How to invest when starting with almost nothing

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mojave
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How to invest when starting with almost nothing

Post by mojave »

Hi - I am new here and this kind of is about both investing and personal finances so I hope this doesn't cause problems and I apologize if it does. Some quick background on our finances. Husband and I are newlyweds - together we make about $120,000 a year which is pretty awesome for two 27 year olds. However because of poor financial habits and poor choices made by my husband we do not have much. I have about $13k in a 401k and he has rougly $45k in annuities (also in theory will get pension but I'm not relying on that) however this is all retirement so doesn't really "count". In 2007 when he was 22 he bought a townhome for $230k, loan was $215k. We all know what happened next. Right now home is worth about $90k because of all the short sales in the area. Mortgage is $1600/mo. He needs a truck for work and a few years ago bought more than what was needed and the monthly payment is $400. So half of what he brings home a month goes just toward the house and the truck. He's also got a lot of credit card debt, another loan, etc - outside of the home his debt amounts to about $13k, mine is about $6k but is mostly my car and a student loan). Anyway needless to say I am now the one that is 100% in charge of finances. We started out the year with about $10,000 in savings and right now are down to $2,000 and I am pretty much freaking out all of the time (about $5k of this was used as a land investment that does not factor into this, it is where we will one day build ourselves a home. Loan is small, lot was forclosed on). Every month we have to take out some from savings because of all of the bills.

My question is this - what do I invest in to grow this last tiny bit? Ideally I would like to do something that he won't know about, something that won't come up with filing taxes, I have no idea if anything exists like this other than a regular savings account. I know this sounds sneaky but the problem is he believes he is really good with money but he is not, he's mostly interested in investing in metals, real estate (yes really) and other random investments that I consider the "get rich quick" types in the investment world. I support the metals one once we have more under us. I can only really start out with about $100 but can add a few hundred a month after that. We have separate checking and savings right now (I have the savings). I have an American Funds money market fund with $1014 in it, it made 14 bucks when I started it in 2007 and then interest rates went down to zero. I would like to move this money into something with better interest. I understand basics in investing but admittedly I am not as schooled as I would like to be. I know this is a very open question, if you need more info please ask. Thank you!!!
Johm221122
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Re: How to invest when starting with almost nothing

Post by Johm221122 »

Welcome to forum,
This is BOGLEHEAD philosophy

'Live below your means. Perhaps the most important idea underlying the Bogleheads approach to investing is recognizing you need to save a significant portion of income every month to have enough money for a comfortable retirement. There is no substitute for spending less than you earn. The Bogleheads approach to developing a workable financial plan is to have a sensible household budget - one that provides for needed expenditures, discretionary pleasures, savings for big ticket items, and savings for long term retirement planning. Avoid excess debt, such as credit cards and home equity loans. If you have such debt, pay off those balances first. Reduce expenses and unneeded debt so you can consistently set aside a portion of earnings for decades. If you don't save enough, no amount of financial trickery will provide the returns needed for a comfortable retirement."
http://www.bogleheads.org/wiki/Boglehea ... philosophy
Please post this way,
http://www.bogleheads.org/forum/viewtop ... f=1&t=6212
Good luck
John
Last edited by Johm221122 on Mon Aug 20, 2012 3:09 pm, edited 1 time in total.
Johm221122
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Re: How to invest when starting with almost nothing

Post by Johm221122 »

If you want simple answer,use your 401(creditors can't get to it in case of bankruptcy)
Emergency savings don't worry about interest right now (nothing pays much now)
Use something like this for 401
http://www.bogleheads.org/wiki/Three-fund_portfolio
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englishgirl
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Re: How to invest when starting with almost nothing

Post by englishgirl »

Do not start investing (outside of whatever you put in your 401k to get your company match).

First, you need to live below your means. Which means, live on less than your salaries. So, you've got to work first on cutting expenses, and paying down your debt. This is going to involve budgeting and cost-cutting.

List out all your debts in order of highest interest rate first.
Sarah
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damjam
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Re: How to invest when starting with almost nothing

Post by damjam »

You sound very stressed, I'm sorry about that.
Hopefully you can take a minute a just take a deep breath.

As englishgirl alluded you need to take a step back and get the ship righted.
First step is to have a budget. The budget should include infrequent expected expenses.
Next build an emergency fund of 3-6 months of expenses.
I recommend Gail Vaz-Oxlade for basic budgeting and debt repayment advice.
Once you get on an even keel you can look into investing.
I will add that you need to find a way to get your husband on board with this otherwise it may all be for naught.

Best of Luck.
TA_Lurker
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Re: How to invest when starting with almost nothing

Post by TA_Lurker »

Welcome!

I agree with the poster who said your family needs a budget. Let me add that you need to figure out a way to involve your husband in the budget setting process. Hiding the family finances from him will not work long term.

I've heard good things about the Dave Ramsay system for eliminating debt. I've never read his books myself but lots of people here have. I use Mint.com for budgeting. You can use it to set goals and it will automatically track your progress once you link it to your bank account.

So add Dave Ramsay and Mint.com to your googling list and come back with questions! :beer
DualIncomeNoDebt
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Re: How to invest when starting with almost nothing

Post by DualIncomeNoDebt »

Let me tell you what I would do. I would get militant about debt, and then about investing. It does not get easier as you get older, so you better start now.

As others have said, if you have a 401k, max it, especially if you get an employer contribution, that is free money. Next, stop the nonsense. Just stop, no crazy investments, no "get rich quick" schemes. I despise paying interest, you should hate it too, it's a major drag on your financial well being. Get those debts paid off, starting with the highest interest obligations, likely the credit cards. Stop overspending, stop throwing away money, and get rid of the high interest debt. Focus like a laser. Do this, and you will be amazed how much better you feel as the debt column disappears. Plus this is one of the best returns you can earn on your money, i.e. not having to pay interest = a lot more money for both of you.
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Jerilynn
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Re: How to invest when starting with almost nothing

Post by Jerilynn »

mojave wrote:Hi - I am new here and this kind of is about both investing and personal finances so I hope this doesn't cause problems and I apologize if it does. Some quick background on our finances. Husband and I are newlyweds - together we make about $120,000 a year which is pretty awesome for two 27 year olds. However because of poor financial habits and poor choices made by my husband we do not have much. I have about $13k in a 401k and he has rougly $45k in annuities (also in theory will get pension but I'm not relying on that) however this is all retirement so doesn't really "count". In 2007 when he was 22 he bought a townhome for $230k, loan was $215k. We all know what happened next. Right now home is worth about $90k because of all the short sales in the area. Mortgage is $1600/mo. He needs a truck for work and a few years ago bought more than what was needed and the monthly payment is $400. So half of what he brings home a month goes just toward the house and the truck. He's also got a lot of credit card debt, another loan, etc - outside of the home his debt amounts to about $13k, mine is about $6k but is mostly my car and a student loan). Anyway needless to say I am now the one that is 100% in charge of finances. We started out the year with about $10,000 in savings and right now are down to $2,000 and I am pretty much freaking out all of the time (about $5k of this was used as a land investment that does not factor into this, it is where we will one day build ourselves a home. Loan is small, lot was forclosed on). Every month we have to take out some from savings because of all of the bills.

My question is this - what do I invest in to grow this last tiny bit? Ideally I would like to do something that he won't know about, something that won't come up with filing taxes, I have no idea if anything exists like this other than a regular savings account. I know this sounds sneaky but the problem is he believes he is really good with money but he is not, he's mostly interested in investing in metals, real estate (yes really) and other random investments that I consider the "get rich quick" types in the investment world. I support the metals one once we have more under us. I can only really start out with about $100 but can add a few hundred a month after that. We have separate checking and savings right now (I have the savings). I have an American Funds money market fund with $1014 in it, it made 14 bucks when I started it in 2007 and then interest rates went down to zero. I would like to move this money into something with better interest. I understand basics in investing but admittedly I am not as schooled as I would like to be. I know this is a very open question, if you need more info please ask. Thank you!!!
You are eventually going to have to have this discussion with your spouse. As many can attest, it will only get worse over time if you don't address it now and you will become more and more contemptuous of him as time goes on.

So...you may want to let him read this post and go on from there or perhaps even get a few sessions with a counselor and talk about the money issues and how you guys have different perspectives.

But, to answer your question, you can check with local credit unions and see what their best deal is for a savings acct or click here http://www.depositaccounts.com/savings/ and choose one of the on-line banks.

I currently have an acct with TIAA-Direct paying 1.25%, but that is temporary closed. I'd stick with a well known institution like AMEX, Discover, Cap One, Ally.

By the way, stories like yours always come up on the Suze Orman Show, and invariably the woman has waited too long and is now on the verge of divorce. So, best to nip this in the bud before it gets that far.

Good luck!
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)
mptfan
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Re: How to invest when starting with almost nothing

Post by mptfan »

You have to first get on the same page with your husband when it comes to how you handle money or else your marriage will fail. Everything else doesn't matter. I do not mean to be harsh, but I am speaking from experience. If you are trying to hide things from him, then you are doing things all wrong. The top three things that cause marriages to fail are: money, sex, and kids issues. Again, I am not trying to sound harsh, but it is true.

Assuming everything else is good in the marriage, if both people are savers, then the marriage will likely be happy. If both people are spenders, it may also be happy, but it may also be stressful, depending on whether the couple accepts the consequences of the overspending. However, if one is a saver, and the other is a spender, then the marriage is doomed to failure, in my opinion, and all the counseling in the world will not save it.
scone
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Re: How to invest when starting with almost nothing

Post by scone »

If you try to hide things from your husband, it will come back to haunt you. But if you two can get together on this issue, it will make your marriage stronger. You won't be able to avoid this fight forever, and the longer you wait, the worse it will get.

That said, the easiest way to save, IMO, is to have the money taken out of your paycheck before you ever see it, and live on the rest. Cut up your credit cards. Put your debt payments on automatic, electronic withdrawal. And share one checking account between the two of you. I would not bother trying to do a paper budget, most people don't stick with it. Just save something every month, and put it in a 5 year CD with a nasty early withdrawal penalty. Then every time you hit a milestone, such as every $1000, give yourself a little reward, like going out to dinner. Stick to the plan, and soon you'll be out of trouble. Good luck.
"My bond allocation is the amount of money that I cannot afford to lose." -- Taylor Larimore
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hoppy08520
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Re: How to invest when starting with almost nothing

Post by hoppy08520 »

One thought. Although he's a bit controversial around these parts because of disagreements with his investing advice, a lot of people like Dave Ramsey for his straight talk on debt avoidance and recovery from debt. Maybe you can encourage your husband to get on the Dave Ramsey kick.
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mojave
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Re: How to invest when starting with almost nothing

Post by mojave »

Wow, lots of responses - thanks for all of them! Sadly, most of the above is nothing new to me, whether something I've done already or something burned into my brain growing up. Really, the problems are one of two things as most of you suggested: debt and budgeting - I have put together a budget already unfortunately it doesn't seem to be enough for husband and he will end up spending more. It goes to him getting $80 a week, me getting $20. He smokes a pack a day (maybe more, I don't like it around me), is a coffee addict and has the appetite of a hungry bear - couple this with the fact that he doesn't work in an office and have easy access to stuff and everything is about convenience because of that. He did start carpooling to save gas which has helped, but it is hard to get him to only spend $80 a week (not including gas, purely extras only). Is that a crazy amount or am I being too frugal? I sort of struggle a bit with the $20 a week, but I get free coffee at work and can store milk and cereal. I don't have a big appetite or really need anything else so really it just goes to lunch for me.

Most of the debt, if not all, should be paid off by next year this time. My credit card and car and his car will be paid off. My student loans potentially too. He has 6-7k in credit card debt and 2k in a jewelry loan (my ring)...which is 25% interest!! :shock:
mptfan
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Re: How to invest when starting with almost nothing

Post by mptfan »

You are not being too frugal, you are being smart. Unfortunately, your husband is different, and that will not change, so you will always have problems. The only way to fix your issue is to get divorced. Again, I know it sounds harsh, but I have been where you are, and I thought I could make it work, but I could not. You may struggle for years to make it work, but eventually you will give up. Good luck.
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DiscoBunny1979
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Re: How to invest when starting with almost nothing

Post by DiscoBunny1979 »

What state are you in? If in California, it's a community property state in which what was purchased before marriage is that person's separate property, unless He put you on title. If the townhouse is still in his name, then it is his debt, not yours. Other obligations made before marriage are each other person's debt. The only joint debt is that what is made during marriage. So. . .if you're in California and that much underwater, the house needs to be discussed in terms of saying goodbye to it. Just my opinion.
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englishgirl
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Re: How to invest when starting with almost nothing

Post by englishgirl »

mojave wrote:Wow, lots of responses - thanks for all of them! Sadly, most of the above is nothing new to me, whether something I've done already or something burned into my brain growing up. Really, the problems are one of two things as most of you suggested: debt and budgeting - I have put together a budget already unfortunately it doesn't seem to be enough for husband and he will end up spending more. It goes to him getting $80 a week, me getting $20. He smokes a pack a day (maybe more, I don't like it around me), is a coffee addict and has the appetite of a hungry bear - couple this with the fact that he doesn't work in an office and have easy access to stuff and everything is about convenience because of that. He did start carpooling to save gas which has helped, but it is hard to get him to only spend $80 a week (not including gas, purely extras only). Is that a crazy amount or am I being too frugal? I sort of struggle a bit with the $20 a week, but I get free coffee at work and can store milk and cereal. I don't have a big appetite or really need anything else so really it just goes to lunch for me.

Most of the debt, if not all, should be paid off by next year this time. My credit card and car and his car will be paid off. My student loans potentially too. He has 6-7k in credit card debt and 2k in a jewelry loan (my ring)...which is 25% interest!! :shock:
How much do you guys spend on TV/cable? Who cuts the grass in the yard? What about spending on dinner? Don't immediately look to your spending money as a place to cut. There may be other places where you can make some painless (or relatively painless) cuts. Look, if you asked me to cut back, I'd struggle to spend less than $80 a week too. But it was relatively painless for me to start buying Starbucks via instant coffee from Amazon, and taking some almonds to work with me for an afternoon snack.

And, um, why not knock that 25% interest debt out of the way first? That's got to be costing more than the car loan does.

Edit: As newlyweds, you're still working out how to fit your lives together, and obviously it's going to take a bit of time to get on the same page about some things. Just keep working at the communication, and maybe don't pay TOO much attention to the divorce comments.
Sarah
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PaddyMac
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Re: How to invest when starting with almost nothing

Post by PaddyMac »

Goodness, the poor girl is newly married and asking for money advice and some people are recommending divorce! My DH at 26 also had credit card debt when we married and we took on a car loan when we met, then bought a house and lost 25%, etc. A decade later we were on our way, and financially secure.

Don't give up on him yet, but the way to a good financial relationship is to get on the same page. Hiding money is completely out. If he doesn't understand the reason why you need an emergency fund, then keep at it until he does. Once you have your debt paid off, have a little celebration and let him see how much this means to you to be debt free. Then never ever again pay the credit card companies ANY interest. None. In fact, have them pay you to use their cards by finding good rebate cards. Once debt free, take the money you were throwing at the debt and start saving it. Also make sure he understands that saving = freedom = early retirement. (I wish someone had told me that in my twenties...it's hard to see why you are saving when retirement is so far way.)

If the guy is running around and getting lunch on the fly, then $80 a week is not a lot. However, I would really work on getting him to stop smoking. It's a waste of money, smells horrible, and makes for more expensive health care issues down the line. Not to mention a possible early death. Try to find a way to work with him to find a solution.
DualIncomeNoDebt
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Re: How to invest when starting with almost nothing

Post by DualIncomeNoDebt »

mojave wrote:Wow, lots of responses - thanks for all of them! Sadly, most of the above is nothing new to me, whether something I've done already or something burned into my brain growing up. Really, the problems are one of two things as most of you suggested: debt and budgeting - I have put together a budget already unfortunately it doesn't seem to be enough for husband and he will end up spending more. It goes to him getting $80 a week, me getting $20.
Why don't you try a different tactic. Get him to invest in an income-producing asset, perhaps a dividend paying stock or income fund. Buy some shares in a Vanguard income fund, tax efficient bond fund, or even Exxon Mobile, AT&T, or even a REIT like Realty Income. You can start off small, say $5k or $10k in a stock or fund. Once the first distribution hits your/his account, maybe a light bulb will go off. My uncle did this with me, I was hooked for life. Show him via action he can earn income for life by being smart about money now -- and you will not "nag" him so long as he is building up savings. Savings first, play money later. Even if you generate only $20 a week to start, this may change his entire mindset. A new day in his thinking. You can then work up to the $80 per week you suggested. Start off small. Who knows, maybe he'll get the investing bug and start shoveling money into income-producing assets, instead of wasteful schemes.
He smokes a pack a day (maybe more, I don't like it around me), is a coffee addict and has the appetite of a hungry bear - couple this with the fact that he doesn't work in an office and have easy access to stuff and everything is about convenience because of that. He did start carpooling to save gas which has helped, but it is hard to get him to only spend $80 a week (not including gas, purely extras only). Is that a crazy amount or am I being too frugal? I sort of struggle a bit with the $20 a week, but I get free coffee at work and can store milk and cereal. I don't have a big appetite or really need anything else so really it just goes to lunch for me.
It is not too frugal, sounds reasonable to me. Also, get him off those cancer sticks, it's a destructive vice that wastes tons of money and results in markedly worse health outcomes. Used to work in an ICU, without question patients with most complications and worst outcomes were (a) smokers, and (b) morbidly obese.
i<3Investing
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Re: How to invest when starting with almost nothing

Post by i<3Investing »

mojave wrote:Wow, lots of responses - thanks for all of them! Sadly, most of the above is nothing new to me, whether something I've done already or something burned into my brain growing up. Really, the problems are one of two things as most of you suggested: debt and budgeting - I have put together a budget already unfortunately it doesn't seem to be enough for husband and he will end up spending more. It goes to him getting $80 a week, me getting $20. He smokes a pack a day (maybe more, I don't like it around me), is a coffee addict and has the appetite of a hungry bear - couple this with the fact that he doesn't work in an office and have easy access to stuff and everything is about convenience because of that. He did start carpooling to save gas which has helped, but it is hard to get him to only spend $80 a week (not including gas, purely extras only). Is that a crazy amount or am I being too frugal? I sort of struggle a bit with the $20 a week, but I get free coffee at work and can store milk and cereal. I don't have a big appetite or really need anything else so really it just goes to lunch for me.

Most of the debt, if not all, should be paid off by next year this time. My credit card and car and his car will be paid off. My student loans potentially too. He has 6-7k in credit card debt and 2k in a jewelry loan (my ring)...which is 25% interest!! :shock:
I feel you need to have a sit down talk with each other and decide where you'd like to be in 5, 10, 20 years. Then let him know that the only way he'll get there is to take it easy.. Or take Dave Ramsey's Financial Peace course. I've never taken it but it can be a form of motivation for those unwilling to save (group mentality and all). You guys earn enough to be able to save money (not everyone earns 120k/yr), so with a little self discipline it's most definitely possible.

My wife and I both budget $100/wk for food (eating out not groceries), clothes, fun things. I don't think it's fair for you to get 1/4 of what he gets as fun money. That will just lead to some resentment in the long run if you feel like you're sacrificing more. To sum it up communication is the key and no matter how hard you try you'll never win unless he gets on board.
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