| Recent Graduate Seeking Advice |
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tsmag
New Member
Cash: $ 0.90
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Joined: 15 Jan 2007
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| Recent Graduate Seeking Advice |
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First off, hello everyone. I ran into this forum while I was looking around for some financial advice and would love to hear some expert opinions.
I am really new to the whole concept of saving money and putting it into a banking account for years and years, so bear with me. Ok here's the situation:
I am a recent college graduate who has taken a job that pays a salary of $40,000/yr. My apartment rent is $680, phone bill is around $90, and then have various other expenses of around $200. My truck has been completely paid off. I am recently engaged and will be getting married August 2008 (18 months). I have around $10,000 in my checking account now. I bought a $4000 engagement ring that I'm not sure if I should pay the minimum interest free $100/month for 12 months or if I should pay it all off right now. I guess that would be my first question, what would be the best way of paying for it? Next, with the wedding I have proposed that me and my fiancee each put $100/month in a savings account and whatever we raise each of our parents match. How does that sound? And also, if we do that should it go into an interest bearing account of some sort?
Next, shouldn't I be looking at putting money away for retirement/savings? Where should I look to invest? If I want to get into bonds, mutual funds, etc. where do I begin?
EDIT: Wow, I completely forgot to mention one of the biggest things. I have ~14,000 in student loans that I need to pay off. A goal I had set was to pay them off before the wedding, thus not having to pay through the nose in interest. But now, I have been wondering if this was a good goal since there might be better ways of spending the money. Thanks.
Sorry for all the questions, it'd be great if someone could point me in the right direction! Thanks.
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Mon Jan 15, 2007 2:56 am |
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oldguy
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Congratulations on the graduation, the job, and the wedding.
If the ring has an interest-free option for a period, don't prepay - when you you have free or cheap use of someone else's money, it is best to use it wisely.
SL - if it has a favorable rate and term - say 3% to 5% and 20 years - keep it for the full term - again, that's inexpensive use of someone else's money.
Yes, putting money away for retirement, as well as for future wealth, is the priority. This best done thru the tax-preffered vehicles - the 401k/Roth IRA accounts. And also open a taxable account so that you will have some accessible money - you may need it to invest in other things. When you're young, invest all of it in the two appreciating assets - real estate and equities. The equities should be in the form of Index Funds and ETFs (no individual stocks).
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Mon Jan 15, 2007 6:06 pm |
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tsmag
New Member
Cash: $ 0.90
Posts: 4
Joined: 15 Jan 2007
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Ok, thanks alot for the reply's and use of really confusing terms! I appreciate the advice on the SL's and ring payment. Yes, the ring has a 12 month no-interest deal where all I have to do is pay the minimum of $100/month.
As for the investing part, and I could use some input on this as well, I was planning on gatting married in Aug. 2008, continue living in an apartment until the lease would be up in December and then give me wife a Christmas preasent of a home of our own. I believe that will give me time to look into possible opportunities as well as get out of Christmas shopping for that year!  Now, I guess that leaves equities as my option for investment at the current time. How do I get into this? Just a link, or maybe story on how you got involved to begin with would be helpful. Thank you everyone once again, you guys know tons more that me and I am grateful for all the help so far.
EDIT: Actually, now that I think about it whenever I listen to a financial radio show and someone calls in, usually the first piece of advice the host gives is to open a Roth IRA. The fact that they are non-taxable is one of the main reasons for it I believe?? Once again, I have no idea where to start...Should I go to my local Bank of America, or a site like Sharebuilder.com? Thanks again.
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Mon Jan 15, 2007 11:12 pm |
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oldguy
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quote:
Now, I guess that leaves equities as my option for investment at the current time. How do I get into this? Just a link, or maybe story on how you got involved to begin with would be helpful.
The 401k program is administered thru your job - your company withholds your contribution from your chexk and invests it in the investment of your choice. Most companies also contribute, or 'match' a portion of your contribution - that's free money, ie a 100% return on investment the same day you invest it. Your contribution is made from pre-tax money, so you get a tax break for contributing.
The Roth IRA program is not thru your job, you set it up yourself. You invest up to $4000/y at a mutual fund provider such as Vanguard or Fidelity. This money is absolutely tax-free when you retire.
For both accounts (and you should do both to diversify your tax status), an Index Fund such as the Total Market Index or the SP500 Index Fund is my preference - they both have a history of returning 11% or 12% over the long haul. Example: A Roth max'd at $4000/y for 30 years would be about $1M. Avoid individual stocks, they have too much uncompensated risk.
No, don't go to a bank or sharebuilder.com - banks are for banking, not investing. And sharebuilder is an expensive way to invest, high fees.
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Tue Jan 16, 2007 12:47 am |
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tsmag
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Man, you guys are great. You're right that I still need to do research, I can't believe it's so hard for me to find information. I would guess that there are thousands of college graduates who are either in my situation, or have been at some point.
Coaster- Thanks for the advice, but everything that I have read says that the faster you begin to invest the better you will be off in the long run.
Oldguy- Thanks for your advice as well. My comment is for the end of your last post. You do a good job of telling me where not to put my money in, so where should I be putting it for the Roth IRA? I think that this would be my best bet starting off.
A book that I have and might start reading tonight if I can find is "The Millionaire Next Door" I bought it for a class last semster but ended up not having to read it.
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Tue Jan 16, 2007 1:13 am |
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oldguy
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quote:
You do a good job of telling me where not to put my money in, so where should I be putting it for the Roth IRA? I think that this would be my best bet starting off.
I use Vanguard and Fidelity - I like the SP500 Index Fund and the Total Market Index Fund. They have a historical return of 11% or 12%. Here is a link to the SP500 Index - if you check several 20 or 30 year blocks, you'll see what their long-term return has been. I also use an Exchange Traded Fund (ETF) called spiders, the symbol is SPY - it is yet another way to buy the SP500 Index.
http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html
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Tue Jan 16, 2007 4:15 am |
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rockhound
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I concur strongly with one of Coaster's statements, that this isn't the time to take on too many big financial commitments. I hate to run the risk of being the bucket of cold water, but I would suggest getting into a solid financial footing before paying out money for all of the things that you're considering. For instance, it is great that you have $10,000 in cash saved, I commend you for that. Consider this: one ring, and it's like 40% of your life savings is gone, although I know you will be making payments. It's too sensitive to give advice on weddings, because they seem incredibly expensive but nobody would question that they are a necessary expense, but it might be worthwhile to think about how much debt you and your wife will be entering this marriage with: 1) $4,000 ring (does that include the interest? How much extra are you paying when they defer the interest for a year?); 2) depending on what you feel is expected of you, your wedding expenses might reach $10,000; 3) $17,000 in student loans; 4) then you want to buy a house, the biggest expense of your life, for which you will probably need a 20% downpayment. A $40,000 salary is good or poor depending on where you live--not so great living in Los Angelos, but fabulous living in a rural area.
I would suggest continuing to live in your apartment until you get a feel for how much money a $40,000 salary will really provide for you. Keep your $10,000 cash on hand, for your emergency fund. You should save up 6 months' worth of living expenses that can sit in a money market in case you get laid off, or some other emergency comes up, so you won't have to go into debt. In the meantime, yes, start contributing to your company's 401 (k) plan, enough to get any matching funds. Also in the meantime, start saving up enough cash for a 20% downpayment on your future house. As you are doing that, if you feel like you have money left over, then you should start a Roth IRA. Once you are allocating money to all of these different things that you need in order to get ready for a successful life, after say one year you'll see how far your salary goes, and have a better idea of much you can afford to invest, or spend on a house, or allocate to debts, or have those "little extras" that you and your wife may want to enjoy. I think you'll be in much better shape five years down the road if you start out right, with modest goals, rather than trying to live the good life immediately by incurring a lot of debt. The analogy is one of building a strong foundation on which to construct your financial structure. Will it be a massive stone pyramid or a house of cards?
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Tue Jan 16, 2007 10:24 pm |
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zulu113
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| Don't forget the wedding side of things ... |
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First, congratulations on graduating and getting a new job, but more importantly on getting engaged. I wish you both the best.
Your initial comment comment was your wedding being 18 months out, and putting $100 each per month, which you parents would each match. 18 * $200 = $3600 on your own. If both sets of parents match that, you'll have $10,800. Keep in mind average cost of a wedding is over $25,000. I'm not saying that's intelligent, just pointing it out.
With weddings, the following is almost always true: whatever you budget, your final costs are going to be twice that. There are so many hidden costs, that no matter how much you try, you'll over-run. The different people you need to work with (photographers, florists, caterers etc) are very good at pulling heart-strings and turning logical decisions into emotional decisions. Not to say you can't meet $10,800, but if you start out planning to spend that, you will almost certainly go over, and probably significantly.
In my own case, we budgeted $8000, and we pulled every trick in the book. My wife and friends made all the decorations, alot of the floral arrangements, that sort of thing. I cashed in on every frequent flier point, hotel points, for the honeymoon. Every other trick we could think of or read about was used, and the end result: we still over-ran by almost $6000.
In any event, don't put off the planning, don't think it will be easy, and disengage your heart from your head when working with the different contractors involved. Oh yeah, have fun too 
Edit: One thing to consider is some banks offer a 'wedding loan'. While it's never desirable to take a loan if you don't need it, it's definately a better alternative to using credit or eliminating an emergency fund. Bank of Dad may offer the best rates and repayment plan ...
Zulu
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Wed Jan 17, 2007 9:36 am |
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