Hello, I'm new to the boards and in my early 20s.

[phil5185]

I guess I could take retirement before social security as well. Choices!

I did

I just hate being under 25 for insurance. It's the worst. You'd think I'd get a damn good lower rate for a college education, good credit, and only student loan debt. No dice. Gotta love that age discrimination.

Ya, we all went thru it - I remember it 50 yrs ago. But it's real - and not necessarily because <25 are worse drivers. Young singles are likely to park in apt lots where the car is subject to theft, vandalism, hail. And more likely to be at a late-nite concert, game, dance, nightclub. Older people's cars are more likely to home after dark and likely to be garaged. Theft is a big cost for underwriters, when an 18-yr-olds new 4WD gets stolen, the cost is major - and then the new one is just as likely to be stolen - it gets expensive to replace a youngsters new truck annually, lol, the premiums don't even come close paying the bills.

[strider]

Interesting points about being out after dark. Besides a few speeding tickets in my earlier days I haven't had an infraction in close to 5 years. It just ticks me off when I choose a different birthyear than mine and the insurance quote is under half as long as I'm that certain age.

[Firebird]

Hi strider, welcome to the boards ;D

I've been here since I was 21 (I'm 25 now). These boards, and the people on them, are worth every single penny of every personal finance book you could possibly buy, and then some (not that you shouldn't do that also). The more time you spend on here, the happier your balance sheet will be.

I'm pretty happy with my financial choices so far. Starting early has already given me plenty of options I wouldn't have otherwise had, and it's going to pay off even more as the years go by. There's only one significant thing I can think of that I wish I had done sooner:

MAKE YOUR SAVINGS AUTOMATIC.

This pearl isn't given as often as many others, but it's super important. Figure out how much you can save every month and then make sure it is automatically deducted from your checking account the minute your paycheck hits. I can't stress how important it is to pay yourself first. It is so easy to think that you'll transfer the money AFTER you pay your bills and set aside your fun money and it NEVER works out that way - even if you're disciplined! If you're disciplined, you'll always set aside something, but unless it's automatic it will never be as much as it's supposed to be. Chalk it up to a random quirk of human nature.

I learned that one the hard way. But that's the only hard knock I had to take, and it didn't set me back that much. We are very, very fortunate to have found these boards at young ages. Do (almost) everything that everyone tells you to do, and you will become wealthy

[strider]

Very true Firebird. I have my gym/parking taken out automatically and I don't miss it once it's out of my check. The university makes it easy to do all of that before you get paid on payday.

So I think I'm going to start having a "random crap" fund as well as an emergency fund.

So with $1400 a month I think I'm going to split it a few ways.

$250-IRA
$400-EF
$200-Random crap
=$850

1400-850=650 a month.

I still have a little wiggle room even with adding a car payment on this budget it seems. Pretty much everything until July is EF fund for now.

[Deleted]

Mar 29, 2011 16:28:48 GMT -5 strider said:

Very true Firebird. I have my gym/parking taken out automatically and I don't miss it once it's out of my check. The university makes it easy to do all of that before you get paid on payday.

So I think I'm going to start having a "random crap" fund as well as an emergency fund.

So with $1400 a month I think I'm going to split it a few ways.

$250-IRA
$400-EF
$200-Random crap
=$850

1400-850=650 a month.

I still have a little wiggle room even with adding a car payment on this budget it seems. Pretty much everything until July is EF fund for now.

Not going to take my advice?

[strider]

It's a ballpark, gin. I have no doubts it isn't a good plan but it's a bit too much specific. I am convinced on getting an IRA though.

[Deleted]

Mar 29, 2011 16:35:06 GMT -5 strider said:

It's a ballpark, gin. I have no doubts it isn't a good plan but it's a bit too much specific. I am convinced on getting an IRA though.

I meant on opening a Roth before 4/15 so you could get fund it as part of 2010. But I am very glad you plan to open one up at all, I've been trying to get my mom to do it for 3 years now and she still hasn't.

[Firebird]

By the way, massive kudos on keeping your committed expenses so low. That is probably the single biggest thing I've done that's allowed me to make so much progress so quickly. It's also pretty much compensated for the mistakes I've made.

I second gin on opening a Roth before 4/15 and contributing as much as you can for 2010. The window will never come again and you'll be glad you did it. (Remember that you can always take the money out without penalty, if you really have to! There's a Vanguard ROTH that has a $1,000 minimum as opposed to most of their funds which have $3-5k minimums.)

[strider]

I'll look at it this weekend for 4/15. I already did my taxes though!

[Deleted]

Mar 29, 2011 17:14:49 GMT -5 strider said:

I'll look at it this weekend for 4/15. I already did my taxes though!

Does not matter if you already did your taxes, if you are just opening a Roth. Congrats, you are ahead of the game already.

[Tiny]

Get an auto transfer going to a Roth (sweeter if contribute to 2010 before 4/15!) and get an auto transfer to something you'll call/use as your Emergency Fund. Your Future Self will Thank You!!

PAY YOURSELF FIRST!

No one EVER sez... "Gee, I wish I had saved less back in my 20's!"
No one EVER sez... "Gosh Darn It! I just got laid off OR I just had a car accident OR I need some dental work done ASAP - too bad I have money in savings (the EF) to cover it.... stupid me, saving $100 (or $200) a month what a fool I was!!"

You don't have to suffer with an austere lifestyle - just save first and then spend on other stuff.

[strider]

Saving is truly a great thing. It got me out of a few jams even in college. When I get more time I'll look into the Roth this weekend.

[thinid]

If you are concerned about possibly being laid off, I wouldn't advise taking on a car payment. There's absolutely nothing wrong with buying another used car that you can afford to pay cash for. Financing a car also generally requires full coverage, which can significantly increase your premium if you don't have it already.

The max contribution to an IRA is $5000 annually ($416.66 per month). Don't short change yourself by only contributing $250 when you have the ability to max. The extra $2000 now, will be well worth it and could even be enough with interest to determine which year you can retire.

[phil5185]

Historically, $5000 now will be $400,000 when you are 65. If you skip the 2010 contribution, it is gone forever, no recovery.

[strider]

Mar 29, 2011 18:04:13 GMT -5 phil5185 said:

Historically, $5000 now will be $400,000 when you are 65. If you skip the 2010 contribution, it is gone forever, no recovery.

I would like to put something in but $5000 would drain nearly all of my savings for a layoff. It's all good when I'm 65 but I don't want to move back with my parents to do it.

After July my position is fully funded. 100%. I will have practically 2 years of job security if I keep my performance up. It's all about how big and how far the cuts reach.

Also I did say I'd probably buy a 3-4 year old car. Enough to take the depreciation off but new enough to not break down for ten years.

[Firebird]

Does not matter if you already did your taxes, if you are just opening a Roth. Congrats, you are ahead of the game already.

Yes, you will just report the contribution with next year's taxes. They have a special place to fill in whether you made your contribution in the current or past calendar year.

Historically, $5000 now will be $400,000 when you are 65. If you skip the 2010 contribution, it is gone forever, no recovery.
I would like to put something in but $5000 would drain nearly all of my savings for a layoff. It's all good when I'm 65 but I don't want to move back with my parents to do it.

Are you specifically expecting to be laid off? If so, hold onto at least $2k of the cash. But remember, you CAN pull contributions from your ROTH without penalty (you only get penalized for removing any earnings on those contributions). So if you did desperately need the money, it would be there. Although I personally can't bring myself to think of my ROTH as my EF, doing so is not unheard of.

But, you don't have to contribute the full $5k every single year. Don't let the fact that you can't contribute the entire $5k stop you from contributing SOMETHING ;D $1,000 is a hell of a lot better than nothing. At least put that in now and worry about maxing it for 2011.

[Firebird]

Mar 29, 2011 17:31:00 GMT -5 Tiny said:

Get an auto transfer going to a Roth (sweeter if contribute to 2010 before 4/15!) and get an auto transfer to something you'll call/use as your Emergency Fund. Your Future Self will Thank You!!

PAY YOURSELF FIRST!

No one EVER sez... "Gee, I wish I had saved less back in my 20's!"
No one EVER sez... "Gosh Darn It! I just got laid off OR I just had a car accident OR I need some dental work done ASAP - too bad I have money in savings (the EF) to cover it.... stupid me, saving $100 (or $200) a month what a fool I was!!"

You don't have to suffer with an austere lifestyle - just save first and then spend on other stuff.

See, ATSIARU said it so it must be true ;D

[strider]

I'm reading that I initially have to invest $3000 to start. I'd assume that means it needs to stay in there at the very least until I'm 59 1/2 right? I can't just empty the account if I have to without penalty.

[ses]

I am in total awe at what you have accomplished to this point!
These are my suggestions

1) Contribute $1000 to a Roth IRA by 4/15. Just start with a target date fund (maybe 2060) until you can study more about investing. You can always move those funds around within your Roth account among different funds within the family of funds. A $250 monthly contribution can always be increased whenever your income changes. Automatic deposits are wonderful!

2) Consider your current $1150 budget plus $350 for a car to be your monthly expenses. An 8 month emergency fund would be $12,000

3) $2900 net-$1500 monthly expenses-$250 Roth contribution-$400 to your EF-$200 for random crap still leaves you with $550. Good wiggle room if there is a possible wage reduction.

4) If you can wait until July to deal with the car issue, research which models of cars will have the lowest insurance rate. Can you get a "make-do" car with cash and the lowest insurance rate possible until you are 25? Keep making a "car payment" to yourself for your next car, to pay as much as possible, if not all, in cash for that car.

5) I am thinking positively that funding will come through and you will not be out of a job and still at the University. Have you given any thought to an advanced degree while you are there? You are in a terrific field, advanced education would only help you. And you are already living frugally, this might be the time to consider it.

Overall, you are doing a marvelous job. Just keep up the good work. This is a great place for encouragement and information, keep us updated on your progress.

[Deleted]

Mar 29, 2011 21:01:18 GMT -5 strider said:

I'm reading that I initially have to invest $3000 to start. I'd assume that means it needs to stay in there at the very least until I'm 59 1/2 right? I can't just empty the account if I have to without penalty.

I assume you are looking at Vanguard? Vanguard requires $3000 for normal accounts and $1000 for the star account. Fidelity requires $2000 or $200/month until the $2000. I would recommend fidelity so you can keep more in cash until July. Put $2000/$2600 in the cash account and auto deposit $200 till July. You cannot take out the interest/gains from a Roth IRA until you are 59.5 without penalty (except $10,000 for a house and for school) but you can take out any money you deposited (after it has been there for 5 tax years). However, you also can take it out for 60 days as long as you put it ALL back within those 60 days.

[strider]

Yeah Vanguard for $3000.

I'll have to look at Fidelity as well as reread your posts gin. Thanks.

[ses]

You can only remove the funds you have deposited, not the growth on those funds.

Some families (Fidelity, Vanguard, T Rowe Price...) will allow lower contributions if you set up automatic deposits, I think your $250 should qualify.

[Deleted]

Mar 29, 2011 21:16:50 GMT -5 strider said:

Yeah Vanguard for $3000.

I'll have to look at Fidelity as well as reread your posts gin. Thanks.

Your only 3 years younger than me, I wish someone had told me about a roth vs a traditional much younger (I discovered them when I was 24, lol.)

[strider]

ses, that looks pretty good in writing actually. It's a good base for now for sure. I'll try to address each of your points.

1. I plan to invest something by April 15th. I have to really crunch the numbers first.

2. $350 is around a similar ballpark I considered as well. $12,000 is a pretty hefty chunk haha but I could make it work. My target date for a car is before next winter. So I still have more than 6 months to make a true decision. If I had to I could buy a used with cash (which I'm considering if car/price/timing are right)

3. It's 2600 net not 2900 net. So it'd be $250 left over. Not bad, not great. I still have time and I'll probably save the most money on a good price for a car.

4. Has to be past July anyway for the job. Thanks for the good suggestion though.

5. I hope so. We've picked up 400% more contracts then when I started. I hope it comes through but you can never be 100% sure. I can part with a few thousands and if things happen well I still have cash just in case. I was thinking about getting some certifications. I could get a master's degree but that's only going to help if I plan on being a boss that needs a minimum of ten years experience. I may go for it but I can be more helpful and get more pay if I go for certifications for alot cheaper. I don't want a master's degree just for the sake of getting one. I plan on ordering Server and Security books very soon actually.

[Firebird]

Mar 29, 2011 21:01:18 GMT -5 strider said:

I'm reading that I initially have to invest $3000 to start. I'd assume that means it needs to stay in there at the very least until I'm 59 1/2 right? I can't just empty the account if I have to without penalty.

No and no.

There is a Vanguard ROTH that you can start for $1,000. (It's the only one I know about.) It's called the STAR fund. I have it myself.

personal.vanguard.com/us/funds/snapshot?FundId=0056&FundIntExt=INT

You can take out your CONTRIBUTIONS without penalty any old time you want. You are only penalized for taking out earnings on those contributions before age 59 1/2, as I said yesterday.

So if you put in $3k tomorrow, you can take $3k out next week, a year from now, or 40 years from now. Whatever you like.

[strider]

Why is the initial investment $1000 or $3000 then if they let you take it out whenever? I'm just trying to understand.

[Firebird]

Good question. I'm not sure, actually. My guess is that they need an initial minimum buy-in to ensure some kind of minimum earning on the fund. But that's just an off the cuff guess. I'd be interested in the real answer too.

[strider]

I guess I'll need to read more. Anyways, I got my tax return back today. Going to apply that to my new IRA I think. Either that or paying down a student loan.

[Firebird]

What's the rate on your loan?

[phil5185]

I got my tax return back today. Going to apply that to my new IRA I think. Either that or paying down a student loan.

You can fill out a new W4 at work so that you don't over-withhold again next year. Try to avoid a refund, aim to owe $100 or $500 in April.
If you have a good loan rate, don't prepay it - eg, don't prepay 3% capital only to turn around and borrow 5.5% capital for a car - instead retain the use of the 3% capital. Conversely, if you have a 7% loan and the car loan will be 5.5%, then kill the 7% loan.