21 Years Old - Trying to learn young!!

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dylphil21-1997
Posts: 3
Joined: Tue Sep 03, 2019 10:01 am

21 Years Old - Trying to learn young!!

Post by dylphil21-1997 » Tue Sep 03, 2019 10:12 am

Hello BogleHeads!!

A little about me for background info;

-21 years old
-Gross Income of 31,500
-Full company paid health insurance
-Drive a used minivan (paid-off)
-3000 in CC debt
-Gross income will soon change to 60,000

So my employer informed me we have a pretty decent 401k plan- that being said its a 3% match wit a 3% profit sharing at the end of the year..

Can someone explain what the profit sharing aspect means as well as; does that mean I need to contribute 6% to get both the company match and the profit share???

Plan on paying off that CC debt but will need a vehicle soon; I'm thinking CPO under 15k and getting a loan through a credit union for the good interest rates. So i guess I should go open that CU account ASAP to establish myself as a member???

Also Roth IRA seems to be a good way to go due to my tax bracket being low now, correct??

Any and all critique is appreciated.

Thegame14
Posts: 1162
Joined: Mon May 07, 2018 11:53 am

Re: 21 Years Old - Trying to learn young!!

Post by Thegame14 » Tue Sep 03, 2019 11:15 am

you should always contribute enough to get an employer match on a 401K, that is a 100% return. also profit sharing usually mean that the company assuming they have profits at the end of the year will contribute 3% of your pay additionally to your 401K, no matter what you put in. This is done sometimes as companies feel that some employees may be paycheck to paycheck and don't want them to have nothing in retirement, so this is an employer contribution.

Roth is a great idea while you tax bracket is low, you can do a roth IRA or if your company allows a Roth 401K. Credit card debt should be paid off ASAP, then save 6 month emergency fund, then start saving more for a down payment on a new vehicle.


Just that you are thinking about retirement at 21 is a good head start, the more money you put in, the sooner you put it in, the longer the money has time to grow.

psteinx
Posts: 3303
Joined: Tue Mar 13, 2007 2:24 pm

Re: 21 Years Old - Trying to learn young!!

Post by psteinx » Tue Sep 03, 2019 11:22 am

1) It's not clear what the profit share entails - you should ask your employer about that.

2) To the extent you get a 50-100% match, you should contribute to the 401K. i.e. Definitely contribute 3%. While 401Ks can be pretty good beyond that (i.e. even without a match), in your situation, I'd probably just contribute the 3%, and use extra cash to
A) Pay down debt
B) Help with the car situation
C) Build an emergency fund
D) Deal with other expenses likely to be elevated as you get started in life (i.e. security deposits, basic furniture, etc.)

A-D above are not necessarily in order.

3) Try to strike a nice balance between keeping your lifestyle in check, especially as your income doubles, and not necessarily living like a total pauper.

4) It's worth at least considering a new vehicle, albeit a modest one (think Corolla/Civic/Elantra). Well negotiated, you should probably come in under 20 grand on something like this, possibly closer to ~$16-18K. And if your credit is good, you may get a low interest rate from the manufacturer, plus a generous warranty, good mileage, and generally problem-free (or minimal) driving for 3-5 years, and low-cost driving after that for many more years. The savings of getting a used car may be somewhat illusory, over a multi-year period.

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dratkinson
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Location: Centennial CO

Re: 21 Years Old - Trying to learn young!!

Post by dratkinson » Tue Sep 03, 2019 3:06 pm

Congratulations on your early start. Wish I’d known enough to do the same.


Always LBYM (live below your means). This is the first step in keeping your financial life simple and avoiding much financial harm


Cost of living. As your salary increases, you'll be tempted to increase the cost of your lifestyle. Try to avoid that. Instead, keep living as you have and earmark half of all salary increases for saving for retirement in your TA (tax-advantaged) accounts (401k*, IRA**). Using a low-cost TDR (target date retirement) fund is the easy answer for all TA accounts.

* Ensure you invest enough to get your employer's match. Why? It's free money. Can’t help with profit sharing option so talk to HR and ensure you understand all of your retirement plan options; it should be defined in literature. Can always ask forum what literature wording means.

** Agree rIRA (Roth IRA) is a good idea. Why? Your retired self will thank you for the many years of tax-free growth/withdrawals, and no RMDs (required minimum distributions, beginning at age 70.5).

Use the other half of all salary increases (1) to improve your lifestyle (save for new(er) car,...), and ....


(2a) First-tier EFs. Slowly build up a sizeable EF (emergency fund), 6-9 months of living expenses in insured bank/CU checking, saving, CDs, mmkt account. (A large EF makes financial emergencies shrink to financial annoyances.)


(2b) Extended-tier EFs, taxable investing. In a few years after your salary increases, and you're maxing your TA accounts and have a large first-tier EF, then you'll add a taxable investing account to save more for retirement. Note: your taxable investments also become an extend-tier of your EFs. Meaning you'll have many years of living expenses to tap, if needed, or to use in retirement otherwise. But we can talk about that, then, when you get there.


Cashback CC. IF! you pay your CC bill in full every month, then a CC can make your life a little easier (don't need to write as many checks or buy as many stamps, or carry as much cash). And the cashback earns you more money than chasing bank teaser rates. (I felt guilty the first time I used a CC to buy groceries, but I got over it when I received the first cashback check.)


Checking account. Keep 2mos of living expenses in checking---0% interest checking is okay. Your checking account is part of your first-tier EFs (CC, checking, savings, mmkt, CDs,...).

Keep the rest of your first-tier EFs in something paying a little higher interest (savings, CDs,...). But….


Bank teaser rate. Don't chase bank teaser rates because: (1) it complicates your life and (2) the money you earn is taxed like ordinary income---taxed at your highest federal tax bracket rate.

Money is fungible*. Instead, you'd be money ahead and your life would be simpler by using a cashback CC for all of your bills. Why? Because CC cashback money is tax-free (IRS considers it to be a cost reduction, not income). And because CC interest rate is per month, bank teaser rate is per year.

Example.
Case#1: Assume you chase teaser rates and have 1yr of living expense in checking paying 2% per year and pay your bills from checking.
Case#2: Assume you have 1mo of living expense in 0% checking and pay your bills by 2% cashback CC.
--You need 1yr of living expenses in 2% checking to earn 2%/yr.
--You need only 1mo of living expense in 0% checking to earn 2%/mo CC cashback. 12 x 2%/mo = 24%/yr on 1mo of living expenses. (This means you can start earning more interest sooner, before you’ve saved 1yr of living expenses in your EFs.)
--Checking interest is taxable, CC cashback is tax-free.
Advantage: cashback CC.

* $1 from dad is worth exactly the same as $1 from mom---you don't care where the money comes from. So you don’t need to chase bank teaser rates if you can get a better deal from your CC.

And not chasing bank teaser rates helps to keep your life simple.


Bank or CU (credit union). Choose your banking relationships to simplify your life, not by chasing teaser rates and account opening bonuses.

I prefer using a free CU as a B&M financial home. Why? CUs have a CO-OP network where they share branch banking. Meaning I can walk into any CU nationwide that is a member of the CU COOP shared-branch network to withdraw money from my local CU accounts. (Knowing I have a local branch of my CU everywhere I go is just another way to keep my financial life simple.)


ABP. Consider signing up to pay your monthly bills by using your creditors' ABP (automatic bill payment) plans. ABP is where you allow trustworthy* creditors to withdraw their payments directly from your accounts (cashback CC, where you can; checking, where you must). (* Some very few creditors are not trustworthy and their many billing mistakes are always in their favor. Fool me once, shame on you….)

Our only ABP requirements are (1) to keep enough money in checking to pay our monthly bills (done, if you keep 2mos of living expense in checking after statement reconciliation), and (2) to reconcile our monthly account statements (so, no change).

I've used ABP for >10yrs with no problems noted.
--Life is easier knowing I don't need to remember to initiate bill payments (vacation, hospital,…)
--Plus, money stays in my account longer because ABP (generally) delays the pull when the due date falls on a weekend or holiday. (Try paying your bills late by check or bank bill pay!)
--And the creditors that allow me to pay by cashback CC earn me money while they do the work. Sweet.


Recommended reading. (What I wish I'd known in my 20s.)
--The Only Investment Guide You’ll Every Need, Andrew Tobias. General personal finance topics.
--The Bogleheads’ Guide to Investing. A structured overview of wise retirement investing.
--Date… or Soul Mate, Warren. Priceless if it helps avoid expense of bad relationship/marriage/divorce.



Welcome.



Edits. Fumble fingers.
Last edited by dratkinson on Tue Sep 03, 2019 5:24 pm, edited 5 times in total.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

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Stinky
Posts: 1724
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: 21 Years Old - Trying to learn young!!

Post by Stinky » Tue Sep 03, 2019 3:22 pm

Welcome to the Forum! Glad that you found us.

You are to be congratulated for thinking about savings and retirement at age 21. Many of the folks who post here, myself included, were well older than 21 when we began paying attention to our finances and saving.

And congratulations on what looks like an excellent salary soon to come. $60,000 per year at age 21 is an awesome accomplishment.

My advice to my children and to any young person -

Personal finance
Spend less than you make
Don't buy "stuff" you can't afford
Keep a budget, so that you know where you stand on your income vs. outgo

Investment-related
Maximize your tax-deferred and tax-free savings opportunities (401(k), Roth IRA, etc.)
Invest in broadly diversified mutual funds
Don't try to "time" the market. Adopt an asset allocation plan and stick with it.
It's a GREAT day to be alive - Travis Tritt

rascott
Posts: 702
Joined: Wed Apr 15, 2015 10:53 am

Re: 21 Years Old - Trying to learn young!!

Post by rascott » Tue Sep 03, 2019 4:17 pm

dylphil21-1997 wrote:
Tue Sep 03, 2019 10:12 am
Hello BogleHeads!!

A little about me for background info;

-21 years old
-Gross Income of 31,500
-Full company paid health insurance
-Drive a used minivan (paid-off)
-3000 in CC debt
-Gross income will soon change to 60,000

So my employer informed me we have a pretty decent 401k plan- that being said its a 3% match wit a 3% profit sharing at the end of the year..

Can someone explain what the profit sharing aspect means as well as; does that mean I need to contribute 6% to get both the company match and the profit share???

Plan on paying off that CC debt but will need a vehicle soon; I'm thinking CPO under 15k and getting a loan through a credit union for the good interest rates. So i guess I should go open that CU account ASAP to establish myself as a member???

Also Roth IRA seems to be a good way to go due to my tax bracket being low now, correct??

Any and all critique is appreciated.

Put 15% of your gross into retirement, auto-setting... Before you get your first $60k paycheck. Then keep it at that level (or higher!) forever. 15% of YOUR income, don't fudge and include the match. If you can go higher than that...great...but make that your bare minimum from now until forever.

You'll never miss it, because you will have never seen it....and are used to living on $30k.

Much, much harder to ramp up the savings rate later on when your lifestyle has adjusted to the higher income.

kappy
Posts: 150
Joined: Tue Jun 21, 2016 7:13 pm

Re: 21 Years Old - Trying to learn young!!

Post by kappy » Tue Sep 03, 2019 4:25 pm

Build an emergency fund that is reasonable for your expected expenses and job security. Then put as much excess money into your 401k as possible.

Looking back, I didn't know enough about investing when I was young so I let my EF grow a bit too large. 15% going into your 401k is great but don't be scared to stretch that if you live below your means. 20 or 25% gets you to FI much sooner.

7eight9
Posts: 311
Joined: Fri May 17, 2019 7:11 pm

Re: 21 Years Old - Trying to learn young!!

Post by 7eight9 » Tue Sep 03, 2019 4:31 pm

dratkinson wrote:
Tue Sep 03, 2019 3:06 pm
Cashback CC. IF! you pay your CC bill in full every month, then a CC can make your life a little easier (don't need to write as many checks or buy as many stamps, or carry as much cash). And the cashback earns you more money than chasing bank teaser rates. (I felt guilty the first time I used a CC to buy groceries, but I got over it when I received the first cashback check.)


Checking account. Keep 2mos of living expenses in checking---0% interest is okay. Your checking account is part of your first-tier EFs (CC, checking, savings, mmkt, CDs,...).

Keep the rest of your first-tier EFs in something paying a little higher interest (savings, mmkt account, CDs,...). But….


Bank teaser rate. Don't chase bank teaser rates because: (1) it complicates your life and (2) the money you earn is taxed like ordinary income---taxed at your highest federal tax bracket rate.

Money is fungible*. Instead, you'd be money ahead and your life would be simpler by using a cashback CC for all of your bills. Why? Because CC cashback money is tax-free (IRS considers it to be a refund, not income). Because a CC interest rate is per month, a bank teaser rate is per year.

Example.
Case#1: Assume you chase teaser rates and have 1yr of living expense in checking paying 2% per year and pay your bills from checking.
Case#2: Assume you have 1mo of living expense in 0% checking and pay your bills by 2% cashback CC.
--You need 1yr of living expenses in 2% checking to earn 2%/yr.
--You need only 1mo of living expense in 0% checking to earn 2%/mo CC cashback. 12 x 2%/mo = 24%/yr on 1mo of living expenses. (This means you can start earning more interest sooner, before you’ve saved 1yr of living expenses.)
--Checking interest is taxable, CC cashback is tax-free.
Advantage: cashback CC.

* $1 from dad is worth exactly the same as $1 from mom---you don't care where the money comes from. So you don’t need to chase bank teaser rates if you can get a better deal from your CC. And not chasing bank teaser rates helps to keep your life simple.
I like chasing teaser rates and bonuses and would encourage anyone with the time and desire to do so. Given the choice of a higher rate or a lower rate I'll take the higher rate. And when it drops change my banking relationship.

In the OP's case they can likely earn far more chasing bonuses on bank accounts (and credit cards for that matter) then they will getting 2% cash back on their spend. Gross income is $31.5K - how much spend can we reasonably expect them to put on a credit card? $20K? That equates to $400 at 2% cash back.

I'm not really understanding the logic in the example above. Why wouldn't someone keep their money in an interest bearing account (Case 1) and use a 2% cash back credit card (Case 2)?

Cash back of 2% (on say $1,000 spend/month) is $20. Cash back of 2% on 12 months spend (12 x $1,000) is $240. Cash back is cash back. Calculating it as a percentage return on a checking account balance doesn't seem logical. Otherwise why not calculate it on a $1 checking account balance. The return would be even more spectacular.
I guess it all could be much worse. | They could be warming up my hearse.

esteen
Posts: 93
Joined: Thu May 23, 2019 12:31 am

Re: 21 Years Old - Trying to learn young!!

Post by esteen » Tue Sep 03, 2019 6:32 pm

Good for you, keep that thirst for knowledge and it will take you a long way!

Here are my 10 money tenets for folks your age:
1. You have to save to invest. You have to invest to get rich. Bare minimum, save 10% of your income. 15%, ok. 20%, better. 25%+, now we're talking!
2. Live beneath your means. Savings is the gap between your ego and your income.
3. Fund an emergency bank account with 3 months of expenses. You will need it.
4. Attack debt like it wronged you, because it has. Pay off your credit card in full every month.
5. Utilize tax-advantaged accounts. Contribute to your job's 401(k) (or similar plan) enough to get the full match. More is better, maxing is best. Also consider IRAs and HSAs.
6. Identify your tolerance for risk and use it to decide your asset allocation. More stock funds when young, more bonds/cash when older. 110-age as a % in stock funds is a starting point, but everyone is different.
7. Costs matter. Buy low-cost diversified mutual funds or ETFs. Avoid actively managed funds and complex investments.
8. Diversifying is simple. One inexpensive target date fund or 2-3 broad index funds is all you need. More is not often worth the cost and hassle, especially at the start.
9. Buy and hold, stay the course. Time spent in the market is better than timing the market. No one can consistently time the market. No one.
10. Make any financial advisor commit to a fiduciary standard. Even then, be wary; advisors inherently have conflicts of interest to your financial wellbeing. Run, don't walk, away from any advisor who is not up-front about all their fees.



For your specific situation:
--You'll have to put in money to get the match. Check with your plan or HR department but I assume the profit sharing dollars would go to you regardless of your contributions - it is not a match and I've never seen one that relied on contributions (In past jobs I have administered quite a few 401(k) plans).
-- Your car plan is fine, some people on here would say only pay cash for cars, others aren't so stringent - I think that it is preferable to pay cash, but if you get a loan just pay it down aggressively - should definitely have it paid off in less than 1 year, no matter what the contract terms.
--You didn't mention an emergency fund, do you have one? If not, set one up and get it funded. It's incredibly useful to keep you debt free when life smacks you sideways.
--I agree a Roth IRA is a great option for you at this age/stage.
--Live beneath your means! It is MUCH harder to move from a higher standard of living to a lower, than it is to prevent the lifestyle creep in the first place. When you get your big raise, consider directing only a small portion of it (<50%) toward month-to-month living stuff, and the majority of it toward savings.

If I were you, knowing only what I do from your post, I would direct my money in this order:
1. Build a small emergency fund of $500-$1,000.
2. Contribute to 401k enough for Match. There is no better guaranteed investment return in the world than a 401k match.
3. Pay down that CC debt.
4. Build up emergency fund of at least 3 months expenses.
5. Save for the next car.
6. Fund a Roth IRA.
7. Continue to add to your 401k as much as you can.
You can do some of those things simultaneously, but don't do a later one before an earlier one. If you don't really need a newer car and just think it'll be fun, I might move that one down past funding a Roth IRA.


Also, know that building wealth is a snowball effect - it will start quite slowly, and feel like it's not progressing as fast as you'd like in the first few years. That's okay, stick with it, it WILL work, and you will be so thankful you did. As Charlie Munger said, "the first $100K is a b*tch, but you gotta do it!"

RVosen
Posts: 71
Joined: Sun Dec 20, 2015 11:00 am

Re: 21 Years Old - Trying to learn young!!

Post by RVosen » Tue Sep 03, 2019 8:31 pm

I started to look at invest seriously around your age as well. I'm currently 31 so I don't have a lifetime of knowledge but a few things I noticed.

Don't forget to invest in yourself, meaning gain the knowledge you need to have a good, rewarding career and keep yourself valuable in your field.

Don't worry about everyone else. Being that your are only 21 you are probably doing very well compared to your friends around your age. As you get older you will probably see your friends buy nice cars, big houses, and go on expensive vacations. Find a balance between having fun and saving for the future.

It takes time. Give it a few years of saving and investing, there may be times where it seems slow or like you are not getting anywhere but it will change.

And of course stay the course

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Brianmcg321
Posts: 95
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Re: 21 Years Old - Trying to learn young!!

Post by Brianmcg321 » Wed Sep 04, 2019 3:57 am

I would go over to Mr Money Mustache first before borrowing any more money to buy things.
JL Collins blog A Simple Path to Wealth is a good start too.


If I were in your shoes now this is what I would do.
0. Build up emergency fund $1k.
1. Pay off credit card and put it away so I don’t use it.
2. Immediately start saving 20% of income in 401k. If they have a Roth option put it in that.
3. Put $200 a month in savings account toward purchase of used car. Don’t spend more than 10k. Pay cash!
4. Rinse and repeat 20 years and you’ll be a millionaire.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.

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dratkinson
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Re: 21 Years Old - Trying to learn young!!

Post by dratkinson » Wed Sep 04, 2019 6:07 am

7eight9 wrote:
Tue Sep 03, 2019 4:31 pm
dratkinson wrote:
Tue Sep 03, 2019 3:06 pm
Cashback CC. IF! you pay your CC bill in full every month, then a CC can make your life a little easier (don't need to write as many checks or buy as many stamps, or carry as much cash). And the cashback earns you more money than chasing bank teaser rates. (I felt guilty the first time I used a CC to buy groceries, but I got over it when I received the first cashback check.)


Checking account. Keep 2mos of living expenses in checking---0% interest is okay. Your checking account is part of your first-tier EFs (CC, checking, savings, mmkt, CDs,...).

Keep the rest of your first-tier EFs in something paying a little higher interest (savings, mmkt account, CDs,...). But….


Bank teaser rate. Don't chase bank teaser rates because: (1) it complicates your life and (2) the money you earn is taxed like ordinary income---taxed at your highest federal tax bracket rate.

Money is fungible*. Instead, you'd be money ahead and your life would be simpler by using a cashback CC for all of your bills. Why? Because CC cashback money is tax-free (IRS considers it to be a refund, not income). Because a CC interest rate is per month, a bank teaser rate is per year.

Example.
Case#1: Assume you chase teaser rates and have 1yr of living expense in checking paying 2% per year and pay your bills from checking.
Case#2: Assume you have 1mo of living expense in 0% checking and pay your bills by 2% cashback CC.
--You need 1yr of living expenses in 2% checking to earn 2%/yr.
--You need only 1mo of living expense in 0% checking to earn 2%/mo CC cashback. 12 x 2%/mo = 24%/yr on 1mo of living expenses. (This means you can start earning more interest sooner, before you’ve saved 1yr of living expenses.)
--Checking interest is taxable, CC cashback is tax-free.
Advantage: cashback CC.

* $1 from dad is worth exactly the same as $1 from mom---you don't care where the money comes from. So you don’t need to chase bank teaser rates if you can get a better deal from your CC. And not chasing bank teaser rates helps to keep your life simple.
I like chasing teaser rates and bonuses and would encourage anyone with the time and desire to do so. Given the choice of a higher rate or a lower rate I'll take the higher rate. And when it drops change my banking relationship.

In the OP's case they can likely earn far more chasing bonuses on bank accounts (and credit cards for that matter) then they will getting 2% cash back on their spend. Gross income is $31.5K - how much spend can we reasonably expect them to put on a credit card? $20K? That equates to $400 at 2% cash back.

I'm not really understanding the logic in the example above. Why wouldn't someone keep their money in an interest bearing account (Case 1) and use a 2% cash back credit card (Case 2)?

Cash back of 2% (on say $1,000 spend/month) is $20. Cash back of 2% on 12 months spend (12 x $1,000) is $240. Cash back is cash back. Calculating it as a percentage return on a checking account balance doesn't seem logical. Otherwise why not calculate it on a $1 checking account balance. The return would be even more spectacular.

My bad, I was not clear. I was assuming OP (original post/poster) didn’t have 1yr of living expenses saved in his first-tier EFs to make case#1 work.


To rehash:

Case#1. If I assume OP has 1yr of livings expenses saved, $12K (= 12 x 1K/mo living expense) in 2% checking. Then he earns $240 ($240 = 2% x $12k) for the year, which is 2%/yr (=240/12K) based on his $12K monthly checking balance. (This $240 is taxed as ordinary income by uncle sugar and his nephews at state.)

Case#2. If I assume OP's only has 1mo of living expenses saved, $1K, in 0% checking, but pays his bills by ABP and 2% CC. Then every month he earns $20 (= 2% x $1K), which is $240 (= 12 x $20) for the year, which is 24%/yr* (=240/$1K) based on his $1K monthly checking balance. (This $240 is NOT taxed by uncle sugar or his nephews at state.)

* I believe this to be the same computation method used by payday loan businesses when they compute the annual interest rate earned on the same amount loaned out multiple times/yr. If they loan an amount at 10%/wk (stated), every week, then they earn 520%/yr (=52 x 10%, stated) on the amount, not 10%/yr. (I’m ignoring the fact that they remove their interest first, so only loan 90% of principal, which increases their return to 11%/wk (=100/90 – 1, actual), 578%/yr (=52 x 11%, actual), based on loaned amount.).


Case#2 is doable by someone just starting out with only a 1mo EF to earn $240/yr. (As I assume OP to be.)


Case#1 for someone just starting out with only a 1mo EF, only results in $20/yr (=2% x $1k) when they rate chase to 2% checking. (Less after tax. Doesn't seem to be worth the effort for someone just starting out. Hence the advice to avoid chasing rates. Hence the advice to set up banking relationships for simplicity/convenience. Hence the advice to use a local B&M CU that is part of the shared-branch COOP network.)



Chasing rates and account opening bonuses. But if you do have 1yr of living expenses in HY checking/savings and use ABP paid by 2% CC, then agree that return is even better. (As long as you enjoy the game.)

OP, when you have a large EF (6-12mos, your choice) and want to add HY accounts (checking, savings), it’s easy enough to do and link them to your CU and taxable brokerage accounts. (And repeat when their rates drop and you close them and move to the next HY accounts.)

Be aware that if you close an old (HY) checking account (after the rate drops) paying your CC ABP, you'll need to call your CC and reestablish a new (HY) checking account to continue paying your CC ABP. But that's part of playing the game: your creditors' ABP-->your CC ABP-->your (HY) checking.

Some forum members report playing the game and earning several $hundred/yr. The downside is they need (a spreadsheet) to track their rotating accounts (>20 checking/savings/CC accounts), requirements to earn HY/account opening bonus (some accounts come with multiple onerous requirements: multiple debit transactions/mo, balance limits, direct deposit,...), requirements to avoid account closing fees, how often a new account opening bonus can be earned, how the accounts are linked, login credentials,.... Multiple accounts X multiple monthly onerous requirements can turn this game into a low-paid job. (Can search forum and internet if you want to learn to play the game.)

N.B. (Latin for nota bene, "note well", important note.). This game requires continuous time and effort to play. The time required must be taken from something else in your life. Play it only after you have learned the important financial basics*: you are investing in your retirement TA accounts, understand your employer's profit sharing plan, have received a formal forum review of your new ($60K/yr) financial situation and your employer's 401k options, have read several of the recommended investing "books" (search term) listed in the Wiki, have educated yourself for advancement to the next step in your career,.... After you've got the financial basics in place, and you have time left over, then you can consider playing this game. (* It requires only one time to learn each financial basic. Your task then is to choose how you want to implement each. It’s good to review your financial basics when major changes occur: promotion, marriage, new tax code,….)


My personal opinion is that spending your free time to educate yourself for the next step in your career will be simpler and more rewarding. E.G.: Your upcoming career advancement takes you from $30K to $60K/yr. The most I’ve seen reported is some earn ~$2K/yr playing the game. But they can’t earn it every year because of how few accounts there are and restrictions on how often new account opening bonuses can be earned---the game is self-limiting. On the other hand, your new salary is paid every year.

Advantage: Use your time to do the work required to continue earning the additional $30K/yr, and any free time to study for your next career advancement.


On the other hand, monthly bills paid by ABP and CC? Besides ABP making life a little simpler (creditors do the monthly work required to get paid), using a cashback CC is an easy way to pick up some low-hanging fruit---set it up one time and it continues to run. (Like the one time set ups required to direct deposit your salary into your investment accounts---401k, IRA---and checking.) Can use the CC cashback rewards to pay for a quarterly cheap night out---a little reward for the work you’ve done in handling your financial life. :)



Disclosure. I lost the urge to chase rates* after I realized I was earning ~2%** tax-free on my 1yr first-tier EFs, and more on my extended-tier EFs in tax-exempt muni funds. Giving up a little return---not chasing rates---is the cost of doing business to keep my financial life simple. (* Now, when I do get the urge to chase rates, I send a contribution to my single-state muni fund and compute my double-tax-free taxable-equivalent yield. Sweet. ** Some creditors don’t allow ABP payment by CC, so I’m not getting the full 2%/mo on my monthly bills.)



You younger folks go have your fun while you can. I don't begrudge anyone playing the game, and I use to do it myself. In 2007, I had 4.5% checking (Presidential Bank, 0.12% now) and 5.05% savings (HSBC, 0.10% when closed), plus ABP by CC (1%). Sweet. But the rates dropped and I got older* and tired of relinking accounts to continue playing the game. (* I also realized I needed to simplify my life/accounts ahead of old age mental decline, and for my heirs.)



Edit.
Last edited by dratkinson on Tue Sep 10, 2019 8:32 am, edited 2 times in total.
d.r.a, not dr.a. | I'm a novice investor, you are forewarned.

softwaregeek
Posts: 211
Joined: Wed May 08, 2019 8:59 pm

Re: 21 Years Old - Trying to learn young!!

Post by softwaregeek » Mon Sep 09, 2019 10:39 am

I agree with the other posters. If you are living on 30, max out your match immediately when salary increases and build your emergency fund. When. Emergency fund is full, max out your 401k and do a Roth IRA when your salary bumps. That is 25k of the increase.

Put your emergency fund in a high yield savings account at a reputable online bank. Many here like Ally or Marcus.

For the IRA, I recommend Schwab since they have an excellent free checking account. Put the money in a total market ETF and forget about it except for the annual contribution. For the next 10 years, that is all you need in investment For the 401k, put it in the lowest expense ratio stock fund, hopefully an index fund. Target date funds eg fidelity 2060 are fine as well.

But pay off the card second after the 401k match. It is poison.

You are living on 30 so live cheap for a few years and get a massive head start on retirement. Then commit to saving at least half of any pay increase and you are on cruise control to a decent retirement.

Topic Author
dylphil21-1997
Posts: 3
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Re: 21 Years Old - Trying to learn young!!

Post by dylphil21-1997 » Mon Sep 09, 2019 3:19 pm

softwaregeek wrote:
Mon Sep 09, 2019 10:39 am

For the IRA, I recommend Schwab since they have an excellent free checking account. Put the money in a total market ETF and forget about it except for the annual contribution. For the next 10 years, that is all you need in investment For the 401k, put it in the lowest expense ratio stock fund, hopefully an index fund. Target date funds eg fidelity 2060 are fine as well.

CAN SOMEONE PLEASE EXPLAIN INDEX FUND/TARGET DATE/ETF??

THATS WHERE I GET LOST..


THANK YOU ALL

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Brianmcg321
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Re: 21 Years Old - Trying to learn young!!

Post by Brianmcg321 » Mon Sep 09, 2019 3:57 pm

Here you go.

Read all the links at the top of the page. It has a lot of information.

https://www.bogleheads.org/wiki/Main_Page

https://www.bogleheads.org/wiki/Outline_of_investing
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.

Hukedonfonix4me
Posts: 142
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Re: 21 Years Old - Trying to learn young!!

Post by Hukedonfonix4me » Mon Sep 09, 2019 4:56 pm

"CAN SOMEONE PLEASE EXPLAIN INDEX FUND/TARGET DATE/ETF??

THATS WHERE I GET LOST.."


INDEX FUND- basket of stock/bonds where orders are executed at the end of each trading day. Can purchase fractional shares.

ETF- basket of stock/bonds that can be traded during market hours just like an individual stock. Must purchase whole shares.

TARGET DATE- mix of stocks/bonds that gradually glide stock/equity exposure downward and bond/fixed income upwards as your target retirement date nears.

I find this link helpful with the distinction of the first two in question:
https://investor.vanguard.com/etf/etf-vs-mutual-fund
"While some mutual fund founders chose to make billions, he chose to make a difference." | -The Bogleheads' Guide to Investing

flossmoor
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Re: 21 Years Old - Trying to learn young!!

Post by flossmoor » Mon Sep 09, 2019 8:48 pm

Musings of a 60 y.o. guy:

Unless your credit card debt is @ 3% or something, get that paid off ASAP.

If you agree with me that you will very likely be paying a LOT higher tax rate in retirement, a Roth makes sense. Why avoid 0-12% tax now only to pay, who knows, 70% on the whole thing when you pull it out in 40-50 years?

If I were you, I'd put every dime I could into stocks, and my preference is Vanguard Total Stock Market mutual fund or ETF. Maybe 10% International if you feel like it. A regular amount per month and toss in some extra if you have it. The collective brainpower of everyone in publicly-held US businesses is worth way more over the long haul than some taxable 1.5% from a 10-year bond or CD. You cannot identify the specific people who will do the best in advance, so just buy all of them. Yeah, it will go up and down, sometimes a lot. Don't worry about it. Be happy that you are buying more and more at a better price during the dips. Don't live like a pauper, though.

Do not listen to goofball stock market "analysts" on CNBC. If they had the secret to total financial success, they'd be doing it and keeping it a secret and living on a beach in Brazil [OT comment removed by admin LadyGeek], instead of schlepping into some NYC TV studio at 6 am during a January snowstorm to tell you what to do.

If you feel like looking at an individual stock, consider Loews. It's at 80% of book value, they buy in 3-6% of their stock every year (20M out of 324M in 2018), and all the S&P 500/large-cap/Total Market funds/ETFs are forced to buy it, putting a floor under it I surmise. If that big a chunk of the stock vanishes every year, my theory is that eventually (10-15 years?) whatever is left will be incredibly valuable.

The US economy is an amazing machine. Warren Buffett has pointed out that every dollar put into the S&P 500 when he started investing as a teenager 70+ years ago is now something ridiculous like $5300.

Look into credit card points/miles. You can score thousands of dollars tax-free per year playing that game. Just signing up for a card and spending a few $K that you have to spend anyway can get a return of $800-1200.

Spending money on brand new cars is one of the stupidest things you can do with your money.

One thing I realize at 60 is that you need to do things like travel a lot and start an entrepreneurial venture when young, when you have lots of energy. For most of us, it wanes considerably.

Picking the right person to marry is the most important thing you will do in life. Never forget this. Be REALLY careful here.

Renting a house/apartment may make more financial sense than buying. And do not buy property with anyone to whom you are not married. Ever. Unless it's something you are renting out as a business.

You are way ahead of most of your peers in thinking about this stuff. Congratulations.

softwaregeek
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Re: 21 Years Old - Trying to learn young!!

Post by softwaregeek » Mon Sep 09, 2019 11:53 pm

And the other important thing is just to keep saving, add to the pot year after year and don't freak out when the market goes down, as it will from time to time.

Caduceus
Posts: 1986
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Re: 21 Years Old - Trying to learn young!!

Post by Caduceus » Tue Sep 10, 2019 6:14 am

You have time to learn, but in the meantime ... make sure to get the employer match (that's even better than paying off your credit card debt or other high interest debt), and then after, use any money you have to pay off credit cards. When all that debt is gone, contribute to a Roth IRA and also a Roth 401k, if your employer has that option. If not, a Roth IRA and traditional 401k is fine.

Make sure you have at least 3-6 months of living expenses in cash as an emergency buffer. You never know what life will throw at you.

BlueCable
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Re: 21 Years Old - Trying to learn young!!

Post by BlueCable » Tue Sep 10, 2019 6:38 am

This free 16 page booklet from Bill Bernstein is a great place to start your leavening journey:

If You Can
https://www.google.com/url?sa=t&source ... -SB3S580I5

Topic Author
dylphil21-1997
Posts: 3
Joined: Tue Sep 03, 2019 10:01 am

Re: 21 Years Old - Trying to learn young!!

Post by dylphil21-1997 » Tue Sep 10, 2019 9:26 am

BlueCable wrote:
Tue Sep 10, 2019 6:38 am
This free 16 page booklet from Bill Bernstein is a great place to start your leavening journey:

If You Can
https://www.google.com/url?sa=t&source ... -SB3S580I5
Thank you, this was extremely helpful.


THANK YOU ALL, I APPRECIATE ALL THE INFO!!

international001
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Re: 21 Years Old - Trying to learn young!!

Post by international001 » Tue Sep 10, 2019 9:58 am

flossmoor wrote:
Mon Sep 09, 2019 8:48 pm


If you agree with me that you will very likely be paying a LOT higher tax rate in retirement, a Roth makes sense. Why avoid 0-12% tax now only to pay, who knows, 70% on the whole thing when you pull it out in 40-50 years?
That's a contentious topic. You have to make assumptions, consider SS and the pre-tax you will be paying tax on retirement.
But with your salary level, invest in Roth right now (you are in a low tax bracket), and figure out later after you get salary increases and you see the tax direction of the country.

I wished I had all this advice at your age!

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