Best way to plan for your future as a young adult?

MSI Magus

MSI Magus

CAGiversary!
Feedback
83 (100%)
Me and my fiancee have been struggling for the last few years. As young adults its often hard to make your first steps, but to boot im disabled and live off of SSI making our finances tighter then most peoples. However she just got a $4 an hour raise and is now making a little under $30,000 a year(pre tax). Its not alot to must people but given that we have adjusted to living off less then half that(plus my meager $6k a year which atleast pays our bills minus the rent) for a few years it leaves us with alot of extra cash in our budget. Its tempting to spend it like alot of people, and some will be spent on allowing ourselves things like a new game here and there vs always waiting for price drops. We want to be smart overall though and plan for our future. However im not sure of the best method to go about doing this. Iv thought about an IRA, iv thought about just paying off our car as fast as possible(its several years old yet we owe like 6.5k) and iv thought about putting it in a CD.

Iv got no clue whats best for us. So now im wondering who is the best person to talk to? A financial adviser? If so are they expensive? A bank? Who? Any advice anyone has for us either on whom to speak to or from their own personal experience we appreciate it.
 
You should probably talk to a financial advisor and see what they recommend.

At the bottom line, if you have the option to get into a 401k, do that. Its the best way to get into a savings plan and the best part is that it is pre-tax. You also need to understand that you need to start saving now. Due to the miracles of compounding interest, every year you don't save will really hurt you in the long run.

A Roth IRA is good thing to do as well, but my financial advisor says that I should max my 401k before starting one of those. He also says typically that you should stay in mutual funds until you have about 50k saved up. After that, he recommends moving into individual stocks. Either way, see if you can find someone to talk to. If their first question is "How much do you have to start", then try to find someone else.

TBW
 
Maybe start with a good financial book, either goto the library (free!) or buy it used off Amazon.

I liked Ric Edelman's book, it is pretty straightforward.

I don't know you'll have cash for mutual funds but it's always a good idea to start an IRA if you can afford to.

Of course I don't know your conditions but maybe your local unemployment office has some job opportunities tailored to your situation?

Best of luck man, it's always smart to think about these things young!
 
*clicks the link in OP's sig*

...

*walks out of thread*
 
i think you should invest heavily in rare video games, especially RPGs, as long as there arent misprints youll be rich. think about if you bought 2000 suikoden 2s 10 years ago, that would be like a 60000 dollar investment or so, but today, you would have over 200,000 dollars!!!
 
I have a good suggestion that I wish I would have done when I was starting out. Make two accounts, and put a comfortably small amount of money (maybe $100 a month) into each and watch it grow. Earmark one as a retirement account that you don't touch (maybe as an IRA or something), and use the other account as a place for you to dip into whenever you want a luxury item (a huge HDTV) or some fun (like a nice vacation). The latter account doesn't have to "replace" anything if you don't want it to (so, for example, you can still take whatever "normal" vacation you do now, but if you want to take a really nice overseas vacation then you wait until there's enough in that fund). The secret is to not touch the first account and be disciplined enough to wait for the second account before you buy something extravagant (thus avoiding debt to get it).
 
Some good advice so far in the thread (and some bad). I'll just recommend one thing for now. Pay off any debt you may have first. That means that auto loan but also any credit card debts. There's no sense earning 5% interest in a CD if you're paying 15% in a credit card. Once you pay off the car don't give in to the temptation of trading it in for something newer. Keep driving it until it falls apart like I plan on doing with my car. Just by doing this you can save thousands of dollars.
 
[quote name='soonersfan60']I have a good suggestion that I wish I would have done when I was starting out. Make two accounts, and put a comfortably small amount of money (maybe $100 a month) into each and watch it grow. Earmark one as a retirement account that you don't touch (maybe as an IRA or something), and use the other account as a place for you to dip into whenever you want a luxury item (a huge HDTV) or some fun (like a nice vacation). The latter account doesn't have to "replace" anything if you don't want it to (so, for example, you can still take whatever "normal" vacation you do now, but if you want to take a really nice overseas vacation then you wait until there's enough in that fund). The secret is to not touch the first account and be disciplined enough to wait for the second account before you buy something extravagant (thus avoiding debt to get it).[/quote]

I do this and I call it a 'me' tax. Basically, I tax myself for the privilege of existing. This is a great way to reward yourself for taxation. Also, to expand on this concept, learn to 'pay it forward'. This is a highly invaluable tip on saving now for future spending, especially on big ticket items such as a car or house. And once you've grasped the concept of the 'me' tax, automate it. Have that 'me' tax money directly deposited into that separate account. That way, like that one late night infomercial about some special roaster oven thing, you can "set it, then forget it". By forget it, I mean not to even look at it except at a certain time of year (maybe annually or biannually). You'll be surprised at how much it's accumulated after one year. Also, if possible, make sure the account is interest-bearing for the extra added goodness.

In addition to that, you've definitely got to max your 401k as well as filling in the Roth but don't be afraid to dip your foot in individual stocks (especially if you're young since you have time to recover from any volatility). Mutual funds are good for older people as they don't have as much time to recover from any volatility in the market but people in their late teens, early 20s have the benefit of youth to handle a more aggressive portfolio.

There are a lot of resources out there such as Investopedia. You'll then realize that everything has risk, not just stocks & that informed decision-making is the key to minimizing risk. Also read The Warren Buffett Way by Robert Hagstrom. This will go a bit more in-depth in the strategies you should learn in order invest in stocks. Then read The Intelligent Investor by Benjamin Graham (a mentor of Warren Buffett). This will give you insight in 'value investing'. This principle can be applied to other investments other than stocks such as commodities, real estate, etc.

If you have any ideas that solve a small problem or improves a process, write it down before it fades out of your mind and then review/evaluate it to see if you can make money out of it, If you think you can do something w/ it, try & see if someone hasn't patented it yet and apply for a patent.

Also, if possible w/ any employable job skills you have, start a small business, preferably an LLC due to its limitation of lawsuits (invaluable in the sue-crazy US). You'll get a ton more tax deductions than you would personally as well as learning skills in managing a company.
 
Thanks for all the advice everyone. Seems like its along the lines of what I thought but that leaves me with one big question. Should I even bother talking to a finacial advisor before paying off the car? Its sounding like the best thing to do is probally to buckle down and pay off the car(well after we pay off the credit card from christmas expenses)and once its payed off its a big 8% interest burden hanging over our head gone and $200 a month additional investment money. After that start paying into an IRA and consider stocks based on what my advisor tells me.
 
Hm, I just got my first apartment and I'm sure glad that I don't have car payments. I've had my car since 2001 and paid $3000 cash then for a used car and it works fine today (1994 model, though so not the latest and greatest.)

I'm vested in my company's 401k and I'm looking to spend a little extra cash I have in investing in stocks and bonds. I have a vague idea but I'm gathering advice from others before venturing out and doing that, especially with news of a potentially impending recession later this year if the housing market doesn't rebound.
 
Well if you have any credit card bills or other high interest debt, you should pay those off first. Otherwise, put it into an IRA. The biggest mistake people make is not saving for retirement. No only does putting it in an IRA allow it to grow tax free, you can also deduct your contributions from your taxable income.
 
If your car loan is at 8%, then yeah I'd probably pay that off. You could also look at switching the loan to a credit union and see if you'd get a better rate. (Are you financed through the dealer now?) No idea if you can do better than that currently.

But if you are consulting with an advisor he/she should be able to help you figure out if paying down the car loan is the best move or not. Just ask.

For long term money it should be in the stock market IMO. If you can start investing young it's just going to have that much longer to grow.

You can do it all yourself but if you have doubts a financial advisor is a great idea. Just be careful with how they make their money. If they are paid on each buy/sale they do for you it could encourage them to just churn your money which eats you up on commisions. I'm also not sure if finding an advisor to help with small amounts of money is tough, I guess you'll just have to ask around?

If you want to do some reading on your own check the Tutorials at investopedia.com

IMO you could do a lot worse than simply opening an IRA and putting the lion's hare in a S&P 500 index fund.

One general tip is to not stress over losses in the market. It happens and if you sell on the dip you'll often end up just buying again after it rebounds and that really kills you.
 
[quote name='wubb']If your car loan is at 8%, then yeah I'd probably pay that off. You could also look at switching the loan to a credit union and see if you'd get a better rate. (Are you financed through the dealer now?) No idea if you can do better than that currently.

But if you are consulting with an advisor he/she should be able to help you figure out if paying down the car loan is the best move or not. Just ask.

For long term money it should be in the stock market IMO. If you can start investing young it's just going to have that much longer to grow.

You can do it all yourself but if you have doubts a financial advisor is a great idea. Just be careful with how they make their money. If they are paid on each buy/sale they do for you it could encourage them to just churn your money which eats you up on commisions. I'm also not sure if finding an advisor to help with small amounts of money is tough, I guess you'll just have to ask around?


IMO you could do a lot worse than simply opening an IRA and putting the lion's hare in a S&P 500 index fund.

One general tip is to not stress over losses in the market. It happens and if you sell on the dip you'll often end up just buying again after it rebounds and that really kills you.[/QUOTE]

Ya my fiancees parents REALLY didnt help her when she got her car loan. They got her paying the lowest amount possible instead of the lowest rate possible....meaning that even though the car is several years old and she bought it new....she still owes a bit over 5k on it(she corrected me this mourning). And I belive our interest rate is around 8%. Its not financed through the dealer but through her credit union. So ya its a big problem and I guess thats the first thing we will do is pay off the car then drive it till we cant drive it anymore and try to have the money saved up to pay the next car in cash. After we have that taken care of hopefully we can really start investing in an IRA and stock. But regardless ill talk to a financial adviser soon here.

Question on stock though. Why are so many of you still so in favor of it? It would seem with globalization and the downturn of the American economy and rapid shifting of the worlds structure at the moment avoiding the stock market is probally a pretty decent idea.

Edit - and to add something that should help us besides her $30k a year and my $6k she has been added to her companies quartly bonus list. This means every 3 months she will receive a bonus between $250-$400. Nice little chunk of change that we are trying to treat as a forget it exists till it comes kind of thing that way we dont plan our spending around it. That money could easily be tranistioned into bonus investment money. Hopefully too she gets hired in soon(shes just a temp right now)if she does it means another $2 a month, free health insurance and her bonus goes to $500.
 
Well you don't have to invest in just the US stock market. It's very easy to buy foreign stock or index funds or index ETFs that track foreign indexes. As a beginner it's probably best to stick to U.S. blue chip stuff or developed foreign markets (Europe, etc.)

Now I think it would be strange to put all of your money in foreign stock, but having a percentage there is certainly fine. But I don't think I'd make my first holding foreign stock.

I mean you can even use the stock market to invest in real estate (sort of) by buying REITs. Or commodities (Gold, Silver, etc.) although I'd personally stay away from that unless you are going to really dig into it.

Even with paying down the car, it's probably a good idea to start a retirement fund now if you can swing it. Play with some of the investment calculators on the net and you'll see that time is a major factor in how large a nest egg can grow.

You could open a retirement fund with a mutual fund company that lets you make periodic purchases with no commision charge. (Many will do this I believe.) Then set it up so $50 or whatever is slapped in there each month. Just a thought.
 
[quote name='MSI Magus']Ya my fiancees parents REALLY didnt help her when she got her car loan. They got her paying the lowest amount possible instead of the lowest rate possible....meaning that even though the car is several years old and she bought it new....she still owes a bit over 5k on it(she corrected me this mourning). And I belive our interest rate is around 8%. Its not financed through the dealer but through her credit union. So ya its a big problem and I guess thats the first thing we will do is pay off the car then drive it till we cant drive it anymore and try to have the money saved up to pay the next car in cash. After we have that taken care of hopefully we can really start investing in an IRA and stock. But regardless ill talk to a financial adviser soon here.

Question on stock though. Why are so many of you still so in favor of it? It would seem with globalization and the downturn of the American economy and rapid shifting of the worlds structure at the moment avoiding the stock market is probally a pretty decent idea.[/quote]

Picking individual stocks is notoriously risky (just ask a guy who invested in WorldCom ;) ), diversified mutual funds are a much safer bet.

IMO your focus, in order, should be
1. Get rid of debt
2. Invest in IRA
3. Invest in some some diversified mutual funds
4. If you have any "play money" left over, research and invest in individual stocks.
 
[quote name='MSI Magus']Thanks for all the advice everyone. Seems like its along the lines of what I thought but that leaves me with one big question. Should I even bother talking to a finacial advisor before paying off the car? Its sounding like the best thing to do is probally to buckle down and pay off the car(well after we pay off the credit card from christmas expenses)and once its payed off its a big 8% interest burden hanging over our head gone and $200 a month additional investment money. After that start paying into an IRA and consider stocks based on what my advisor tells me.[/QUOTE]

First a couple questions to help figure out where you stand:

1. What is your and your fiancee's age range?
2. Wubb mentioned this. Have you considered refinancing the car? You may be able to get a much better rate (~5.9% by refinancing). If you're really good at keeping up with financing (payments and such) you can try floating your loan with a 0% balance transfer to a credit card. However, you have to make sure to keep up with on time payments so you don't get burned. Otherwise pay that sucker off as fast as possible.
3. Do you or fiancee have any credit card debt that you're carrying month to month?
4. Does your fiancee get company match for 401k? If so, see about having the minimum amount put in to get full company match.
5. Can you break down your monthly earnings and expenses? Seeing where your money goes and how much is left can help you put together a plan.

Stay FAR FAR away from stocks unless you know what you're doing. Most advisers are going to try to sell you on buying funds/stocks through them for exorbitant fees. Check into using Vanguard, Fidelity or some other brokerage to do your trades. Consider investing into no-load/low fee mutual funds. It's all about risk/reward. Mutual funds help spread the risk although they provide less of a reward. If you're thinking long-term investment, they're great option since you don't have to actively manage them like you may need to do with stocks.

Read some of the books mentioned earlier in this thread. Figure out what your goals are. Decide what level of risk you'll accept with your investments and then make your plan.

You've already started on the right path to savings by living frugally. Here's what I've done with my wife to assure our future:

1) Max out my retirement contribution.
2) Automatically deduct money from paycheck into dedicated accounts for car payment, house payment, etc... ING is great for this since you can open multiple accounts under one login to manage your money. Other online banks do it too.
3) Automatically deduct money from paycheck into dedicated savings
4) Resist the temptation to splurge on yourself with your savings. Instead, find other ways to make some "fun money" by doing surveys, selling stuff you don't need, etc... Heck, turn a hobby into a money making business and work from "home".
5) To help cut down on entertainment expenses, we borrow movies from the library (free!)

edit: Beaten to the punch of some of these points, but hopefully they help :)
 
[quote name='MSI Magus']Question on stock though. Why are so many of you still so in favor of it? It would seem with globalization and the downturn of the American economy and rapid shifting of the worlds structure at the moment avoiding the stock market is probally a pretty decent idea.[/quote]
You're looking at it wrong. The key to any investment is understanding and preparing for the fact that there will be downturns. The whole point of investing is to get a good return. Your goal is to make money regardless of whether the market is 'up' or 'down'. It really goes to the simple maxim of 'buy low, sell high'.

For example, most everyone had been abuzz about the real estate market till the bottom dropped early last year (though by my own projections, it was already down by mid-2k6). Now, I'd already owned a lot of properties before it happened and it was easy to sell a lot of my properties. Once I sensed the upcoming drop, I decided to close as quick as I could on all my pending deals and then wait. Now we've past the market hitting bottom, it's become a buyer's market and here I am, flush w/ the windfall of $$$ I'd made from selling all those properties previously. I could literally pick up some prime real estate (both domestic & foreign as the US real estate fiasco had ramifications as far as Europe) for pennies on the dollar.

Now, in the example above, I was able to make money both when the market was bullish & bearish. You've got to learn that the real money isn't in the highs & lows themselves, it's in the difference between those highs & lows. A stock example would be if you buy a stock at $15 and it closes 6 months later at $30, you've made a difference of $15 if you sell that single stock. Now say that same stock drops to $3 a share due to some (recoverable) scandal and you think it can come back to $30 in another 6 months, well that $15 is now capable of buying 5 shares of the same stock and you are then the owner of 5 stocks totalling $75. All that from a single $15 stock and some research which allows you to make informed investments. That's really a simple example and there are further nuances on stocks such as options that really go beyond the scope of this thread but that should hopefully help you get a little bit more insight into value investing.
 
Going with a no load/low fee mutual fund is a big key, definitely agree with bagel on that one.

I also love Vanguard, but their minimums are somewhat high, even for retirement funds.
 
Great post jaykrue, I'm going to use this for future references.
[quote name='jaykrue']I do this and I call it a 'me' tax. Basically, I tax myself for the privilege of existing. This is a great way to reward yourself for taxation. Also, to expand on this concept, learn to 'pay it forward'. This is a highly invaluable tip on saving now for future spending, especially on big ticket items such as a car or house. And once you've grasped the concept of the 'me' tax, automate it. Have that 'me' tax money directly deposited into that separate account. That way, like that one late night infomercial about some special roaster oven thing, you can "set it, then forget it". By forget it, I mean not to even look at it except at a certain time of year (maybe annually or biannually). You'll be surprised at how much it's accumulated after one year. Also, if possible, make sure the account is interest-bearing for the extra added goodness.

In addition to that, you've definitely got to max your 401k as well as filling in the Roth but don't be afraid to dip your foot in individual stocks (especially if you're young since you have time to recover from any volatility). Mutual funds are good for older people as they don't have as much time to recover from any volatility in the market but people in their late teens, early 20s have the benefit of youth to handle a more aggressive portfolio.

There are a lot of resources out there such as Investopedia. You'll then realize that everything has risk, not just stocks & that informed decision-making is the key to minimizing risk. Also read The Warren Buffett Way by Robert Hagstrom. This will go a bit more in-depth in the strategies you should learn in order invest in stocks. Then read The Intelligent Investor by Benjamin Graham (a mentor of Warren Buffett). This will give you insight in 'value investing'. This principle can be applied to other investments other than stocks such as commodities, real estate, etc.

If you have any ideas that solve a small problem or improves a process, write it down before it fades out of your mind and then review/evaluate it to see if you can make money out of it, If you think you can do something w/ it, try & see if someone hasn't patented it yet and apply for a patent.

Also, if possible w/ any employable job skills you have, start a small business, preferably an LLC due to its limitation of lawsuits (invaluable in the sue-crazy US). You'll get a ton more tax deductions than you would personally as well as learning skills in managing a company.[/quote]
 
[quote name='mzbagel']First a couple questions to help figure out where you stand:

1. What is your and your fiancee's age range?
2. Wubb mentioned this. Have you considered refinancing the car? You may be able to get a much better rate (~5.9% by refinancing). If you're really good at keeping up with financing (payments and such) you can try floating your loan with a 0% balance transfer to a credit card. However, you have to make sure to keep up with on time payments so you don't get burned. Otherwise pay that sucker off as fast as possible.
3. Do you or fiancee have any credit card debt that you're carrying month to month?
4. Does your fiancee get company match for 401k? If so, see about having the minimum amount put in to get full company match.
5. Can you break down your monthly earnings and expenses? Seeing where your money goes and how much is left can help you put together a plan.

Stay FAR FAR away from stocks unless you know what you're doing. Most advisers are going to try to sell you on buying funds/stocks through them for exorbitant fees. Check into using Vanguard, Fidelity or some other brokerage to do your trades. Consider investing into no-load/low fee mutual funds. It's all about risk/reward. Mutual funds help spread the risk although they provide less of a reward. If you're thinking long-term investment, they're great option since you don't have to actively manage them like you may need to do with stocks.

Read some of the books mentioned earlier in this thread. Figure out what your goals are. Decide what level of risk you'll accept with your investments and then make your plan.

You've already started on the right path to savings by living frugally. Here's what I've done with my wife to assure our future:

1) Max out my retirement contribution.
2) Automatically deduct money from paycheck into dedicated accounts for car payment, house payment, etc... ING is great for this since you can open multiple accounts under one login to manage your money. Other online banks do it too.
3) Automatically deduct money from paycheck into dedicated savings
4) Resist the temptation to splurge on yourself with your savings. Instead, find other ways to make some "fun money" by doing surveys, selling stuff you don't need, etc... Heck, turn a hobby into a money making business and work from "home".
5) To help cut down on entertainment expenses, we borrow movies from the library (free!)

edit: Beaten to the punch of some of these points, but hopefully they help :)[/QUOTE]

1. My fiancee just turned 23 and im 25.
2. Didn't think we would be able to do much. Guess we should go to the credit union and talk to them? Regardless paying this off is our second priority.
3. We didnt till last month. My fiancee works at a car factory that gives all their employees 2 weeks off....problem is that since she was a temp it wasnt paid time off. So between the expenses of christmas, having 2 weeks with no pay and $300 we had already had on the card from a medical emergency we have about $400 on one card and $800 on another. We plan on paying this off immediately and outside that we dont keep money on the card. We charge everything we buy to the card then pay it off at the end of the month to build credit.
4. If she gets hired in I believe she will....again though shes just a temp at the moment.

5. Outgoing expenses
-------------------------------------
$81 Health Insurance(should drop in about half next month since fiancee can now buy into the temp agency insurance)
$30 UofM for health emergency last year($250 left on total bill)
$50 a month to local hospital for health emergency several months ago(freaking $1,500 left on this)
$60-$80 a month to energy company(proud of myself for this one, neighbors pay $110-$150!)
$80 a month for our 2 cell phones
$100 for car insurance
$180 Car loan(again somewhere in the area of $5.5 k left on this loan and I belive about 8% interest)
$360 a month rent
$50 for cable internet
$20 for netflix
$15 for one credit card $30 for the other(though again we pay the most we can afford every month) owe about $1.3k I believe.

Earnings
------------------------------------------------------
Her earnings a month were about $250 a check....however she just got an extra 10-15 hours a week and a $4 an hour raise. We are hoping that after taxes this is going to equal out to an extra $750 a month.....but we need to wait to next week to make sure that her temp agency doesnt take an extra cut of her increase(they currently take $2 an hour from her so even though she made $12 it was like making $10)and that I figured tax info right. Again that means that my $630 was paying our bills or atleast most of them. Her money payed for gas for the car($30-$70 a month cept for holdidays and other events)and the rent. And we had $300-$600 left over a month depending on events and what not...we received food stamps but now that we are doing better I might get rid of those or will after we pay off our debt. Not ashamed to receive em, but if we dont need em so badly doesnt seem right taking them.

Two quick questions. What exactly is a mutual fund? Second where is the best place to go about the IRA? We were just going to go to our credit union(we received a flyer from them about IRAs the other day)because I thought all IRAs were the same.....but now reading at this site and yahoo answers were I posed the question, as well as from my own research im seeing all sorts of different IRAs listed.
 
You're probably going to open either a traditional or roth IRA. There are other types but they are for self employed people or some employers set up special types for their employees. (Somebody correct me if I'm wrong on this.)

Check the stuff on Investopedia for good info on your questions.

Basically a mutual fund is a big pool of money that a pro invests in a bunch of different stocks or other securities (bonds, etc.) It should have a prospectus that details it's goals. They are generally either actively managed (meaning somebody picks the stocks for the fund) or they simply track an index (meaning it mechanically maintains a certain % in all or a subset of key holdings of an index.)

From what I've read most actively managed funds don't really outperform the index they are trying to beat.
 
[quote name='wubb']You're probably going to open either a traditional or roth IRA. There are other types but they are for self employed people or some employers set up special types for their employees. (Somebody correct me if I'm wrong on this.)

Check the stuff on Investopedia for good info on your questions.

Basically a mutual fund is a big pool of money that a pro invests in a bunch of different stocks or other securities (bonds, etc.) It should have a prospectus that details it's goals. They are generally either actively managed (meaning somebody picks the stocks for the fund) or they simply track an index (meaning it mechanically maintains a certain % in all or a subset of key holdings of an index.)

From what I've read most actively managed funds don't really outperform the index they are trying to beat.[/QUOTE]

So what kind of growth does that offer and why are you guys so hot on them? I understand that they are less of a risk but is it still like playing the stock market where how much I make off them is an X factor and that I could even loose money on it? Or is it like an IRA where I am guranteed a certain rate of growth?

And why.....just went over the finances.....even after taxing 25% of her income(anyone know how to find out the rate we are taxed without having one of her checks on hand)paying all the bills off we had about a grand left over at the end of the month....know to most of you its probably not alot....but to us thats amazing and im feeling giddy as a school girl at our prospects.
 
A Mutual fund is a large fund which people pay money into, and then advisers adn investors working for that fund invest that money into various stocks, bonds, futures, whatever. It is basically a way for somone to invest in the stock market, keep their eggs more spread out in various baskets, and concede control of the money and decisionmaking to the fund managers.

OP it sounds to me like your money right now is best used paying off those high interests loans. One very very simple and easy rule to remember, which no planner or economist would ever debate, is to PAY OFF HIGHER INTEREST RATES FIRST. The higher the interest rate you're being charged, the higher a priority it should be for you to pay off.

I can pretty much gurantee you that you are way upside down in your car (you owe more than its worth). If that car craps out on you, you still owe that money, get that fucker paid off so the next time you need to finance a car, you don't have to tack on the 2-3k that you're upside down.)
 
[quote name='pittpizza']A Mutual fund is a large fund which people pay money into, and then advisers adn investors working for that fund invest that money into various stocks, bonds, futures, whatever. It is basically a way for somone to invest in the stock market, keep their eggs more spread out in various baskets, and concede control of the money and decisionmaking to the fund managers.

OP it sounds to me like your money right now is best used paying off those high interests loans. One very very simple and easy rule to remember, which no planner or economist would ever debate, is to PAY OFF HIGHER INTEREST RATES FIRST. The higher the interest rate you're being charged, the higher a priority it should be for you to pay off.

I can pretty much gurantee you that you are way upside down in your car (you owe more than its worth). If that car craps out on you, you still owe that money, get that fucker paid off so the next time you need to finance a car, you don't have to tack on the 2-3k that you're upside down.)[/QUOTE]

O I already know the car sitaution is jacked up. Its estimated value is only I believe about $3k and that was LAST year when I booked it so we owe almost twice the cars value at this point.
 
[quote name='MSI Magus']So what kind of growth does that offer and why are you guys so hot on them? I understand that they are less of a risk but is it still like playing the stock market where how much I make off them is an X factor and that I could even loose money on it? Or is it like an IRA where I am guranteed a certain rate of growth?

And why.....just went over the finances.....even after taxing 25% of her income(anyone know how to find out the rate we are taxed without having one of her checks on hand)paying all the bills off we had about a grand left over at the end of the month....know to most of you its probably not alot....but to us thats amazing and im feeling giddy as a school girl at our prospects.[/QUOTE]

They are less risk because they are diversified. One stock might drop 80% or grow 500%. A mutual fund that say tracks the S&P 500 is PROBABLY only going to swing less than 10-20% per year (or may very well be nearly flat) and through time should average a decent return. Now if the market takes a big downturn, then yes even a 'safe' stock mutual fund might drop a lot quickly.

And there are other funds that would have much higher volatility. A fund that invests in emerging markets (i.e. China/Africa/etc) or small cap tech companies, or name your own volatile niche.

An IRA is just a tax shelter for your account which would then invest in securities like stocks, mutual funds, bonds, etc. So to say an IRA is less risk or guaranteed growth is a bad statement. Now I know you said you got a flyer from the bank on IRAs so it could be they are advertising an IRA that would invest in bonds or CDs that would pretty much guarantee a level of growth. I guess you can have CDs in an IRA?

A CD or MMA is certainly less risk and nearly guaranteed growth. But the upside is much less than stock so if you invest $20K in an MMA for 20 years it's going to grow much less than the same amount in stock, assuming historical trends aren't completely out the window going forward.

If you can invest half of that $1K ($500) per month that's more than enough to work with.
 
[quote name='wubb']They are less risk because they are diversified. One stock might drop 80% or grow 500%. A mutual fund that say tracks the S&P 500 is PROBABLY only going to swing less than 10-20% per year (or may very well be nearly flat) and through time should average a decent return. Now if the market takes a big downturn, then yes even a 'safe' stock mutual fund might drop a lot quickly.

And there are other funds that would have much higher volatility. A fund that invests in emerging markets (i.e. China/Africa/etc) or small cap tech companies, or name your own volatile niche.

An IRA is just a tax shelter for your account which would then invest in securities like stocks, mutual funds, bonds, etc. So to say an IRA is less risk or guaranteed growth is a bad statement. Now I know you said you got a flyer from the bank on IRAs so it could be they are advertising an IRA that would invest in bonds or CDs that would pretty much guarantee a level of growth. I guess you can have CDs in an IRA?

A CD or MMA is certainly less risk and nearly guaranteed growth. But the upside is much less than stock so if you invest $20K in an MMA for 20 years it's going to grow much less than the same amount in stock, assuming historical trends aren't completely out the window going forward.

If you can invest half of that $1K ($500) per month that's more than enough to work with.[/QUOTE]

See part of what got me interested in IRAs was an article I read in newsweek or time magazine like 9 months or so ago. It was tips for a young person planning their future. Most of it was crap that I was already doing and any idiot should know like pack a lunch, drink coffe made at home instead of starbucks, pay off your credit card debt first. However there were other tips and one of the biggest was invest in an IRA. The articles author made it sound like a guranteed growth as have every other article I read since. For instance in his article he suggested putting something like $400 a month into the IRA and talked about how it grew at a rate of X every year and that if you started at age 25 by the time you were 65 there would be something like $500,000-$600,000 in it even though you only had to invest $200,000. Part of the reason i liked IRAs so much was because maybe it didnt offer the get rich aspect of stocks....but it offered safe comfortable living which is what iv trained myself to do...might not be flashy..but its safe and I love it.

Anyways....still seems like the best option. Ill stick to planning on paying off the CC and the car in the next few months then investing in an IRA, possibly a mutual fund and whatever else the FA suggests at the time.
 
If anybody has a way to make a lot of money very quickly in the stock market while still being a very very low risk investment can you please post a step by step process to accomplish this?

I'm looking for a (legal) extremely high reward investment with extremely low risk. Anybody? Anybody?
 
[quote name='MSI Magus']See part of what got me interested in IRAs was an article I read in newsweek or time magazine like 9 months or so ago. It was tips for a young person planning their future. Most of it was crap that I was already doing and any idiot should know like pack a lunch, drink coffe made at home instead of starbucks, pay off your credit card debt first. However there were other tips and one of the biggest was invest in an IRA. The articles author made it sound like a guranteed growth as have every other article I read since. For instance in his article he suggested putting something like $400 a month into the IRA and talked about how it grew at a rate of X every year and that if you started at age 25 by the time you were 65 there would be something like $500,000-$600,000 in it even though you only had to invest $200,000. Part of the reason i liked IRAs so much was because maybe it didnt offer the get rich aspect of stocks....but it offered safe comfortable living which is what iv trained myself to do...might not be flashy..but its safe and I love it.

Anyways....still seems like the best option. Ill stick to planning on paying off the CC and the car in the next few months then investing in an IRA, possibly a mutual fund and whatever else the FA suggests at the time.[/QUOTE]

Well probably what those articles are doing is assuming the stock market will continue to grow at historical rates.

So if you invest $400 per month and it does grow 8% per year on average than you'd have a big pile in 20 years. That is not a horrible assumption IMO.

But that does mean that if you look at it year by year you might see +5% | -15% | +8% | +30% | -7% etc etc and in the end it averages to about 8.
 
[quote name='pittpizza']If anybody has a way to make a lot of money very quickly in the stock market while still being a very very low risk investment can you please post a step by step process to accomplish this?

I'm looking for a (legal) extremely high reward investment with extremely low risk. Anybody? Anybody?[/QUOTE]

If that was sarcasm directed at me not nowing that IRAs were risk as well then give me a break. I mean first off articles have portrayed it as no risk. But second off its not like im sitting here thinking o im going to get rich over night doing this. No it takes putting hundreds of dollars that could go else where into something that I wont see the "rich life" for for another 40 freaking years and even then come on $600k is hardly the rich life....really you only made $400k on that and given the money some people make over night in riskier areas like the stock market its not a horrible assumption.
 
[quote name='pittpizza']If anybody has a way to make a lot of money very quickly in the stock market while still being a very very low risk investment can you please post a step by step process to accomplish this?

I'm looking for a (legal) extremely high reward investment with extremely low risk. Anybody? Anybody?[/quote]

Doesn't exist. If it did, everyone would be rich by now. Everything has risk. It's just a matter of minimizing it. Even Warren Buffett's strategies are not infallible. But they definitely work better than most other stock investment strategies I've seen.
 
[quote name='jaykrue']Doesn't exist. If it did, everyone would be rich by now. Everything has risk. It's just a matter of minimizing it. Even Warren Buffett's strategies are not infallible. But they definitely work better than most other stock investment strategies I've seen.[/QUOTE]

So is there still a chance with an IRA that you not only dont make money but loose money? Like if the economy took a huge down turn, the war in Iraq finally finishes and Korea finally picks its fight, globalization keeps causing the rich to grow richer and the poor poorer etc etc it could set up a market where IRAs dont grow I get that...but could it be that you cant atleast get your money back? Before you guys started on this stuff I thought it worked alot like a bank with high growth, however you couldnt touch your money for many years without HUGE penalities.
 
[quote name='MSI Magus']So is there still a chance with an IRA that you not only dont make money but loose money? Like if the economy took a huge down turn, the war in Iraq finally finishes and Korea finally picks its fight, globalization keeps causing the rich to grow richer and the poor poorer etc etc it could set up a market where IRAs dont grow I get that...but could it be that you cant atleast get your money back? Before you guys started on this stuff I thought it worked alot like a bank with high growth, however you couldnt touch your money for many years without HUGE penalities.[/QUOTE]

Can you lose money? Yes. Just look at my 401k for this year. Even though I'm well diversified, some funds took a huge hit and I'm down a few percent from being up over 20% six months ago. It happens, that's why it's a long term investment so hopefully you can ride out the dips.

IRA - Regarding withdrawals...it depends on the IRA. Traditional IRA can penalize you for early withdrawals plus taxes since contributions go in pre-tax. ROTH-IRA contributions are post-tax and can be withdrawn any time without penalties. Earnings in a ROTH are tax-free once you hit retirement age. However, there are rules regarding how much (and even IF) you can put into either type of IRA based on your income. Since you're unable to work, you may not be able to make contributions to an IRA. Research that before you decide to go that route.
 
[quote name='mzbagel']Can you lose money? Yes. Just look at my 401k for this year. Even though I'm well diversified, some funds took a huge hit and I'm down a few percent from being up over 20% six months ago. It happens, that's why it's a long term investment so hopefully you can ride out the dips.

IRA - Regarding withdrawals...it depends on the IRA. Traditional IRA can penalize you for early withdrawals plus taxes since contributions go in pre-tax. ROTH-IRA contributions are post-tax and can be withdrawn any time without penalties. Earnings in a ROTH are tax-free once you hit retirement age. However, there are rules regarding how much (and even IF) you can put into either type of IRA based on your income. Since you're unable to work, you may not be able to make contributions to an IRA. Research that before you decide to go that route.[/quote]

This.
 
[quote name='mzbagel']Can you lose money? Yes. Just look at my 401k for this year. Even though I'm well diversified, some funds took a huge hit and I'm down a few percent from being up over 20% six months ago. It happens, that's why it's a long term investment so hopefully you can ride out the dips.

IRA - Regarding withdrawals...it depends on the IRA. Traditional IRA can penalize you for early withdrawals plus taxes since contributions go in pre-tax. ROTH-IRA contributions are post-tax and can be withdrawn any time without penalties. Earnings in a ROTH are tax-free once you hit retirement age. However, there are rules regarding how much (and even IF) you can put into either type of IRA based on your income. Since you're unable to work, you may not be able to make contributions to an IRA. Research that before you decide to go that route.[/QUOTE]

See good to know. Might make me bank a little more buy a little less. As you now know I thought IRAs and 401ks were just guranteed growth. As for who can, im not worried about it....I dont want money in my name since it can effect my payments. Everything would go in my fiancees name till we feel finacially stable enough to get married and move forward.

Sorry if im bugging any of you on any of this. I just read ALOT, read the nytimes and routers, newsweek and time but then to boot foreign affairs. Reading as much as I do its easy to see a future where America really does take a pluge, I think if we dont it will be largely because of new innovations and technology that keep us ahead of the pack and create a new market(green tech gives us great hope for instance). But I think there really is just a higher chance then most think about us falling a great deal backwards, there are all the things iv already named like globalization and growing trends of nationalism from most of the big states.....but then there are other things like the rising price of oil, that we are stupidly banking on corn which will create a bigger global warming problem etc etc. I know it may sound like im just being a worry wart, but there is too much hanging above the head of the American economy to just jump in to investments that have risk with no thought. 20 years...hell even 10 years ago I would have. But now, its just something to stop and think over. In the end im sure ill stick on the plan everyone is recommending because in the long run its the safest bet..and well if we fall so far backwards that its not...then we are probally screwed anyways. But like I said I just have to give things carefull thought.

Again thanks to everyone for talking me through this. Iv gotten some great advice and probally will stick to most of it.
 
[quote name='MSI Magus']If that was sarcasm directed at me not nowing that IRAs were risk as well then give me a break. I mean first off articles have portrayed it as no risk. But second off its not like im sitting here thinking o im going to get rich over night doing this. No it takes putting hundreds of dollars that could go else where into something that I wont see the "rich life" for for another 40 freaking years and even then come on $600k is hardly the rich life....really you only made $400k on that and given the money some people make over night in riskier areas like the stock market its not a horrible assumption.[/QUOTE]
The biggest benefit to an IRA is that it provides a tax shelter for your investments to grow for retirement. They are still ordinary investments (stocks, bonds, mutual funds, etc.). Someone had mentioned both a Roth and traditional IRA. The main difference is:

Traditional: Money is contributed tax free, but taxed at your income rate when the withdrawal is made.

Roth: Money contributed is taxed at your current income rate, but is withdrawn tax free.

The benefit to the Roth is that generally most people make more as they get older. So if you're in the 25% income bracket now, but in the 33% when you retire the Roth would be beneficial because the money in it was taxed at the lower 25% rate. There are other limitations with IRAs regarding yearly deposit limits and withdrawal ages, so once the money is deposited in the IRA it can't be withdrawn, except for under certain exception cases, until you reach retirement age without paying a penalty.

As others have suggested, paying off the high interest debt should be your first priority. Afterwards, it depends on how much risk you want to take with your investments. The safest are Money Market Accounts and CDs which are currently around 5%. Mutual funds and index funds are generally safer than choosing individual stocks. The difference between an index fund and a mutual fund is that the mutual fund is a group of stocks selected by a fund manager while an index fund is equally represented by all stocks in a particular market, dividing the risk even further. Index funds usually have a lower management fee, since there is less overhead for the brokerage and a fund manager isn't being paid to select the stocks, but return rate will not reach that of the best performing mutual funds and the popular ones such as Vanguard and Fidelity often have higher minimum investment barriers.

There's information all over the web detailing the past returns of different funds, but like others have mentioned when you're ready to start seriously investing it would be worthwhile to find an investment adviser you trust to point you in the right direction.
 
[quote name='MSI Magus']See good to know. Might make me bank a little more buy a little less. As you now know I thought IRAs and 401ks were just guranteed growth. As for who can, im not worried about it....I dont want money in my name since it can effect my payments. Everything would go in my fiancees name till we feel finacially stable enough to get married and move forward.

Sorry if im bugging any of you on any of this. I just read ALOT, read the nytimes and routers, newsweek and time but then to boot foreign affairs. Reading as much as I do its easy to see a future where America really does take a pluge, I think if we dont it will be largely because of new innovations and technology that keep us ahead of the pack and create a new market(green tech gives us great hope for instance). But I think there really is just a higher chance then most think about us falling a great deal backwards, there are all the things iv already named like globalization and growing trends of nationalism from most of the big states.....but then there are other things like the rising price of oil, that we are stupidly banking on corn which will create a bigger global warming problem etc etc. I know it may sound like im just being a worry wart, but there is too much hanging above the head of the American economy to just jump in to investments that have risk with no thought. 20 years...hell even 10 years ago I would have. But now, its just something to stop and think over. In the end im sure ill stick on the plan everyone is recommending because in the long run its the safest bet..and well if we fall so far backwards that its not...then we are probally screwed anyways. But like I said I just have to give things carefull thought.

Again thanks to everyone for talking me through this. Iv gotten some great advice and probally will stick to most of it.[/quote]

As I mentioned before, there's nothing that is completely risk free so, in turn, nothing can be completely guaranteed. The likelyhood of growth in IRAs & 401ks is very very high but, again, they're not infallible. Also, getting that money is all nice & good but don't forget that inflation is also an important consideration to keep in mind. That 600k you retire with might not have the same buying power as 600k today. Look at gas as an example. Do you think people back in 30s.. hell the 50s ever thought that gas (as a norm) would reach 3.50 and above? If you want some serious material about stocks, read the WSJ not fluff pieces in Time. They'll give you better, in-depth, coverage about stocks and how world events may affect them.
 
[quote name='jaykrue']As I mentioned before, there's nothing that is completely risk free so, in turn, nothing can be completely guaranteed. The likelyhood of growth in IRAs & 401ks is very very high but, again, they're not infallible. Also, getting that money is all nice & good but don't forget that inflation is also an important consideration to keep in mind. That 600k you retire with might not have the same buying power as 600k today. Look at gas as an example. Do you think people back in 30s.. hell the 50s ever thought that gas (as a norm) would reach 3.50 and above? If you want some serious material about stocks, read the WSJ not fluff pieces in Time. They'll give you better, in-depth, coverage about stocks and how world events may affect them.[/QUOTE]

I understand inflation. I mean hell its impossible.....well impossible for anyone with a brain atleast to not understand nowdays. Whenever the one guy with the meatwad avatar made his comment I kinda laughed because $600k sounds like alot of money but by then and given that its your money to live off of the rest of your life is probally not gonna be alot. You figure SSI pays $12k or somewhere in the area a year now for a retiree. People with living off SSI have a very very difficult life now. Figure in inflation and its not an unreasonable thing to say its going to take atleast $20k to live off of 40 years from now when id receive the money from my IRA. Id probally live atleast 20 years after getting the money.....20 years at $20k a year is $400k......so again its easy to see where you have to take inflation into acount. Investing $400 a month results in just having enough nest egg to live on $20k a year for 20 years(well plus the extra $200k that I paid in).
 
haven't really look at the entire thread, but if you have been paying on the car for awhile, why don't you try to refinance to a lower interest rate. If you could save money on the interest that you are paying and have it between 5 and 6% loan, then it would be better to apply all your money into a retirement setup. Try local credit unions, as they usually have great rates. Not sure where your lady works, but does her company offer a 401k plan with some sort of matching. I read a financial planning book when I was a bit younger, and the key thing that I remember is that if you save $10 a week from the age of 25 going forward. Come retirement, assuming you average close to a 10% growth, you will be a millionaire.
 
To echo everyone else, pay off the debt ASAP - by any means necessary. Also, you mentioned that you do a lot of reading. Instead of the papers and magazines, if you want to invest in stocks, read some financial statements. Start with Berkshire Hathaway if you want to hear what Buffett has to say and just go from there. Have a sector you want to learn more about? Find a company that has done well and a company that has done poorly, in that sector, and read their annual reports for the past few years. Try to make sense of what the successful company has done and what the other company has not. It'll help you a ton. As far as news goes, I understand the need to take a view of things as they stand now, but if all your information comes from the papers and CNBC, etc., they will scare the hell out of you and you will lose money with every "investment" you make. Read The Economist (fantastic - and I think the online articles are now free, but I could be wrong) and stick to the financial statements. Remember Buffett's saying: be fearful when others are greedy and greedy when others are fearful. Tuning out most of the media's financial information will help you stomach the pain of a stock losing 10, 20, 30% in a week.
 
I disagree with paying off the debt asap...if you can get a good rate at approx 6% or less, then why pay it off quickly. If you have or can refinance into a great rate, then it is borrowing on the cheap. Economics will teach you that a person/company runs more efficeintly when they owe. You will always owe on something. A house, a car, a credit card debt, so if you lock in a great rate then invest that money elsewhere.
 
Here's what I do OP.

1. Max out your 401k. I believe the max for a year is around $15,500.
2. Open up an IRA. I currently have both traditional and Roth IRA's. The traditional is nice to get my end of the year taxes down. The Roth is nice because I never pay tax on it again (when I can qualify to take it).
3. Put money automatically into a savings fund, such as ING or HSBC. I just set up automatic deductions and let it roll.

There is a lot of good advice in this thread.

If you are still looking for someone to go with for your IRA's, I highly recommend Fidelity. They have several no load accounts that have very low expenses.
 
[quote name='ryanbph']I disagree with paying off the debt asap...if you can get a good rate at approx 6% or less, then why pay it off quickly. If you have or can refinance into a great rate, then it is borrowing on the cheap. Economics will teach you that a person/company runs more efficeintly when they owe. You will always owe on something. A house, a car, a credit card debt, so if you lock in a great rate then invest that money elsewhere.[/quote]
When you are struggling financially, there is a HUGE pscyhological burden that comes from having a bunch of debt. If he can refinance at 6%, it would only be worthwhile to keep the debt around if he could earn a return above that amount. That might not be overly difficult, but then again, it might be - you never know. If the OP had a steady career, earning a solid amount, then sure, I'd say keep the debt if the rates are low. But if you are worried about bills and having money around, I would say ease your worries a bit and get the debt paid off.
 
well he was talking about having an extra roughly 120 a week after taxes....and that they had gotten by with smart budgeting....if they were making the car payments before, and are able to refinance and lower the payment it would only make sense to invest it. Espically if you are able to properly invest it and make a greater return then the interest rate he would get on a refinance. If the credit is good, a 6% should be no problem to refinance on a used car. If they have great credit, and a good credit union in the area, and have the payment auto deducted from the checking account he might be able to get a rate around 5.25%. That is what a local credit union in offereing in my area for loans on used auto's ( which is what he would have to get as he isn't buying it brand new) Some credit unions even offer vacation packages where you borrow under $10k at 5 years to pay for something like a vacation and give you a great rate.

They could always refi the car, save 10% of there income or roughly $60 - $75 a week and put an extra $60 a week ($240 a month) on the car loan. Having a lower rate, and making bigger payments they will take care of that quicker, and they would be building a nest egg.

While IRA's are great, if finances can become a difficultly for you, it would be great if your fiancee's company offered 401k. I hadn't seen you mention it or not, but if they do a matching pre tax deduction it will greatly increase your savings. Also if you do need a lump sum of money for some issue/disaster the IRA there is heavy penalty for taking it out early. Where I used to work (not sure if it is across the board with all 401k's or not) you could take a loan out against your 401k, and pay yourself interest. It was highly beneficial, as you would be paying the interest to yourself pretax and it allowed the access to cash if needed thru the loan.
 
My wife and I use ING for our savings. We are getting close to 5%. They are online bank so can give you a better rate. Its nice seeing $20 added to my savings each month.
 
[quote name='Ikohn4ever']try to max out a Roth IRA every year or at least as much as you can spare for retirement purposes.[/quote]

I second this, pick some mutual fund company you like (you can look at places like finance.yahoo.com or something to find one that invests in industries you like) and max out your roth IRA every year you can. You will save a ton on taxes compared to any other way you can invest, but this is also why there is a limit on how much you can save in it.

Another thing you can do if you don't have a daily job you have to go to is to learn about the stock market and then you can invest online. It depends on your personality but I think it is alot of fun, and while it is like gambling in a way, it is much more likely for you to win than playing poker online or something.

Anyways, I wish you the best of luck.

Now, it is best you make up your own decision but I am putting my RothIRA into VanKampen Funds. They have a lot of variety in fund type and from my research pretty good returns over the last 30 years compared to other companies that offer mutual funds.
 
You must log in or register to reply here.
bread's done
Back
Top