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Old 11-28-2018, 12:43 PM
 
1,712 posts, read 1,921,445 times
Reputation: 2935

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Hi, I'm in my mid 20's and I don't know much about investing or personal finance.

If YOU were in my position then what would you do?

My *take-home* pay is about $3450 per month.

Assets:
- $12k in my savings account (getting next to zero interest).
- $7k in an old 401k account. I'm thinking that a first step may be to start an private IRA since my temp agency doesn't have a 401k match. I know the importance of starting ypung when it comes to retirement.

Expenses:
- $16k in student loans (averaging about 4% for the interest rate) - I pay $500 per month on it, which is double the minimum required.
- My portion of rent: $670 per month (Roommate covers other half).
- I have no car but pay $100 month in commuting...will get a pre-tax Transit card when eligible.
- $87 phone bill and a credit card that I keep a 0.01 cent balance on. My credit score is good at about 750.

If I am ready to invest then how should I start? How can I build net worth?
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Old 11-28-2018, 12:55 PM
 
Location: Denver, CO
1,663 posts, read 4,042,733 times
Reputation: 1215
Do you have any 401k matching from your company? Figure out your monthly expenses. Subtract that from take home, and theoretically you can save the rest. The order I would save is 401k (up to match) -> HSA -> Roth -> 401k (up to max).


Along the way you want to build an emergency fund. The $12k you have is a good start, but you can move it to an online Money Market deposit account which will pay you 2%+. Link that to your checking account.


The $7k in old 401k you can either leave there if fees are low and you like the investment options, or roll to your existing 401k.


Keep paying off your loans regularly, keep your roommate, and keep using public transportation as long as you can. The cost of car ownership is one of the largest money pits in life unless you are good at fixing cars and buy old cars.


Net worth will come over time, but the time to start is at your age when you have time on your hand.
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Old 11-28-2018, 01:05 PM
 
Location: Omaha, Nebraska
7,159 posts, read 4,086,181 times
Reputation: 17901
You should definitely open up an IRA account. You'll have to check to see whether a regular IRA or a Roth IRA will be better for you from a tax standpoint.

The easiest way to start investing is to automate it. Put at least 10% of your paycheck aside every month (15-20% would be even better, if you can swing it financially). You can put up to $6000 into an IRA or Roth IRA; anything more than that needs to go into a taxable account. I'd suggest setting up an account with Vanguard, Fidelity, or Charles Schwab for the IRA, as all three have low cost mutual funds and ETFs, and having the money auto-deposited monthly from your paycheck straight into your IRA. Any additional money you want to invest should go straight into your savings account or a brokerage account. Having the money automatically deducted and deposited makes it more likely you'll actually save it rather than spend it.

I'd also look at putting some of that $12k into a CD ladder; it will still be reasonably liquid in case of a true emergency, but it will earn more interest. Shop around to find the best CD rates. Online banks like Ally Bank often offer the best CD rates.

As for what to invest in, check out the three-fund portfolio (https://www.bogleheads.org/wiki/Three-fund_portfolio). And skim the Bogleheads' wiki, it will teach you a lot about the basics of passive investing using index funds (https://www.bogleheads.org/wiki/Main_Page).

Feel free to ask more questions as they come to you!
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Old 11-28-2018, 01:09 PM
 
1,712 posts, read 1,921,445 times
Reputation: 2935
Quote:
Originally Posted by Moonwalkr View Post
Do you have any 401k matching from your company? Figure out your monthly expenses. Subtract that from take home, and theoretically you can save the rest. The order I would save is 401k (up to match) -> HSA -> Roth -> 401k (up to max).


Along the way you want to build an emergency fund. The $12k you have is a good start, but you can move it to an online Money Market deposit account which will pay you 2%+. Link that to your checking account.


The $7k in old 401k you can either leave there if fees are low and you like the investment options, or roll to your existing 401k.


Keep paying off your loans regularly, keep your roommate, and keep using public transportation as long as you can. The cost of car ownership is one of the largest money pits in life unless you are good at fixing cars and buy old cars.


Net worth will come over time, but the time to start is at your age when you have time on your hand.
Thanks for your input.

Does Chase have an online money market account? 2% of $12k is $240. Is that 2% broken up and paid out per month?
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Old 11-28-2018, 01:23 PM
Status: "On The Lookout" (set 22 days ago)
 
Location: The Triad (NC)
28,389 posts, read 61,750,545 times
Reputation: 31931
Quote:
Originally Posted by MemoryMaker View Post
If I am ready to invest then how should I start?
You start with saving. 10-15% of your gross every week.
Then you get used to living on, budgeting from what's left over.

#1 on that budgeting is HOUSING costs. Rent of course but also the utilities
and any other expense associated to living there (parking? trash? whatever else?).
Try to keep these MONTHLY costs ~equal (or less) than your WEEKLY net income/

#2 on that budget is settling debt. Do without X. Take a part time job. Take in a housemate.

#3 applies if you have a company matching 401K plan. Do it.
Up to the limit they will match you...

That's enough to get you started.
But at the present time I can't recommend putting more into equity markets.
Put that savings you accumulate into CD's or T-notes.


It won't be long before you want a house or have other good uses for the cash.
Replenish that reserve afterward.
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Old 11-28-2018, 02:11 PM
 
Location: Denver, CO
1,663 posts, read 4,042,733 times
Reputation: 1215
Quote:
Originally Posted by MemoryMaker View Post
Thanks for your input.

Does Chase have an online money market account? 2% of $12k is $240. Is that 2% broken up and paid out per month?

I don't think so, try Capital One 360. Yes compounded monthly. Remember it's a savings type account so you are only allowed 6 withdrawals per month.
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Old 11-28-2018, 03:48 PM
 
1,712 posts, read 1,921,445 times
Reputation: 2935
Quote:
Originally Posted by Aredhel View Post
You should definitely open up an IRA account. You'll have to check to see whether a regular IRA or a Roth IRA will be better for you from a tax standpoint.

The easiest way to start investing is to automate it. Put at least 10% of your paycheck aside every month (15-20% would be even better, if you can swing it financially). You can put up to $6000 into an IRA or Roth IRA; anything more than that needs to go into a taxable account. I'd suggest setting up an account with Vanguard, Fidelity, or Charles Schwab for the IRA, as all three have low cost mutual funds and ETFs, and having the money auto-deposited monthly from your paycheck straight into your IRA. Any additional money you want to invest should go straight into your savings account or a brokerage account. Having the money automatically deducted and deposited makes it more likely you'll actually save it rather than spend it.

I'd also look at putting some of that $12k into a CD ladder; it will still be reasonably liquid in case of a true emergency, but it will earn more interest. Shop around to find the best CD rates. Online banks like Ally Bank often offer the best CD rates.

As for what to invest in, check out the three-fund portfolio (https://www.bogleheads.org/wiki/Three-fund_portfolio). And skim the Bogleheads' wiki, it will teach you a lot about the basics of passive investing using index funds (https://www.bogleheads.org/wiki/Main_Page).

Feel free to ask more questions as they come to you!
Thanks for your advice as well. I will look into Charles Scwab and the others
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Old 11-28-2018, 04:04 PM
 
Location: Coastal Georgia
36,938 posts, read 45,376,262 times
Reputation: 61412
A conservative investment will only yield 4-5% . Your first priority will be to pay off the student loan. At the same time, you should be looking for new employment at a company that matches your 401k. After that, come back and ask again.
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Old 11-28-2018, 04:24 PM
 
Location: Denver area
157 posts, read 47,329 times
Reputation: 253
I'm going to keep it simple. Roll that $7k into an IRA or Roth (assuming a temp agency doesn't offer you anything) and start contributing to an Index or other fund with whatever you think you can afford. Even if it's $50 or $100/mo....if you can afford more great. Check out Vanguard, Schwab, Blackrock, a few others and mind their fees. In you're mid 20's you have around 40 years +/- of compounding available to you and that's what matters. Go play around with a compound interest calculator online and be amazed!
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Old 11-28-2018, 04:36 PM
 
9,972 posts, read 4,581,849 times
Reputation: 15168
open a roth ira, and not a traditional ira for now, max it out for the next few years

you want a roth ira to double as your emergency fund too. you can pull out contributions if you need it, cant with a tIRA. its also harder for creditors to go after your ira than a bank account/wages, in case that loan causes you issues until you pay it off

yes, it hurts to pull money from a retirement account for non-retirement reasons, but if you kept it in a savings account, it would be spent on the emergency and not on retirement regardless. at least if you have no emergencies, the growth on it is tax free later in life

for the first year or two, keep contributions in a bond/money market fund, since it is doubling as emergency fund too. after you have enough in contributions, start in with the stock funds.
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