Help with some financial basics - new to this site

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
bostonnanny
Posts: 9
Joined: Mon May 21, 2012 8:59 pm

Help with some financial basics - new to this site

Post by bostonnanny »

Hi everyone-
I am new to this site, and it was recommended to me when I posted this question on another site. I am a 27 year old living in Boston. I am a nanny and make a decent wage (for a nanny)- about $850/week after taxes. My rent is $1200 but I live with my boyfriend so we each pay $600. I have car payments of $330/month (ack!) and my car insurance is $135/month. Also, my cell is $100 and utilities (just electric and internet, we don't have cable) come out to $75 month, total. Other than that, I have no student loans and no other debt other than my car.
I haven't thought about retirement until now. I am not going to rely on my fiance/husband for retirement, as I want to be as financially independent as I can be. I just recently got my current job, and I was making a significantly lesser amount than I am now. Which is why I am just now thinking about the future in terms of saving and investing. Also, I just didn't really give it much thought which I'm embarrassed to admit.
I don't even know if I'm posting in the right section. The users here seem pretty advanced with their knowledge, so I don't know if my question will just be swept under the rug or not. I just don't know where to begin. I haven't been able to save anything until now since I was making a pretty low wage. I want to a) build up my savings, and b) start a retirement fund. What are my options? I've looked into IRA's and it seems like that's my best bet. Did I wait too long and will be suffering in my retirement?
Once I open an IRA, then what? I have no idea how to invest, what to invest in, if I even have to do that, etc.

Any help is greatly appreciated.
Thanks
User avatar
mhc
Posts: 5257
Joined: Mon Apr 04, 2011 10:18 pm
Location: NoCo

Re: Help with some financial basics - new to this site

Post by mhc »

Boston Nanny,

welcome to the forum. Your questions are not too basic. Everyone starts from the beginning. Put in the effort, and in no time, you will be more knowledgable than most. You are still young and have plenty of time.

Here are a few things to get you started. Don't be in a hurry. Take your time and learn.

1. Read the wiki on this forum.
http://www.bogleheads.org/wiki/Getting_Started

2. Look at the recommended booklist.
http://www.bogleheads.org/wiki/Books:_R ... t-up_Books

3. Build up your emergency fund.
4. Start saving for retirement.

An IRA sounds like a good place to start. As far as picking funds, look at the 3-fund portfolio on the Wiki.

Also, if you are self-employed, you probably have other options available to you. I just don't know what they are. Hopefully, others on the site will jump in.

The most important things right now are educate yourself and control your spending. The rest will come with time.
52% TSM, 23% TISM, 24.5% TBM, 0.5% cash
Savvy
Posts: 367
Joined: Sat May 05, 2012 3:09 pm

Re: Help with some financial basics - new to this site

Post by Savvy »

Boston nanny,

It's great that you have no credit card debt. I agree with previous post- educating yourself is very important. This post is a good first step. If you're looking for ways to free up money to save for an emergency fund you could get rid of the smart phone plan for a cheaper plan to spend $50-60 less per month.
The Wizard
Posts: 13356
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Help with some financial basics - new to this site

Post by The Wizard »

Savvy wrote:Boston nanny,

It's great that you have no credit card debt. I agree with previous post- educating yourself is very important. This post is a good first step. If you're looking for ways to free up money to save for an emergency fund you could get rid of the smart phone plan for a cheaper plan to spend $50-60 less per month.
Smartphones are crucial to today's lifestyle; I'm posting this from one.
Delete texting from your plan and use email to save a few bucks...
Attempted new signature...
The Wizard
Posts: 13356
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Help with some financial basics - new to this site

Post by The Wizard »

Reading some of the booklist is good but will take time.
Yes, start a Roth IRA right now, limited to $5000 a year but it's a start.
Put the $$$ in the Vanguard Star fund for first two years while you are learning...
Attempted new signature...
Johm221122
Posts: 6393
Joined: Fri May 13, 2011 6:27 pm

Re: Help with some financial basics - new to this site

Post by Johm221122 »

I would work on emergency fund first(it can be in Roth Ira)it would probably be wise because a job like this can not last forever (kids go to school,grow up etc...)some bouts with unemployment are likely to happen.Look at a Roth Ira,and go with something conservative at first an example would be life strategy moderate or balanced index fund or star fund(which is not an index fund and not my first choice(but has low minimum))
Topic Author
bostonnanny
Posts: 9
Joined: Mon May 21, 2012 8:59 pm

Re: Help with some financial basics - new to this site

Post by bostonnanny »

Thanks all for the advice so far. I admit I haven't done much research and I wanted to just put out some feelers for some quick advice.

I definitely need to do more research. Can I open up an IRA, put in money, add in monthly increments, and then when I am ready, choose where to put said money? If I am ready to save yet haven't had time to do all the research on where to allocate the money? Hope that makes sense.

Also, do people on here generally suggest seeing a financial planner/advisor? And are they expensive/worth it? Or are they more for people with millions of dollars..

And yes, my job is not that stable. I have a guaranteed 2-3 years with this family, but I think this might be my last nanny gig. I am ready to move on, and I'm sure whatever field I go on to will be lesser paying/entry level, so I really need to start saving while I'm making decent money. (Again, I know my wage is a fraction of what some people on here make, but it's more than enough for me at the moment).

What is the most basic, bare-bones book you would suggest? For someone who really knows next to nothing about this type of stuff (which is why I'm thinking financial planner)?

Thanks so much everyone!
Johm221122
Posts: 6393
Joined: Fri May 13, 2011 6:27 pm

Re: Help with some financial basics - new to this site

Post by Johm221122 »

Yes you just need fund minimum for Ira,then$100 additions
I would choose lifestrategy moderate or balanced index or retirement fund withAA you like(vanguard)
no advisor needed(most are salesman)
2 or 3 years not stable,you need Emergency fund
investor1
Posts: 1050
Joined: Thu Mar 15, 2012 8:15 pm

Re: Help with some financial basics - new to this site

Post by investor1 »

The best place to start reading is the wiki on this site which someone else already posted links to.

The problem with financial advisors is that they charge a fee and typically give you advice which is in their best interest (which is not necessarily your best interest). You'd be fine getting them to clear up technical details of something which you are interested in (though you can do that by reading up online and posting here for free). The problems tend to arise once they start trying to tell you where your money should go.

Yes, you can put money into the account without investing it. Often times, you can put it into a money market account within the retirement account which means you will still earn some interest.

My advice: Read the wiki and post questions.
User avatar
BL
Posts: 9874
Joined: Sun Mar 01, 2009 1:28 pm

Re: Help with some financial basics - new to this site

Post by BL »

Congratulations for trying to get your financial house in order!
I would first put some money away for emergencies. A bank or credit union is fine.

You can also start a Roth IRA or traditional IRA (t. might save a little on taxes) at a bank if you just want to put it in a CD (or cash?) for a specific period of time. (Just don't use a bank for other investing such as mutual funds or insurance products.) This would let you build up some money until you are ready to transfer it to Vanguard and put at least $1000 into a Vanguard Target Retirement Income Fund or dated TR fund if you can handle the ups and downs. You don't need a broker for this, just contact Vanguard directly.

Your car expenses are huge so you might want to save for paying that off as soon as you can or look for other alternatives. Any spending you can cut will help you manage better, especially if your income will decrease in the future.

I-bonds are a good place for money you don't need in less than a year. They pay better interest than CDs but now they are only sold on-line so if you are comfortable with that you may want to Google Treasury Direct, a US government site. There are lots of passwords, etc., so not the easiest site to use.
User avatar
mhc
Posts: 5257
Joined: Mon Apr 04, 2011 10:18 pm
Location: NoCo

Re: Help with some financial basics - new to this site

Post by mhc »

bostonnanny wrote:Thanks all for the advice so far. I admit I haven't done much research and I wanted to just put out some feelers for some quick advice.

I definitely need to do more research. Can I open up an IRA, put in money, add in monthly increments, and then when I am ready, choose where to put said money? If I am ready to save yet haven't had time to do all the research on where to allocate the money? Hope that makes sense.

Also, do people on here generally suggest seeing a financial planner/advisor? And are they expensive/worth it? Or are they more for people with millions of dollars..

And yes, my job is not that stable. I have a guaranteed 2-3 years with this family, but I think this might be my last nanny gig. I am ready to move on, and I'm sure whatever field I go on to will be lesser paying/entry level, so I really need to start saving while I'm making decent money. (Again, I know my wage is a fraction of what some people on here make, but it's more than enough for me at the moment).

What is the most basic, bare-bones book you would suggest? For someone who really knows next to nothing about this type of stuff (which is why I'm thinking financial planner)?

Thanks so much everyone!
You can open the Roth IRA at Vanguard and put your money in the Prime Money Market Fund until you figure out how you want to invest it. The recommended funds by other posters are fine, but you can put it in the money market fund also until you decide your strategy.

You do not need/want a financial adviser. Investing is easy, believe it or not. You can do it yourself with a little education.

The Boglehead Guide to Investing (or something like that) on the recommended book list is a good place to start and it is easy to read.
52% TSM, 23% TISM, 24.5% TBM, 0.5% cash
Topic Author
bostonnanny
Posts: 9
Joined: Mon May 21, 2012 8:59 pm

Re: Help with some financial basics - new to this site

Post by bostonnanny »

Thanks again everyone. I have ~3 years left on my car loan (it's a 5 year loan). I have a $14,000 balance (ouch) and I KBB'ed the value and it's only worth ~$10,000 tops. It was a poor financial decision on my part. It's an '08 Civic, and I love it, but it was a shortsighted decision. I looked into selling it (I use public trans) but I can't because I owe more than its worth. I do love my car, and I know I'll need it in the future, so it's not necessarily a burden.
Do you think I should spend a year saving to pay it off? And also building up my EF? Versus putting savings into retirement (not ignoring retirement funds, just holding off another year)? My loan is through TD bank and I remember them telling me I wouldn't be penalized for paying it off early (which apparently can happen?). Given my uncertain employment future, its dawning on me that this might be a good direction to go in.. $330/month is a LOT when you're unsure of your financial future.
Grt2bOutdoors
Posts: 25625
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Help with some financial basics - new to this site

Post by Grt2bOutdoors »

bostonnanny wrote:Thanks again everyone. I have ~3 years left on my car loan (it's a 5 year loan). I have a $14,000 balance (ouch) and I KBB'ed the value and it's only worth ~$10,000 tops. It was a poor financial decision on my part. It's an '08 Civic, and I love it, but it was a shortsighted decision. I looked into selling it (I use public trans) but I can't because I owe more than its worth. I do love my car, and I know I'll need it in the future, so it's not necessarily a burden.
Do you think I should spend a year saving to pay it off? And also building up my EF? Versus putting savings into retirement (not ignoring retirement funds, just holding off another year)? My loan is through TD bank and I remember them telling me I wouldn't be penalized for paying it off early (which apparently can happen?). Given my uncertain employment future, its dawning on me that this might be a good direction to go in.. $330/month is a LOT when you're unsure of your financial future.
Savings first
What rate is the car loan?
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Johm221122
Posts: 6393
Joined: Fri May 13, 2011 6:27 pm

Re: Help with some financial basics - new to this site

Post by Johm221122 »

bostonnanny wrote:Thanks again everyone. I have ~3 years left on my car loan (it's a 5 year loan). I have a $14,000 balance (ouch) and I KBB'ed the value and it's only worth ~$10,000 tops. It was a poor financial decision on my part. It's an '08 Civic, and I love it, but it was a shortsighted decision. I looked into selling it (I use public trans) but I can't because I owe more than its worth. I do love my car, and I know I'll need it in the future, so it's not necessarily a burden.
Do you think I should spend a year saving to pay it off? And also building up my EF? Versus putting savings into retirement (not ignoring retirement funds, just holding off another year)? My loan is through TD bank and I remember them telling me I wouldn't be penalized for paying it off early (which apparently can happen?). Given my uncertain employment future, its dawning on me that this might be a good direction to go in.. $330/month is a LOT when you're unsure of your financial future.
Your Roth can be part of EF,contributions can be withdrawn at any time.( that why I suggested lifestrategy moderate and balanced index there conservative at your age)
Topic Author
bostonnanny
Posts: 9
Joined: Mon May 21, 2012 8:59 pm

Re: Help with some financial basics - new to this site

Post by bostonnanny »

I believe 6%
I have gap coverage and a full warranty which added to the cost+interest
User avatar
Rob5TCP
Posts: 3812
Joined: Tue Jun 05, 2007 7:34 pm
Location: New York, NY

Re: Help with some financial basics - new to this site

Post by Rob5TCP »

Savvy wrote:Boston nanny,

It's great that you have no credit card debt. I agree with previous post- educating yourself is very important. This post is a good first step. If you're looking for ways to free up money to save for an emergency fund you could get rid of the smart phone plan for a cheaper plan to spend $50-60 less per month.

Boston Nanny - I just dropped my Verizon (about $100 per month) phone service. I switched to Virgin Mobile (about $38 per month). It's only been two weeks, so I can not tell you long term about the difference. So far, they have been nominal. I have kept my old phone next to the new and looked to see how many bars each had at different locations. The variance has been miniscule. I live in Manhattan, so that may be atypical. But, I believe, Boston would have similar results.

It's "only" $60-$65 per month, but it does add up.

Good luck.

Rob
Grt2bOutdoors
Posts: 25625
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Help with some financial basics - new to this site

Post by Grt2bOutdoors »

bostonnanny wrote:I believe 6%
I have gap coverage and a full warranty which added to the cost+interest
Civic is a reliable car, I would have passed on the warranty, but that is water under the bridge now.

Here's the thing with retirement accounts:

Given your salary if you fund a traditional IRA you will receive an upfront tax deduction and likely some other tax savers credits because you are filing single, but you can not withdraw contributions without incurring significant penalties prior to age 59 1/2.

The other option is to fund a ROTH IRA - contributions can be withdrawn at any time without penalty, however there is no tax deduction on your federal/state taxes.

Both forms of IRAS can be funded monthly, so no worries there.

I would strongly consider working on establishing a savings account and accelerating repayment of that loan - 6% is a pretty steep rate to be paying in this interest rate enviornment. Just make sure you work on the savings account first - that can be in the form of a ROTH so it serves two purposes (retirement and savings) or it can be in the form of an FDIC insured savings account. Before you do that you should run the numbers on Intuits TaxCaster to see the effects of deducting an IRA versus just using the ROTH option. You want to save enough to cover 6 months expenses at a minimum - that is your emergency fund if you lose your job, car breaks down, etc. It is not for "I want to buy an Ipod" or "my go on vacation account".
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
Johm221122
Posts: 6393
Joined: Fri May 13, 2011 6:27 pm

Re: Help with some financial basics - new to this site

Post by Johm221122 »

Single ,50g and no dependents,not eligible for savers credit.OP says she clears $850 a week,that's got to be at least 50g
You may want to create budget and investment plan (written)
Grt2bOutdoors
Posts: 25625
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Help with some financial basics - new to this site

Post by Grt2bOutdoors »

Johm221122 wrote:Single ,50g and no dependents,not eligible for savers credit.OP says she clears $850 a week,that's got to be at least 50g
You may want to create budget and investment plan (written)
I used Taxcaster with the following criteria:
Gross wages 52K
Single, age 27
Standard Deduction
With Traditional IRA deduction of $5K
Tax of $5,506 Federal

Same criteria above except ROTH IRA:
Tax of $6,756

Upfront tax break of $1,250 if OP uses Traditional IRA, but will not be able to access funds without significant penalties, so dual use of IRA as e-fund/retirement is out. This choice is for retirement only. I would take the federal tax return savings and use it to partially fund the savings account.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
TA_Lurker
Posts: 243
Joined: Mon Nov 03, 2008 9:41 pm

Re: Help with some financial basics - new to this site

Post by TA_Lurker »

Hi Boston Nannny, a few suggestions:

1) Do you have a budget? I find budgeting very useful, as it allows me to decide what my money will do before I spend it. If you want to fool around with budgeting and like to do stuff online check out Mint.com. I use Mint to track my spending in a few basic categories so I don't splurge too badly.

2) Focus on saving an emergency fund. The size of your emergency fund is a very personal decision. Consider your fixed expenses (rent, debt payments, etc.), your job prospects (i.e. how long would it take you to get a new job?), and your social safety net (in the event of prolonged unemployment could you live with family?). Are you eligible for unemployment as a nanny? If you have the will power you can keep your emergency fund as cash in your checking account. If you're worried you might spend it look at opening a seperate savings account with a different bank or an online bank (I like ING Direct).

3) Once you have a better grasp on your spending and an emergency fund set aside you can focus on saving for retirement. Don't worry about all the time that has passed. By starting now, or by starting a year from now after funding an emergency fund, you will still be ahead of your peers.

You're still very young and you're asking some great questions.
Topic Author
bostonnanny
Posts: 9
Joined: Mon May 21, 2012 8:59 pm

Re: Help with some financial basics - new to this site

Post by bostonnanny »

I've budgeted in the past, but I was scraping by, so it was mainly "what can I afford at the grocery store" type thing. I may not have the best job security, but I've always been able to find work as a nanny- I have a large network of of other nannies, past employers, and relatives all in the nanny-sphere. Ive stepped up my game with this recent job- more responsibilities, longer hours, but much better pay. I can safely say I'll be here for at least two years. Once the kids are grown, I'll have the option of going part-time, which is better than nothing.
I think though, that I'm going to stop nannying in two years (just an estimate at this point), give or take. I want to explore other careers. I'm honestly not sure what I want to do, but I imagine it'll be for a lot less pay, at least for a couple years. Which is another reason I should really build up my savings while I'm making good money. I also don't want to worry about a $330 car payment when I'm potentially making a significantly less salary.
All of this said, it looks like I should focus on a) building up an emergency fund and b) pay off my car -- both things I should give myself two years to do. In that time, I'll be pushing 30 and should really start up with the retirement.
danieljquirk
Posts: 196
Joined: Mon Feb 20, 2012 7:16 pm
Location: San Diego

Re: Help with some financial basics - new to this site

Post by danieljquirk »

Welcome!

All of the advice here has been great. Some basic thoughts:

1-Create a budget. Try to save part of every pay check and invest it (or pay off car loan).

2- Keep your investments simple and low cost. If you are just starting out, you probably only need to invest in one fund, the Vanguard Total Stock Market (ticker VTI). When this gets above $10,000, you can think about adding one or two other funds (Vanguard International (ticker: VXUS) and Vanguard Total Bond fund (ticker: BND).

3- Make sure you invest in yourself. How stable is this job? How old are the kids? How long do you expect to have the current job? You want to create stability for yourself. You want to make sure that you are "networking" other parents with young children. You want to be the "5-star" nanny. That can mean having musical or language skills that you can teach the kids, or any number of other things. Whatever it is, you want to be in high demand after the current gig is over. Not that you want to be disloyal to your current employer, but you always want to have options if things don't work out. Think of yourself as an entrepreneur with a brand to market. Your career and your earnings will be far more important to how successful your retirement is versus what specific funds you invest in.
User avatar
dratkinson
Posts: 6116
Joined: Thu Jul 26, 2007 6:23 pm
Location: Centennial CO

Re: Help with some financial basics - new to this site

Post by dratkinson »

Submitted for what it is worth.

I was never able to create a budget and stick to it. Instead, I used a method called "creating an austere financial environment" to accomplish the same thing. I found it to be much simpler.

+Income
-pay myself first (emergency fund, savings, investing, vacation planning,....)
-*normal monthly expenses (includes groceries... created from annual receipts)
remainder, for miscellaneous purchases
  • *I tracked my expenses for 3 months and multiplied by four to get my annual spending.
    Remember to include any expenses paid quarterly, semi-annually, and annually.
    You must save 12th of this total every month to cover your annual expenses.
If remainder is too low, then no restaurants, movie tickets, concerts, cable TV, ....



In my beginning, I kept two checkbooks.
Into the first, I made the weekly deposit required to cover my monthly/annual expenses.
Into the second, I placed the remainder of my weekly pay.
(I didn't learn about "paying my first" until much later in life. I hindsight I should have used a savings account to accumulate money to fund an emergency fund, CDs, investments,....)

If the second checkbook was empty, I couldn't buy fun miscellaneous stuff. But I always knew I had money to pay my monthly bills (rent, groceries, utilities, car, insurance, ....) because they were covered by my first checkbook. Most comforting. And no need to create or follow a budget.
d.r.a., not dr.a. | I'm a novice investor; you are forewarned.
User avatar
verbose
Posts: 673
Joined: Thu Aug 28, 2008 10:05 am

Re: Help with some financial basics - new to this site

Post by verbose »

1- Save a small emergency fund
2- Save $4000
3- Sell the car, use the $4k to pay the difference

You're paying about $500/month for a car that you don't need and can't afford. The decision to buy it is in the past, but every day it's not for sale, you make the decision to keep it.

When you need a car in the future, buy the cheapest car that will meet your transportation needs. Once you get used to life without a car payment, it's hard to go back.
Topic Author
bostonnanny
Posts: 9
Joined: Mon May 21, 2012 8:59 pm

Re: Help with some financial basics - new to this site

Post by bostonnanny »

I wouldn't even know how to go about selling a car that I don't own- to a dealership? or privately?
Re: IRA's, people seem to recommend Vanguard- I will snoop around in their site for my best options. Is it purely online or are there physical locations/branches?
Johm221122
Posts: 6393
Joined: Fri May 13, 2011 6:27 pm

Re: Help with some financial basics - new to this site

Post by Johm221122 »

GRT2BOUTDOORS wrote:
Johm221122 wrote:Single ,50g and no dependents,not eligible for savers credit.OP says she clears $850 a week,that's got to be at least 50g
You may want to create budget and investment plan (written)
I used Taxcaster with the following criteria:
Gross wages 52K
Single, age 27
Standard Deduction
With Traditional IRA deduction of $5K
Tax of $5,506 Federal

Same criteria above except ROTH IRA:
Tax of $6,756

Upfront tax break of $1,250 if OP uses Traditional IRA, but will not be able to access funds without significant penalties, so
dual use of IRA as e-fund/retirement is out. This choice is for retirement only. I would take the federal tax return savings and use it to partially fund the savings account.
The Savers Credit gives a special tax break to low- and moderate-income taxpayers who are saving for retirement.
I thought you were talking about this.
Johm221122
Posts: 6393
Joined: Fri May 13, 2011 6:27 pm

Re: Help with some financial basics - new to this site

Post by Johm221122 »

bostonnanny wrote:I wouldn't even know how to go about selling a car that I don't own- to a dealership? or privately?
Re: IRA's, people seem to recommend Vanguard- I will snoop around in their site for my best options. Is it purely online or are there physical locations/branches?
Mostly on line or phone.There headquarters is in Pennsylvania
User avatar
mhc
Posts: 5257
Joined: Mon Apr 04, 2011 10:18 pm
Location: NoCo

Re: Help with some financial basics - new to this site

Post by mhc »

bostonnanny wrote:I wouldn't even know how to go about selling a car that I don't own- to a dealership? or privately?
Re: IRA's, people seem to recommend Vanguard- I will snoop around in their site for my best options. Is it purely online or are there physical locations/branches?
I do everything online, but you can call them if you need to. It is easy to set up an IRA. If you need additional help, call Vanguard first, but you can post questions here. A lot of us have IRA's at Vanguard.

I wouldn't sell the car if you can keep up with the payments. You have a good car that will last you a long time.
52% TSM, 23% TISM, 24.5% TBM, 0.5% cash
User avatar
Kevin M
Posts: 15787
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Help with some financial basics - new to this site

Post by Kevin M »

I would make paying off the car loan a top priority. You cannot beat a guaranteed 6% after-tax return.

I like the idea about saving $4,000 then selling the car. You own the car. The bank has a lien on the car, so they have to sign off when you sell it. Maybe you could talk to the dealer and negotiate a deal to sell it back to them.

If you don't sell it, then I would make paying off the loan your top priority, other than building up some emergency savings.

If you want to use a Roth for emergency savings, then I would open the Roth at Ally Bank, and put it in either a savings account or maybe in some 5-year CDs (the early withdrawal penalty is only 60 days of interest).

EDIT: The reason I recommend Ally Bank over Vanguard for emergency savings is that Vanguard offers no totally safe (e.g, FDIC-insured) product that pays much more than 0%. At a bank you can get close to 1% in a savings account and about 1.6%-1.7% in 5-year CDs with a low early withdrawal penalty. I love Vanguard, but not for short-term savings at current low rates.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
555
Posts: 4955
Joined: Thu Dec 24, 2009 6:21 am

Re: Help with some financial basics - new to this site

Post by 555 »

Two places to put money are Trad IRA, and accelerated payoff of car loan. Keep the car. You've got it now and it could last 20 years.
Topic Author
bostonnanny
Posts: 9
Joined: Mon May 21, 2012 8:59 pm

Re: Help with some financial basics - new to this site

Post by bostonnanny »

Thanks so much everyone.
I am hit or miss with my car- it's a great car, it will last me a while, and it would be an adjustment to not have it. But, it is a financial burden at the moment. I'm kicking myself for not getting something less costly. However, like I said in a previous post, I don't know where I'll be in two years, employment wise. I love that I can use public transportation now, and I use it for 90% of my comings and goings, but what if my next job requires a car/long commute? I just won't know.
If I save the $4,000 (to sell/pay off), it will take me about 5-6 months- by then, I will have already made another $2,000 in payments- so if I did the math correctly, I'll only be saving about $5,000-6,000 dollars by selling it, in the long run, when I've been paying a LOT more than that. Long term thinking, I feel like I may as well just pay it off. Even if I don't use it and don't need it for a while, I still have a car available to me. It better last me a long time!
I am going to call them today and ask, but does anyone know how that works? I am financed through TD Bank, but a third party takes bi-weekly payments out of my bank account (so the payments are split in half which I like). Is it easier to save up money, then pay it off, or can I make extra payments monthly, on top of the auto-pay? It probably differs by bank.

This site has been so helpful. Another question- with IRA's, I was under the impression they earned more than just 1% of interest- is it different now? Or has it always been that way? What is the best way to earn interest? I'm just thinking if I start depositing money, and I'm unsure what to do with it yet (where to allocate it), wouldn't it be the same as it just sitting in my bank's savings account?

I thank you all again for being so helpful- I am getting to know the wiki and am going to order the Bogleheads book- is that the easiest one? I find myself getting overwhelmed with all the different routes to go and terms to use and it's all so new!
Johm221122
Posts: 6393
Joined: Fri May 13, 2011 6:27 pm

Re: Help with some financial basics - new to this site

Post by Johm221122 »

Ira are just holding place for your investment.tax Deffered (Ira) tax free(Roth)
The investment is what pays interest
bank account and CD very safe but low interest
bond fund little more interest a little less safe
Balanced funds some risk,better return possible
stock funds higher return but more risk
User avatar
JupiterJones
Posts: 3623
Joined: Tue Aug 24, 2010 3:25 pm
Location: Nashville, TN

Re: Help with some financial basics - new to this site

Post by JupiterJones »

Hi BostonNanny! I used to live in Boston back in my college days. What a great town! Congrats on deciding to take a cold, hard look at your finances. I didn't do that until I was older than you, so you're not "too far behind" in my book. :D

Some great advice so far. I'll just add a couple of tidbits:

I also like the idea of selling the car. You could probably make it work without selling it, but I'd give it some real thought. That's $465 a month in loan payment and insurance that you wouldn't have to pay each month. So even though it would cost you $4000 to sell it, you'd make that back in nine months! Not to mention whatever you're paying to park the thing. (I never had a car for the five years I was in Boston, and I never missed it. As you know, the public transit is superb there, apart from not being 24-hours. :( )

Here are two "starter" books I whole-heartedly recommend for people in your situation: Personal Finance for Dummies by Eric Tyson and Investing Made Simple by Mike Piper. The first one you can probably find at the library, and it will answer most, if not all of your questions. The second one is optional (but quick) reading, and is less likely to be found at the library (but it's super-cheap on Amazon).

Good luck, and keep us posted on your progress!

JJ
"Stay on target! Stay on target!"
User avatar
Kevin M
Posts: 15787
Joined: Mon Jun 29, 2009 3:24 pm
Contact:

Re: Help with some financial basics - new to this site

Post by Kevin M »

bostonnanny wrote: I'll only be saving about $5,000-6,000 dollars by selling it, in the long run, when I've been paying a LOT more than that.
What you have paid in the past does not matter; it is referred to as "sunk costs". What matters is your best financial solutions going forward. Consider that the car will continue to depreciate in value over the next two years, even if you don't use it at all. Think about selling it ASAP, then buying a good quality used car when you actually need one. However, if you decide to keep the car, focus on paying down the loan.

Here is a blog post I wrote on paying down debt as an investment. You can ignore the parts on tax deductions, since that does not apply to your loan. Does this make sense?
I am going to call them today and ask, but does anyone know how that works? I am financed through TD Bank, but a third party takes bi-weekly payments out of my bank account (so the payments are split in half which I like). Is it easier to save up money, then pay it off, or can I make extra payments monthly, on top of the auto-pay? It probably differs by bank.
First, is the third party charging a fee to do the bi-weekly payments? I believe that's how it works. I think you can do this directly with the bank and save the fee. It is better to make extra payments as soon as possible rather than saving then paying, since the earlier you make the extra payment, the more interest you save.
Another question- with IRA's, I was under the impression they earned more than just 1% of interest- is it different now? Or has it always been that way? What is the best way to earn interest? I'm just thinking if I start depositing money, and I'm unsure what to do with it yet (where to allocate it), wouldn't it be the same as it just sitting in my bank's savings account?
Here is a forum post with my views on the best options for savings.

Interest rates are very low now. A few years ago you could get 5% in a safe money market account. Now money market accounts are paying slightly more than 0%. The best safe rate you can get without using a reward checking account, I Bonds or CDs is a high-yield savings account paying about 1%. As mentioned in the post linked above, Ally Bank pays a little less, but their 5-year CDs get you a better rate for money you'll hold for five months or more. Unless your bank is paying 0.84% or more, you will do better at Ally Bank or another internet bank. As mentioned in the post above, you can get 3% to 4% in a reward checking account with some strings attached. Most reward checking accounts and many internet bank accounts reimburse you for ATM fees at any ATM.
I am getting to know the wiki and am going to order the Bogleheads book- is that the easiest one? I find myself getting overwhelmed with all the different routes to go and terms to use and it's all so new!
One of the easiest books is a book mentioned above: Investing Made Simply by Mike Piper. The Kindle version is about $5 at Amazon. However, at this point you probably should be focused mostly on building your short-term savings and paying off your car loan. You can learn much of what you need to know from the Wiki. Ask here about terms or anything else you find confusing.

Kevin
If I make a calculation error, #Cruncher probably will let me know.
Johm221122
Posts: 6393
Joined: Fri May 13, 2011 6:27 pm

Re: Help with some financial basics - new to this site

Post by Johm221122 »

"Personal fiance for dummies "as already mentioned is a great book .It was one of first books I read(check your local library).That whole series of books is great for a beginner crash course.
Post Reply