20 Year Old Seeking Financial Advice

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ElevatorGuy
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20 Year Old Seeking Financial Advice

Post by ElevatorGuy » Wed Mar 20, 2013 8:38 am

Hi all! I'm new to the forum, my name is Charlie. I am a 20 year old elevator mechanic and just started making "decent" money. I'm hoping that because I'm relatively young that with some good advice I can put myself in a comfortable fincancial position. (And if my fiance gets a nice job out of college that wouldn't hurt either.)

So as far as my current financial situation. Between my two jobs I currently take home at least $2600 a month. There are times I take home a few hundred to maybe a thousand more, but I like to plan based on the minimum I will make.

I understand that a car may very well be one of the worst investments you can make, but I already bought an expensive one. Please don't lecture me about my decision, I'm young but I'm old enough to know the consequences of my decisions.

Alright so now for the numbers:

I've already stated that I take home $2600 a month. My car payment is about $500 and insurance is about $300. So with gas and everything I am dedicating $1000 a month to the car.

This leaves me with $1600. I will give myself $150 a week to live on which leaves me with $1000 a month to save/invest.

I would like to split that in half and put $500 in something secure, while putting the other$500 into something a little riskier, but with a greater return potential. Any advice wouldbe greatly appreciated. Thanks for the time you spent reading all this and thanks in advance for any advice and suggestions any of you may have.

Also, I apologize if this is a little sloppy. I'm doing this on my phone and it isn't easy. Oh amd if it isn'tobvious I live at home rent free so this money I'm saving will hopefully help me buy a house in a few years.

RadAudit
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Re: 20 Year Old Seeking Financial Advice

Post by RadAudit » Wed Mar 20, 2013 9:39 am

Welcome to the forum.

For the secure portion of your investments, I'd suggest CDs at your local credit union. You'll be able to get to this money fairly easily if you need it.

For the riskier portion of your portfolio, I'd go with Vanguard's Target Retirement 2060 Fund. It may be in your best interest to investigate putting this money in an IRA. The asset allocation in this fund is fairly aggressive but becomes more conservative as you approach retirement.

And then you might want to read a few of the books suggested on this site to get some background on some other recommendations about investing for retirement.

PS: Pay your parents some rent
FI is the best revenge. LBYM. Invest the rest. Stay the course. - PS: The Calvary isn't coming, kids. You are on your own.

phish_indexer
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Re: 20 Year Old Seeking Financial Advice

Post by phish_indexer » Wed Mar 20, 2013 9:47 am

Pay your parents some rent.

For the safe side of your savings, build up an emergency fund (3-6 months worth of expenses) and then put the rest of the money towards the car loan. The sooner you can knock out that liability, the sooner you can make more of your savings work in your favor. What's the interest rate on the loan?

As for the risky side, open up an IRA at Vanguard and dump it in a Target-Date fund. At $500 per month, you'll max out the current $5500 maximum IRA contribution each year.

KyleAAA
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Re: 20 Year Old Seeking Financial Advice

Post by KyleAAA » Wed Mar 20, 2013 9:51 am

Might I suggest going over the Getting Started section of the wiki? It has a lot of good info. You haven't really given us enough information to give good advice tailored to your situation, unfortunately.

http://www.bogleheads.org/wiki/Getting_Started

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ruralavalon
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Re: 20 Year Old Seeking Financial Advice

Post by ruralavalon » Wed Mar 20, 2013 10:00 am

Welcome to the forum :) .

Its great that you are starting young. No lecture from me about the car.

For safety, $500 per month. Create an emergency fund at a local bank or savings and loan using short term CDs (the shortest they offer), put $500/month toward this until you have enough to cover 3 months of living expenses. Then put the $500 per month toward paing off the car loan.

For investing, $500 per month. After you have saved up $1000 ($1000 is the initial minimim required for Vanguard TR funds), open a Roth IRA at Vanguard and buy shares in Vanguard'sTarget Retirement 2060 fund (very aggressive allocation).

Wiki article link: Getting Started .
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Grt2bOutdoors
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Re: 20 Year Old Seeking Financial Advice

Post by Grt2bOutdoors » Wed Mar 20, 2013 10:26 am

The best rent you can pay your parents is to become financially self-sufficient. Follow the advice on here and you can get there.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

NYBoglehead
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Re: 20 Year Old Seeking Financial Advice

Post by NYBoglehead » Wed Mar 20, 2013 10:40 am

Welcome to the forum. Taking home $2600/mo is awesome money for 20, you definitely possess enough "human capital" to ensure a financially secure life. Here's what I recommend:

1. For starters, build up an emergency fund of 3-6 months of expenses.

2. For the "safe" money, there is nothing safer than avoiding interest payments that are not yet due. If you financed your vehicle, make accelerated payments on it until you own it outright.

3. You should seek to max out a Roth IRA every year. You can start with a Target Date Fund and then transition to a 3-fund portfolio (if you choose) down the road. The big thing is avoiding all non-mortgage debt, maintaining sufficient emergency savings in a liquid instrument, and doing your best to max out all tax-advantaged space.

Mandrale
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Re: 20 Year Old Seeking Financial Advice

Post by Mandrale » Wed Mar 20, 2013 10:45 am

Hey Charlie,

Good to see a fellow young person checking out the forums and really focusing on their future. I myself am 23 years old, so we are in a somewhat similar position. One question I have for you is: "Do you like your line of work?"

I know for myself, funding my advanced education was the smartest investment I have ever made -- It has allowed me to get into a field that I enjoy, making good money, and not forcing myself to do a physically demanding job. So, I would say that possible further education if there is some could be a great way to invest. However, if you enjoy the job and have no desire to change into a new field -- Take the advice of the other people as well; Great suggestions.

wilked
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Re: 20 Year Old Seeking Financial Advice

Post by wilked » Wed Mar 20, 2013 12:03 pm

1. Pay your parents some rent
2. What is the rate on your auto loan
3. How many other insurance companies did you call, and how recently, for pricing?

Calm Man
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Re: 20 Year Old Seeking Financial Advice

Post by Calm Man » Wed Mar 20, 2013 12:16 pm

You are now in a decent spot but realize it is because you appear to be living rent free and I guess your parents are paying for your food. Once paying rent and food, I don't think there will be any excess and maybe even a deficit. I know you do not want advice on the car but you are spending 40% of your take home for the car and insurance which seems completely out of reason.

ElevatorGuy
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Re: 20 Year Old Seeking Financial Advice

Post by ElevatorGuy » Wed Mar 20, 2013 12:22 pm

Wow, thanks for all the advice so far. One thing I'm definitely going to do is set up an emergency fund.

And one question I have is about the Roth IRA. I already have 15% of my gross income going into my 401K. So is the Roth IRA also a retirement fund or could it be shorter term than that. And should I adjust my 401K if I'm going to also invest in a Roth IRA?

Oh and for those asking the rate on my car loan is 3.74%

ElevatorGuy
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Re: 20 Year Old Seeking Financial Advice

Post by ElevatorGuy » Wed Mar 20, 2013 12:37 pm

Calm Man wrote:You are now in a decent spot but realize it is because you appear to be living rent free and I guess your parents are paying for your food. Once paying rent and food, I don't think there will be any excess and maybe even a deficit. I know you do not want advice on the car but you are spending 40% of your take home for the car and insurance which seems completely out of reason.


While I definitely see your point and I'm usually not one toake assumptions, it is pretty safe for me to assume that over the next several years my salary will double and maybe even triple with overtime. I stated before that I am an elevator mechanice, but technically I'm an apprentice. And every year of school I complete I get a substantial raise. There are four years of school and I just started my first. That being said, I am on the path to being promoted to mechanic within the next 3 years tops. And the jump in pay will be tremendous.

RobInCT
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Re: 20 Year Old Seeking Financial Advice

Post by RobInCT » Wed Mar 20, 2013 1:06 pm

I won't lecture you about the car, but I will advise you about the car loan. 3.74% is not a great interest rate. Consider paying it down earlier, which will free up more money to invest. If you have $1000/month to invest, I might split it up this way:

1/3 into building up emergency fund (e.g. savings account, CDs, etc.)
1/3 into Roth IRA (e.g. Vanguard Target Retirement 2060)
1/3 into paying down car loan

At the end of 1 year, you'd have an emergency fund of $4000, an IRA of ~$4000 (obviously variable due to unpredictable market performance), and you'd have paid an additional $4000 on your car. Assuming you bought your car recently, you can cut your total repayment time almost in half by paying extra.

I'd keep going this way until you had an emergency fund sufficient to live off of for 3-6 months WITHOUT support for your parents (after all, the emergency might be that they kick you out!) and then go 50/50 on car loan/retirement until the car is paid off. I wouldn't think about a house until after the car is fully paid for.

Another piece of advice would be to, when you get your raise, keep living like you make your current salary. If your salary doubles but you don't spend any more, that's $30k you can save in just one year. That's a nice house downpayment.

ElevatorGuy
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Re: 20 Year Old Seeking Financial Advice

Post by ElevatorGuy » Wed Mar 20, 2013 2:11 pm

RobInCT wrote: Another piece of advice would be to, when you get your raise, keep living like you make your current salary. If your salary doubles but you don't spend any more, that's $30k you can save in just one year. That's a nice house downpayment.
To many, this may seem like common sense. But I really appreciate this piece of advice. I have a habbit of when I make more money I will spend more money. But you are absolutely right. If I can live on what I'm making now, I should be able to do the same in the future.

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g$$
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Re: 20 Year Old Seeking Financial Advice

Post by g$$ » Wed Mar 20, 2013 2:48 pm

ElevatorGuy wrote:Wow, thanks for all the advice so far. One thing I'm definitely going to do is set up an emergency fund.

And one question I have is about the Roth IRA. I already have 15% of my gross income going into my 401K. So is the Roth IRA also a retirement fund or could it be shorter term than that. And should I adjust my 401K if I'm going to also invest in a Roth IRA?
Read the wiki article about using a Roth IRA as an emergency fund.

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ruralavalon
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Re: 20 Year Old Seeking Financial Advice

Post by ruralavalon » Wed Mar 20, 2013 2:57 pm

ElevatorGuy wrote: And one question I have is about the Roth IRA. I already have 15% of my gross income going into my 401K. So is the Roth IRA also a retirement fund or could it be shorter term than that. And should I adjust my 401K if I'm going to also invest in a Roth IRA?

Oh and for those asking the rate on my car loan is 3.74%
How much are you contributing to the 401k? Is there an employer match? How much is the match? Are you contributing enough to get the full employer match? How much is currently in the 401k? Can you list the choices (fund names, tickers, expense ratios) in the 401k? Please see: http://www.bogleheads.org/forum/viewtopic.php?t=6212 . All this will have a bearing on suggestions about an IRA.

Please add any new info to your original post using the "edit" button, it helps a lot to have all of your information in one place.

The Roth IRA is another type of retirement account, but can be useful for other shorter term goals. You can withdraw your contributions (but not any gains) at any time without tax or penalty. : Wiki article link: Roth IRA .
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

Default User BR
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Re: 20 Year Old Seeking Financial Advice

Post by Default User BR » Wed Mar 20, 2013 3:07 pm

I would look into a PenFed refinance for the auto loan. If approved, that would knock the rate in half.

https://www.penfed.org/refinance-auto-loan/


Brian

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bertie wooster
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Re: 20 Year Old Seeking Financial Advice

Post by bertie wooster » Wed Mar 20, 2013 6:10 pm

I would sell your car, it takes up far too much of your income.

How long to do you plan to live at home?

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