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-   -   Help a youngin out. (http://forum.e46fanatics.com/showthread.php?t=993270)

iloveyou 06-21-2013 08:40 AM

Help a youngin out.
 
Just started my first real job and I need some advice on what to do with my money.

I'm definitely gonna open a Roth and a 401k can't do that until I have been with my company for a year.

Now I have heard conflicting things on savings account. Some people have said to get your 6 month of savings before investing any money in retirement or anything else for that matter. Also should I put my savings in a savings account or something else with a higher return ?

And finally what types of investments should I invest my extra couple hundred bucks a month in ?

BMWCaptain 06-21-2013 09:24 AM

First create a savings account reserve for BMW e46 repairs.

poynter 06-21-2013 10:26 AM

Kudos for at least thinking of saving money.

Wraisil 06-21-2013 02:04 PM

Quote:

Originally Posted by iloveyou (Post 15517908)
Just started my first real job and I need some advice on what to do with my money.

I'm definitely gonna open a Roth and a 401k can't do that until I have been with my company for a year.

Now I have heard conflicting things on savings account. Some people have said to get your 6 month of savings before investing any money in retirement or anything else for that matter. Also should I put my savings in a savings account or something else with a higher return ?

And finally what types of investments should I invest my extra couple hundred bucks a month in ?

First off, congratulations on getting your first real job! :thumbup:

Now, on to the fun stuff...

You have 1 year until you can start your 401(k). Obviously, not knowing your personal financial details makes giving specific recommendations impossible so here are some generic ones. Save at least 2-3 months worth of expenses as fast as you can and put this in a liquid account. I recommend (especially for people who haven't yet been able to really "live outside their means") that a person aim to spend no more than 50% of their gross income when starting out. If you can do that, or get close to it, then you will be setting yourself up for financial success in the future. Not to mention, 50% of your gross with your first real job is still probably an upgraded lifestyle from what you had before then.

So, assuming you can do that, we'll assume the rest after taxes is 100% of your "total savings". Of that, initially put all of that away for your emergency savings. Doing so should let you get to 3 months of expenses saved within 6 months. Once that is established, switch to 50% of your total savings going to emergency savings and 50% going to a Roth IRA (assuming your first job isn't in a 28% income-tax bracket). When you get to 9 months put away in your emergency savings (easily done by the end of year two if you can follow this advice), then raise your retirement savings to 90% of your total savings and continue putting 10% in your emergency savings (this is to account for making it grow to ensure you can handle setbacks/problems in the future and cover increases in pay over time).

When that 90% maxes out your tax-advantaged retirement accounts eventually, then you just put in your maximum tax-advantaged amount and start investing in your own personal brokerage account with half of what you can no longer put in and you put the other half towards increases in lifestyle.

Similarly, when you get a pay raise, since you are using a percentage of your income then 1/2 of that raise will go to lifestyle increases and 1/2 will go towards investments/saving. Until, of course, you are no longer investing/saving half because you have maximized your tax-advantaged contributions.

This is very generic because of lack of details available, but is a solid foundation. Specifics (like whether to invest in a 401(k), Roth IRA etc) are situation dependent and I don't know your situation's specifics so I can't give you advice on that at the moment.

As far as "where" to allocate investments, here is a very basic primer on selecting allocations for limited fund plans (such as most 401(k)'s etc)
http://jlcnuke.wordpress.com/2010/01...ing-up-a-401k/

Here is a spreadsheet to help with that if you choose to use it:
http://www.gceenterprises.com/jlcnuk...worksheet.xlsx

iloveyou 06-21-2013 02:53 PM

Quote:

Originally Posted by Wraisil (Post 15518823)
First off, congratulations on getting your first real job! :thumbup:

Now, on to the fun stuff...

You have 1 year until you can start your 401(k). Obviously, not knowing your personal financial details makes giving specific recommendations impossible so here are some generic ones. Save at least 2-3 months worth of expenses as fast as you can and put this in a liquid account. I recommend (especially for people who haven't yet been able to really "live outside their means") that a person aim to spend no more than 50% of their gross income when starting out. If you can do that, or get close to it, then you will be setting yourself up for financial success in the future. Not to mention, 50% of your gross with your first real job is still probably an upgraded lifestyle from what you had before then.

So, assuming you can do that, we'll assume the rest after taxes is 100% of your "total savings". Of that, initially put all of that away for your emergency savings. Doing so should let you get to 3 months of expenses saved within 6 months. Once that is established, switch to 50% of your total savings going to emergency savings and 50% going to a Roth IRA (assuming your first job isn't in a 28% income-tax bracket). When you get to 9 months put away in your emergency savings (easily done by the end of year two if you can follow this advice), then raise your retirement savings to 90% of your total savings and continue putting 10% in your emergency savings (this is to account for making it grow to ensure you can handle setbacks/problems in the future and cover increases in pay over time).

When that 90% maxes out your tax-advantaged retirement accounts eventually, then you just put in your maximum tax-advantaged amount and start investing in your own personal brokerage account with half of what you can no longer put in and you put the other half towards increases in lifestyle.

Similarly, when you get a pay raise, since you are using a percentage of your income then 1/2 of that raise will go to lifestyle increases and 1/2 will go towards investments/saving. Until, of course, you are no longer investing/saving half because you have maximized your tax-advantaged contributions.

This is very generic because of lack of details available, but is a solid foundation. Specifics (like whether to invest in a 401(k), Roth IRA etc) are situation dependent and I don't know your situation's specifics so I can't give you advice on that at the moment.

As far as "where" to allocate investments, here is a very basic primer on selecting allocations for limited fund plans (such as most 401(k)'s etc)
http://jlcnuke.wordpress.com/2010/01...ing-up-a-401k/

Here is a spreadsheet to help with that if you choose to use it:
http://www.gceenterprises.com/jlcnuk...worksheet.xlsx

Wow! Thanks man very helpful. I am in the 25% tax bracket if that helps.

Wraisil 06-21-2013 02:58 PM

Quote:

Originally Posted by iloveyou (Post 15518975)
Wow! Thanks man very helpful. I am in the 25% tax bracket if that helps.

Assuming you are single and not at the very upper end of the bracket, you should (when able) contribute to your 401(k) up to the matching your company provides then invest in a Roth until that is maxed out and any leftover from your "total savings" put into your 401(k). Under $80k/year salary is "generally" more advantageous (assuming single income) to use a Roth instead of traditional 401(k)/IRA except when receiving a match. IRA's, however, have a much smaller limit than 401(k)'s for tax advantaged contributions so for many people (likely yourself included) it is best to do max the Roth contribution and then contribute any further money to your 401(k) without match to maximize tax-advantaged accounts to the highest possible/permitted by the IRS.

iloveyou 06-21-2013 03:16 PM

Quote:

Originally Posted by Wraisil (Post 15518990)
Assuming you are single and not at the very upper end of the bracket, you should (when able) contribute to your 401(k) up to the matching your company provides then invest in a Roth until that is maxed out and any leftover from your "total savings" put into your 401(k). Under $80k/year salary is "generally" more advantageous (assuming single income) to use a Roth instead of traditional 401(k)/IRA except when receiving a match. IRA's, however, have a much smaller limit than 401(k)'s for tax advantaged contributions so for many people (likely yourself included) it is best to do max the Roth contribution and then contribute any further money to your 401(k) without match to maximize tax-advantaged accounts to the highest possible/permitted by the IRS.

My company matches up to 5%. So I should max out my Roth and do 5% in 401k and any left over put in my 401 K even though it wont be matched ?

Wraisil 06-21-2013 03:55 PM

Quote:

Originally Posted by iloveyou (Post 15519052)
My company matches up to 5%. So I should max out my Roth and do 5% in 401k and any left over put in my 401 K even though it wont be matched ?

First step (when available to you) is to get the full match. Think of their match as part of your ROI and if they're matching 100% up to 5% then your 5% investment already has a 100% ROI. Then max out the Roth for the tax advantages it has. Finally is to put whatever else you can into the 401(k) to finish maximizing your tax-advantage. Don't, however, put more than the max pre-tax contribution into your 401(k). If/when you get to that point, the extra should go to an investment account that doesn't have the restrictions that IRA's/401(k)'s have.

5ynd1cat3 06-25-2013 05:16 PM

Re: Help a youngin out.
 
1 Attachment(s)
You're young. Read this.



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Raymond42262 06-25-2013 09:59 PM

Do you have any student loans ?

Do you have any cc debt ?

iloveyou 06-26-2013 02:29 AM

Quote:

Originally Posted by Raymond42262 (Post 15528148)
Do you have any student loans ?

Do you have any cc debt ?

Yeah a few grand in student loans, but i'm still taking a few classes so I dont have to pay them off yet.

No CC debt.

5ynd1cat3 06-26-2013 06:21 AM

Re: Help a youngin out.
 
Quote:

Originally Posted by iloveyou (Post 15528598)
Yeah a few grand in student loans, but i'm still taking a few classes so I dont have to pay them off yet.

No CC debt.

Attack the student loans and get them out of your life. Sallie Mae has a bad habit of moving into your spare bedroom and never leaving.

Great job on not having cc debt. Do yourself a huge favor and don't get any.

Are student loans the only debt you have? Anything else? Car payments, etc?

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