Financial planners I need advice (23 y/o ready to start saving)

[50]

Hello,

I started working last June straight out of college with a salary of about 65k. Fast forward to now I have almost all of my college loans paid off (about $2k left) and purchased the two things I really wanted for quite a while now (HDTV and a nice PC). I really have no intentions of making any other extraneous large purchases (>$500) for the next few years. I'm putting 6&#37; (company match max) into my Roth IRA. I'm thinking about an MBA (hoping to start in the next 2 years) and a house (probably 5 years from now or so after I finish the MBA). My minimum living expenses are probably about $850/month at the lowest (food/rent/utilities etc). How feasible is my plan? Should I leave my retirement contributions as they are and keep saving? My savings account earns <1% interest, should I buy CD's or something else? Any advice is appreciated. Thanks

To add some more information:
1. Meant to say 401k not Roth
2. I have no interest buying a house in the current market I am in (Western NY) only because I can't see myself being here long enough to make it worth it. Although I am handy enough to do basic repairs (drywall, electrical, etc)
3. I'll look into these interest checking accounts
4. So my max contributions are 25%, right now I have 6% in 401k. I was thinking about adding 9% to Roth. What do you guys think? My reasoning is I feel taxes are going to be much higher by the time I retire (2050 or so) and so I might as well pay the taxes then.
5. I may or may not be able to get my company to provide tuition assistance.
6. For a breakdown of my living costs for those that are interested. I live with my girlfriend, we split rent so $500 includes heat, electricity, and cable TV. The only utilities we have to pay are internet ($40 and water is about $15/month split between us). We split groceries and so that's about $200/month. I live about 5 miles from work and drive a 4 cylinder accord so gas is about $75/month. Cell phone bill is $35/month. Car insurance is $160 for 6 months. I can't really think of any other incurred monthly expenses.

 

[mvbighead]

My not so much financial planning but other advice would be to look at a house NOW. Interest rates are extremely low, and would save you lots should they ever increase in the future.

If you're not ready for a commitment on a high principle value house, try to find a smaller home that needs work in a good neighborhood that you can afford.

This fixes the $500+ that you are shelling out for rent that isn't giving you anything in return. My brother, who was down on his luck after a divorce, found a $35k home that was livable. Spend some time working on this and that, cleaning up, etc., and now the house is easily worth an extra 10k. Just something to think about, as renting is not an investment by any means.

 

[JS80]

companies can match funds into Roth IRA?

 

[Turin39789]

Buy a Turbo Busa.

 

[ShawnD1]

My not so much financial planning but other advice would be to look at a house NOW. Interest rates are extremely low, and would save you lots should they ever increase in the future.

The housing market might keep falling. There was also talk of a double dip recession, and some people are claiming the recession never stopped dipping in the first place. It probably varies between cities, so keep on top of housing trends in your city.

If you're not ready for a commitment on a high principle value house, try to find a smaller home that needs work in a good neighborhood that you can afford.

Only if you know what you're doing. The last thing we need is more people trying to do their own wiring and fucking it up and burning the house down :biggrin:

 

[HardcoreRobot]

contribute to get teh company match into the 401K (not IRA, thats individual).

then max out a roth ira

then max out the traditional 401k

then invest for fun.

keep enough emergency cash around in an interested bearing acount.

 

[rcpratt]

If you're really only spending $850/mo on rent/food/utilities, then yeah you should be able to reach those goals.

Look into a rewards checking account that gives 2-3&#37; interest, at least. Fatwallet has a list of them.

I'd bump your retirement savings to at least 10%. As others have said, I'm not sure if you're talking 401k or Roth IRA. But the advice above on the order to invest in those is sound.

Also check if your employer has any tuition reimbursement for employees. Or ask your boss about it if they don't, they still may contribute/cover it.

 

[mvbighead]

The housing market might keep falling. There was also talk of a double dip recession, and some people are claiming the recession never stopped dipping in the first place. It probably varies between cities, so keep on top of housing trends in your city.


Only if you know what you're doing. The last thing we need is more people trying to do their own wiring and fucking it up and burning the house down :biggrin:

Good points.

I will say that not knowing should not be a hindrance in doing, but rather a reason to seek the help/advice of someone who knows. Knowing how to fix this or that can save some serious money so long as the right care and effort are put into each job... and, if it's your house, so you better darned well care about it.

 

[ShawnD1]

I will say that not knowing should not be a hindrance in doing, but rather a reason to seek the help/advice of someone who knows.

I think he should stay out of the situation until he knows he has the support he needs. If your friends and your family are regular handy people and know how to fix things, you can jump in with both feet and overhaul a completely ruined house. If OP is the kind of guy who doesn't know how to change the oil in his car, and his friends don't know how either, then he should stay on the more conservative side of things.

I guess it would also depend on whether or not you would need to live in a house you just bought. If you can live with family or friends while fixing a piece of shit house, then there's not as much of a hurry to get it fixed and he can take the time to do it properly. The worst possible situation would be one where you buy a house, you must live in this house, the house is damaged, you don't know how to fix it, and your friends/family can't help you.

 

[Gigantopithecus]

OP gives me hope that this country isn't totally doomed.

I think the best course of action for a very young person is to stay geographically flexible. How confident are you in your job's stability? Your area's economy? House might not be a great idea...but you can definitely do better than <1&#37; yield on your savings, youch! Fatwallet.com's Finance forum is your friend.

 

[Mide]

65K right out of college? What was your major... engineering right? Are you in a major city?

Kudos to the good financial planning you currently got. Advice has already been shared. Max out Roth and 401K Keep 1 account as an "oh shit" fund then do whatever you want with the rest.

 

[manimal]

buy a cheap condo and build the equity. Start a long term strategy with a 10 percent savings per pay period start. If you start now and dont succumb to hookers and blow you should be ok.

 

[Aharami]

i will say one thing. you're young. don't buy a house unless you get a killer deal. buying a house kinda locks you into your current city/town and might restrict other job opportunities in other parts of the country

 

[ichy]

companies can match funds into Roth IRA?

I assume he was talking about a 401(k).

Agree with everyone who says max out tax-advantaged retirement accounts and put cash into an emergency/future house down payment fund. Interest rates on bank accounts suck balls right now, but if you can find a rewards checking account they're better than nothing.

 

[ichy]

i will say one thing. you're young. don't buy a house unless you get a killer deal. buying a house kinda locks you into your current city/town and might restrict other job opportunities in other parts of the country

Agreed. I bought a house at 26, but I had moved around during my entire childhood and was determined NOT to move again for a long time. Don't buy a house unless you're reasonably certain you're going to be somewhere for at least 7 years.

 

[GotIssues]

1) Emergency Savings. Personally, I'd go for $10k in your situation - over the "6 months of expenses," but honestly, there are far too many emergencies that cost more than $5k
2) Go to town on retirement accounts. Make sure you are still pulling a surplus at the end of the month. It can be mentally draining if you are running zero-sum at the end of the month, even if you are saving a ton for retirement.
3) Savings for an eventual house/condo. Don't buy one until you know you are going to be in one place for a while and you are absolutely ready for homeownership, but plan for eventual ownership. You'll want 20&#37; downpayment ready to rock when you pull the trigger.

Edit: Not a financial planner, but that's what I woulddo in your situation.

 

[QuantumPion]

How the heck do you live on $850/month for rent, food AND utilities? Live in a shack subletted with two roomates, no internet, no cell phone, and eat ramen noodles? Or are you in the armed forces and have expenses paid for?

 

[soulcougher73]

I would max out company contribution on 401k
Max our Roth IRA
Then back to 401k till it is maxed
Oh and shoot for 6 months emergency savings as well. Jobs are never 100&#37; secure.

I would not buy a home if i were you. Especially if you are going for your MBA. Once you have that more opportunities may arise in another city that may interest you.

 

[50]

Updated the post with more info and some questions. Thanks for the response

 

[Texashiker]

Financial planners I need advice (23 y/o ready to start saving)

Invest into real property. With the way the markets work, you can lose your entire savings overnight.

If I were in your shoes, look for property seized by the local tax collectors office. See which property stands the best chance of increasing in value over the next few years, then place your bids with the tax collectors office.

If nothing else, pick up a couple of empty lots, then move a house onto the property and rent it out.

 

[Farmer]

How the heck do you live on $850/month for rent, food AND utilities? Live in a shack subletted with two roomates, no internet, no cell phone, and eat ramen noodles? Or are you in the armed forces and have expenses paid for?

He lives in Wyoming.

All kidding aside, OP:

I'm very much in the same situation as you. Just out of college and making enough to live comfortably. I am, however, going to go back to school very soon, so I have not considered starting retirement savings yet.

What are you plans for future school, if any? If you plan to get your MBA and plan to pay for it yourself, diverging funds now to an inaccessible retirement plan may not be the best course of action.

Invest into real property.

This is a very Texas-centric mindset.

If these recent years mean anything, just because it's real property does not mean it's worth the asking price.

 

[IndyColtsFan]

Lots of good advise here, and I'll add one more -- don't get an MBA unless your company is paying for it. IMO, it isn't worth spending your own money or going into debt for an MBA unless it is a top program.

 

[MaxFusion16]

MBA is worthless unless your company is paying for it, dime a dozen nowadays.

increase your 401k contribution to max out the yearly limit, $16,500.

pay off your student loan

save save and save, once you have 6 month living expenses saved, invest the extra cash in a vanguard fund.

 

[rudder]

Buy cocaine. it is just like gold and the value can only go up. get the airtight bundles and it will keep for decades.

 

[Bignate603]

Get your emergency fund setup. In your case, $10k would probably be ok. Stash that away in an account that you can get access to pretty quickly. This will probably mean that you get lousy interest on it, but that's not its real purpose. It has 2 purposes:

1. When something goes wrong you don't have to worry, you've got plenty to deal with any problems that come your way. Car is totaled? You can deal with it. Lose your job for a few months? Covered. Health problem and need to pay the max out of pocket expense on your insurance? No worries. It lets you concentrate on dealing with the emergency rather than how you're going to pay for it.
2. When something goes wrong you don't need to pay it by borrowing money from someone else, then paying interest on it. It's easier to pay back $10k to yourself interest free than pay $10k + interest to a credit card company charging you >10&#37; interest.