in to me with all sorts of dilemmas. Post your questions, tell me what you want to know more about, or weigh in on the latest Moneyist columns.

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