what to do with 2nd job money?

Question

I just started a 2nd job at night to earn exta money. I want to use the best vehicle for not paying crazy taxes and making it work for me. These are 2 things I thought of: (1. use 2nd job money to supplement living and increase 401 contribution to 1st job, (2. use 2nd job funds for some kinda of investment. what is best thinng to do financialy? Just a FYI, I have 0 debt (took 5 hard years to reach that milestone)

Answer 1

put it all in a roth ira!!!

Answer 2

I would Increase the 401k to reduce the tax burden. If you could max out your 401k do that.
Some people on here will tell you to invest up to the company match and put the rest into a Roth IRA. Roth's are good, but let me run this calculation past you.
Assume you make 50,000 per year in your full-time job and 15,000 per year in your night job.

65000 total
Lets say your employer matches 25% at 6% of your income. $3000 + $750
Max Roth IRA is $5k next year.
So you could put a total of $8750 away using most common thinking.
Lets say you do that for 20 years then retire. (totally hypothectical bare with me)
You would have $313k tax defered (in your 401k) 12%ror
and would have $417k tax free (in Roth IRA) 12% ror

Unfortunately you would be living off off roughly $42,160 because your additional income would be taxed heavily 32% out of (65000 - 3000) *.68 = $42,160

However if increase your 401k to $10,750 (7,000 increase) per year for 20yrs
You would have $900,000 tax defered (in 401k)
Income would be taxed lower probably 26%
So $58000 * .74 = $42900

Granted this doesn't take into account tax deductions and what not, but you get the point

Roughly the same income level, yet you end up with $200k more money in 20yrs. That is even more dramatic if you take that out 10 more years. The point is this, you don't know what the government will do in the future, they may require taxes on all gains of a Roth IRA. All I know is i can still control what taxes I pay on my 401k by how i draw it when i retire.

Do the math, increase the 401k and live a little.

Answer 3

Ultimately, your taxes are based on total income - it doesn't matter how much comes from which job. However, increasing you 401(k) contribution is an excellent way to lessen your current tax bite, not to mention investing for the future. If you can save beyond that, consider either a Roth IRA or tax-efficient mutual funds if investing in "taxable" vehicles.

Answer 4

Congratulations to being out of debt! That's the biggest step to financial freedom. If you don't need any of that 2nd job money to live on, stash it all away.

Where to stash it depends on how much risk you want to take. If you are risk adverse, start one of those online savings accounts that guarantee almost 5% growth. If you feel like taking more risk and want a greater return on your money start a brokerage account and build a portfolio of individual stocks. You can do this yourself, or hire a broker who will put together a portfoloio for you.

Another thing to consider is if you do not already own your own house, real estate is always a good investment. Now is the perfect time to buy.

Answer 5

Well first thing I was gonna say was pay off debt, but you've done that - great!

I'd probably do #1 - live a little better, but contribute more to my 401k. You may even consider opening a Roth IRA once you meet your employer match on the 401k.

But the way I look at it is I want as much retirement money as possible - cause that allows me to retire earlier. I'll live poor now and retire earlier - that would make me happy.

Answer 6

Congratulations on the zero debt! That's amazing in this day and age.

Unless you're saving for a particular goal, like a house, I'd max out the 401K contribution, and then look hard at an IRA of some sort. You'd have to decide if a traditional or Roth makes more sense for your case. Once you have those covered, it's time to do something fun with what's left. Maybe travel, or a boat, or a motorcycle?

Answer 7

It sounds to me that your answer is to continue looking for work. You always want to be self sufficient and avoid public handouts when you can. In all seriousness, I would try to get a job in a restaurant so you can bag some uneaten food people leave on plates. That's what I did when I was young and penniless while traveling in Europe. There is nothing wrong with partially eaten food when you are starving. Just ask any German who survived WW2.

Answer 8

The first option is the best. Because the match (I assume your company does) up from your company is the best "free" money, and it can lower your income bracket..especially your 2nd job had push you to a higher bracket (most likely), so lower your income bracket by contribute to your 401K, and earn that match up from your company (no bank account interest rate is going to match that amount you get from company match up). I am sure you can stil live within your means since you have beem doing so well (0 debts). Congrats on meeting this milestone!!! That is awesome and I am really happy for you. =)

Answer 9

You should invest it somehow. A IRA or Roth IRA would be great. Thats awesome that you don't have any debt. Just start investing and one day you'll be living a great life.

Answer 10

Either start an IRA or invest in the markets through a broker like Scottrade. I only put money into my 401K to get the match, I don't put any more money in over the match a company provides. Good luck!