21 yrs old and Need a Plan!!!! Help?

[F16]

let me run down my expenses for you.

$2000

$820 rent
$45 phone
$16.50 wkly bus pass....no car
$200 gas & electic
$200 on food (that includes all of the necessities too)
That is really all of my expenses....

$718.50 left over at the end of the month

Let me give you some advice.

You have to make a plan. A medium-term investment plan.
You can't get rich overnight, or in two years, but you can improve your financial situation investing consistently for 5 years or more.

In this way, investing just $718.50 a month for 5 years, using Online Savings Accounts, can bring you more than $50,000 without much effort.

Crucial here is thinking long-term. Time is very important asset.

Your advantage is that you are young, 21, years old, and have plenty of time to make your money grow and compound over time.

Don't lose the time you have. Start saving now. And do it regularly and min. for 5 years.

You can try to trimm some expenses, freeing up some additional cash for investing.

And don't forget to pay yourself first.
Before you pay your rent, food, transportation and so on, try to pay yourself first (say $1,000 deposited in online savings account). This is the best way to success.

If you can't live without online shopping, try to buy things that hold they value and appreciate over time.
Consider gold or silver coins and bars. They can be your emergency fund too.

[F16]

Some advice on where to put your saved money.

1. Bank Passbook or Statement Savings Account.
You may need $100 to open a typical bank account, which is a good place for your first $500 or so. After that, better-yielding alternatives are available.
Advantages include safety of principal and liquidity.
Note the minimum balance required to avoid fees.

2. Certificates of Deposit (CDs)
Minimum denominations are often $250 to $500.
CDs pay a fixed rate of interest (usually higher than passbook rates) for a fixed period. Generally, the longer you tie up your money, the more interest you earn. Penalties are levied for redemptions prior to maturity.

3. Christmas (Holiday) Clubs.
Banks pay little or no interest on "club" accounts and most stopped providing gifts years ago. Major advantages, however, are reinforcement of systematic savings with weekly coupon books and the ability to save small weekly amounts (e.g., $5 to $10 minimums).

4. Corporate Bonds.
Thes are IOUs issued by a company and typically sell for $1,000.
Investors receive a fixed amount of interest at regular intervals, generally every six months, until the bond matures.
Then they get back their principal.
Conservative investors should choose investment-grade securities.

5. DRIP stocks
Almost 1,000 publicly traded companies allow investors to buy stock directly from the company through dividend reinvestment plans (DRIPS).
Minimum investments are very affordable, often just $100.
For additional information, consult the book No Load Stocks by Charles Carlson.

6. Employer Retirement Plans.
Specific plans are 401(k)s for corporate employees, 403(b)s for school and nonprofit employees, and Section 457s for county and municipal government workers. Savings come right out of your paycheck. Minimum per-paycheck savings could be as little as $10 per pay period or 1% of salary. Study the investment options available to plan participants, and select some growth products (e.g., S&P 500 index funds, growth funds, growth and income funds) if retirement is 5-10 years (or more) in the future.

7. Growth and/or Income Mutual Funds
Owning shares in a mutual fund gives you an ownership interest in the stocks (growth funds), bonds (income funds), or other securities that comprise its portfolio. The fund hires a professional manager to make investment decisions. Many funds require initial deposits of $2,000 or less.
Subsequent deposits are generally much lower (e.g., $100).
Funds that require more than $2,000 often accept less for IRAs, sometimes as little as $500. Check the fund prospectus for details.

8. Individual Retirement Accounts.
IRAs are not an investment per se but, rather, a place to put products (e.g., CDs, mutual funds) selected for retirement savings.
Check Internal Revenue Service for maximum annual contribution limits.
Minimum investment amounts vary according to the investment selected, but can be as low as $250 to $500. You don't have to save the $2,000 all at once.

9. Money Market Mutual Funds
These are a type of mutual fund that invests in short-term (a year or less) debt obligations issued by governments, government agencies, and corporations.
The minimum initial investment is often $1,000 or less, and limited check-writing (e.g., minimum check size of $250 to $500) may be available.
Although the short maturity of investments in a money market fund's portfolio helps keep share prices stable, they are not insured.
People concerned about high taxes can buy shares in a tax- free money market fund issued by their state of residence.
Money market funds should not be confused with money market deposit accounts (MMDAs), which are a bank product and carry FDIC insurance.


10. Treasury Notes and Bonds
Treasury Securities are issued in denominations of $1,000.
You can purchase them directly from the Federal Reserve Bank, through its Treasury Direct System, or through a bank or brokerage firm, where you will be charged a fee of around $50.

11. Unit Investment Trusts (UITs)
Sold by brokerage firms, unit trusts are a portfolio, usually of bonds and mortgage-backed securities (e.g., Ginnie Maes), that are sold to investors in small pieces called units.
The cost of a unit is generally $1,000.
Unlike mutual funds, however, UITs are not professionally managed.
Instead, the securities in the portfolio are simply held to generate interest, which is distributed proportionately to investors.
When the bonds in a UIT mature or are called, investors get back part of their principal. When the last bond in the portfolio is redeemed, the trust ceases to exist.

12. U.S. EE Savings Bonds.
EE savings bonds can be purchased at banks and through employer payroll deduction plans.
They are purchased for one-half of their face value (e.g., $25 for a $50 bond) and come in denomintions including $50, $75, $100, $200, $500 and $1,000.
Interest is added to the value of the bonds every 6 months according to a formula based on the current yields available on Treasury Securities.
Inflation-indexed I bonds are sold at full face value (e.g. $50 for a $50 bond) in the same denominations as EE bonds.

13. Zero Coupon Bonds
"Zeros" are bonds issued by governments or corporations that sell at a deep discount to face value (generally $1,000).
Unlike other bonds that pay semiannual interest, they don't pay out anything until maturity, at which time an investor receives $1,000.
The "phantom income" (interest) that is earned until then accumulates and is taxable each year.
Investors with a 15-to-20 year time horizon can purchase a $1,000 zero for around $200 -$300, depending on the interest rate earned.

[m1kesgurl]

I will most likely look into 401k

That way the money is already put in there automatically and i really wont miss it too much.

[m1kesgurl]

jc3900....it is okay. i really dont mind, believe me...i beat myself up more than you know. I think it is a shame that i do not follow my own words and i want to be able to, so i can be a better financial counselor for myself and others i help.

[pfodyssey]

alright, here we go:

#1 (you must absolutely do this without fail) - change your username to something other than "mike's girl". C'mon...you're only 21 and Mikey won't likely be around by the time you are ready to marry (25?). Trust me. Anyway, I digress...(hope you found that humorous and not offensive)

#2 - Maximize free cash.
- open a checking account with highest stable interest available, but primary purpose would be for bill pay, etc. Even better if you can open one that gives you a $100 bonus or something like that
- open an account with GE INTEREST PLUS (geinterestplus.com). I dare you to find an account with a better interest rate over time.
- You will then keep only needed spending money in the checking account with the bulk in GE Interest Plus. You can then A) setup regular withdrawals for recurring bills (ex: insurance, car, etc) with GE Interest Plus. For the remainder that are not the same each month (ex: utilities) - transfer a lump sum from GEIP and then pay it via your checking account.

#3 - 401(k) - if a match is available, then you must obviously take it. It's stupid to do otherwise (even if you HAD debt...which you don't - awesome)

#4 - Given you age and assumed income, you should max out everything else in a Roth IRA or a Roth 401(k) if you have one. (after getting your 401(k) match). Your tax bracket is the lowest it will probably ever be in your working career and so the tax break from a regular 401(k) isn't substantial...yet. In comparison, overall tax rates are at historic lows and have only one way to go - UP! Put your money away in a Roth and you will never have to pay any taxes on the contributions / earnings. At some point, the tax breaks from pre-tax savings may be difficult to pass up...but you can worry about that WAY LATER.

I don't worry too much about the thought of emergency funds and such until I've maxed out my retirement savings (401(k), Roth IRAs, etc) - this is a hefty amount (15,500 - 401(k), and 5000 for Roth IRA in 2008). However, some people like having an emergency fund because it makes them feel better...it's really up to you, but I don't recommend it.

Although we are talking about savings, I would be remiss if I did not mention insurance. You need to make sure you are adequately insured. I'm mostly referring to things like Long-Term Disability - this is huge. Since you're only responsible for yourself right now, life insurance is less urgent if trying to make choices. I assume you've got the bases covered on car, renter's insurance, etc.

Those alone should eat up all your available cash for savings. All that other mess from F16 is nice and informative, but I think potentially cluttering what is otherwise a straightforward path from my standpoint (no offense intended to F16).

Going forward, some additional thoughts:

A) Your goal should be to max out your tax advantaged retirement savings. It's a LOT of money ($25,500 in 2008 as I mentioned). This should be at the forefront of your mind every time you get a raise, bonus, etc. Don't get me wrong, I'm not suggesting you don't live your life (future home, etc will undoubtedly be a conflicting priority)...but THINK about what you're doing and make sure at least SOME of it goes toward retirement. You WILL NOT MISS IT, I promise.

B) Think about when you want to retire and calculate how much you will need. It will likely shock you a bit (I'm guessing a couple of million in today's dollars is likely), BUT you will be aware of what is required and can then plan to save for it.

C) Since you have no debt, I'm not ready to suggest you spend too much. However, YOU seem to suggest that YOU think you might spend too much? THINK about what YOU WANT for your financial life. THINGS? or FINANCIAL INDEPENDENCE. It's all about trade-offs...only you can decide

D) Make sure your partner shares the same financial goals and values as you do. Otherwise, you will likely struggle...to achieve your goals...sometimes worse.

Hope some of this was helpful...good luck!

[aida2003]

Guess what? I am a certified financial counselor...yeah how bout that?

Hmmm... I think you should follow advice that you preach to your clients.

Other people gave you great advice, BTW.

I don't know how but you must attempt to break your habbit of shopping online unless you REALLY REALLY need those things.
Boy, Bush Administration should send you a Thank You note. ...being a bit sarcastic...

[aida2003]

A recent article was just done that was similar in asking finance professors how they invest, etc... Again, they do not practice what they preach. Many thought they would be able to beat the market, they bought and sold more often, etc... and most agreed that it was counter-productive.

I'm sure I read it the same stat somewhere. Could it be in BusinessWeek or maybe Money? I found it odd.

I should browse Kiplinger's online and try to find Steve's mentioned story (very curious to read it myself), because I'm sure it wasn't in Money magazine (unless he read online).

[jIM_Ohio]

alright, here we go:


#4 - Given you age and assumed income, you should max out everything else in a Roth IRA or a Roth 401(k) if you have one. (after getting your 401(k) match). Your tax bracket is the lowest it will probably ever be in your working career and so the tax break from a regular 401(k) isn't substantial...yet. In comparison, overall tax rates are at historic lows and have only one way to go - UP! Put your money away in a Roth and you will never have to pay any taxes on the contributions / earnings. At some point, the tax breaks from pre-tax savings may be difficult to pass up...but you can worry about that WAY LATER.

I would caution following most of the advice in this post blindly. In case of the highlighted comment above, I think this advice is flat out bad.

I am in 25% tax bracket based on gross income. I saved myself thousands of dollars last year by lowering my current tax bracket into the 15% tax bracket.

I would much rather have saved $2000 in 2007 than maybe having another $1500 invested right now.

My advice is this- 401k up to match, then do a tax rate analysis- if you are in 25% tax bracket, I urge you to use 401k to reduce income into 15% bracket. This will save you money now, and there is no guarantee the Roth rules will remain in place for 40 years (tax laws and tax code changes every 4-8 years, tax brackets change every year).

The solution is not as simple as "invest up to the match". In addition a 401k can be converted to a Roth later- and if you can convert it at 15% later, that is money in your pocket with fewer taxes paid now and in the future.

75% of the country is in the 15% tax bracket or lower (cap of 62k for married, cap of 31k for single). Our gross pay was 100+ last year and deductions got us into 15% bracket (40k+ of deductions).

[anonymous_saver]

I know I would much rather have tax savings later than now. Just my opinion.

[m1kesgurl]

I need to follow the advice i give my clients, but i dont and that is why I am on here for help b/c there are so many things out there which can help me get more money for my future.

[jIM_Ohio]

I know I would much rather have tax savings later than now. Just my opinion.

If you are in 15% bracket and will stay there for a while, then maybe this is true (pay cheap taxes now). For anyone earning above 62k (25% bracket or higher for married couples), anything you can do to get into 15% bracket (by deferring taxes now) is money in your pocket now.

[DebbieL]

Who would go to a 21 year old for financial counseling? What exactly is involved in getting this designation?

Sorry to sound negative, but I'm truly wondering who your clients are (because while I'm sure you are bright and a wonderful person, I would never go to someone so young for any sort of financial "expertise").

[disneysteve]

I'm sure I read it the same stat somewhere. Could it be in BusinessWeek or maybe Money? I found it odd.

I should browse Kiplinger's online and try to find Steve's mentioned story (very curious to read it myself), because I'm sure it wasn't in Money magazine (unless he read online).

Sorry for any confusion. My memory was a little fuzzy so I found the article.

It was in Money, February 2008, p.54. "Why You Don't Want to Invest Like an Expert" by Jason Zweig. It was about finance professors, not financial advisors. The study reported that 44% of professors think that it is all but impossible to beat the market's return, yet 23% of them try to beat the market anyway.

[m1kesgurl]

Who would go to a 21 year old for financial counseling? What exactly is involved in getting this designation?

Sorry to sound negative, but I'm truly wondering who your clients are (because while I'm sure you are bright and a wonderful person, I would never go to someone so young for any sort of financial "expertise").

First of all, i am a certified financial counselor and it doesnt matter how old your are. It matters how good you are, i have 2 years experience and been doing well so far. I will be doing this for a long time.

Well i dont have any financial debt at all right now at my age, so obviously i am doing something right.

[anonymous_saver]

If you are in 15% bracket and will stay there for a while, then maybe this is true (pay cheap taxes now). For anyone earning above 62k (25% bracket or higher for married couples), anything you can do to get into 15% bracket (by deferring taxes now) is money in your pocket now.

Yes, that is true. But that doesn't necessarily change my opinion.