Just Turned 18

[Future]

Okay, I am a complete newbie, I have no idea what I am doing at all.. I need some solid advice, so that I do not screw up my life.. That's basically how simple it is.

I just turned 18 yesterday, Graduated from highschool, and I want to start at a community college by the spring (If all finances go well)..

I have a part time job, making around 300$ a week, and I pay for car insurance, and paying off my car (half my paycheck of each week goes to paying off car).

I am applying all over the place for a full-time entry level job.

As soon as I get this, I do not know what to do.. I am stuck financially, I want to get money away for retirement (I want to retire as early as humanly possible)..

I have no credit, and have absolutly no idea what I am supposed to be doing, no one around me seems to know either, especially from the background I am from..

So, if anyone can see what kind of advise I am looking for here, and would like to help.. Please do.

Thank you in advance.

[sweeps]

1. Do you have a checking account? If not, you're going to need one. Many banks offer a bonus if you open an account with them -- particularly if your job pays you through direct deposit.

2. Have you filled out financial aid forms and/or talked to the financial aid office at the community college you're interested in attending? You may be eligible for grants and/or subsidized student loans to help you get by while you're looking for a better job.

3. Getting credit is not a high priority at this point, in my opinion. If you really do need to start building up your credit, you can look into getting a secured credit card -- that is one that is backed by your bank account. Just don't pay fees for the privilege, and use the card responsibly.

[boefixepa]

If I could be were you are again and start over with what I know now this is what I would do.

Look up the threads on the books here...I'll see if I can hunt up the link for you...

Financial Books?

That's a good place to start...go to the library and find them..or a cushy chair at barns and nobles and read away. Learn all you can. If you are like I was it's time to reprogram your brain! Read all the things you can here too.

Next I'd set some goals. You want to retire early...say 45... Figure out how much money in passive income (from investments) you will need and work backwards. Set the goals and start down the road. It may change you may modify it, but get on IT!

Also I'd have never gone into debt. If I didn't have cash I would not have done it (well maybe the house, but I'd would have had a chunck of a down payment first!). IMHO credit cards only work for those that don't need them. Meaning that if you need to carry a balance you should have them.

Okay summary.

1. Read, learn, educate, thus reprogramming your brain. (College is great for this too! DO IT!)
2. Set goals...work backwards to current time
3. STAY AWAY FROM DEBT!

That's what I would do if I were you. You need to decide what is right for you and your situation. This web site is a great help and if you are willing the more personal details you give the more personal and detailed advice you will get.

Welcome!! Hope you enjoy this site as much as I have!

[Future]

I come from a lets say middle to high lower class, okay ill just tell you my parents make 38k a year combined..

If I get a full time job, I would be making 15-20k a year.. (Which is really really bad, but what can I do)..

I am perfectly willing to move go anywhere, do anything thatll help better my situation.. Which is I have practically nothing, so I am basically at the lowest possible point in american society that you can be.. All I have is a car..

For the Spring, I will be applying for federal aid, and due to my parents income, I should beable to get quite a sufficient amount..

Community college is only 3-4k a year, so I should be able to handle that no problem with grants.

4k (School)
+ 2k (Insurance)
+ 1.8k (car)
+ 2k (food & clothing)
---------
6.8k worth of bills that I will need to pay.

Well thats pretty much, all my expenses, I just need to learn how I can take this and move up, I don't want to get stuck in some warehouse, I have no idea what I am to do, I plan on majoring in criminal justice, but I don't know yet..

[Ima saver]

The first thing I would do is open a roth ira. You have earned income so you can have one.I always advise a roth ira at Vanguard but they require a minimum of $3000. So, the first thing I would do is to save the $3000. Look for a bank paying good interest and open a roth ira there. Also, open up a savings account for emergencies. Do you have any savings?

[Future]

I have currently zero savings, I have supported myself, within my parents home since I was around 14.. So, most of my money has gone to surviving.

Could you explain in more detail what a Roth IRA is?

Although I do have savings account, probably very few dollars in there..

[Ima saver]

A roth Ira is a retirement account, you can start when you are 18 if you have earned income. When you retire, you can take the money out, TAX FREE!! In the meantime, you have the power of all that compound interest growing, year after year!! It will be quite easy for you to become a millionaire, if you start now, with as little as $2 a day. You can save that much can't you? I started work at age 12 and had to pay for my own books, clothes, etc., so I know where you are coming from.
They did not have IRA's (Independent retirement accounts) when I was young.
The roth ira is better because you do not pay taxes when you take out the money. It has already been taxed when you earn it!

[Future]

What are the risks involved? I don't understand how that saving money will make me a millionaire. The interest must be pretty high on it..

[Ima saver]

It is the secret on compound interest. Here is a question, Susie saves $2000 a year from age 18 to age 28.
Nancy waits until she is 30 and she saves $2000 a year from age 30 to age 65.
Susie saved for 10 years, Nancy saved for 35 years.
At age 65, assuming that they saved in the same mutual fund and got the same interest, who would have the most money? Susie saved $20,000 and Nancy saved $70,000?

Who would have the most money at age 65??

[Future]

Well clearly nancy, since she was saving 12 years prior... But she still only saved 70grand, how will that turn into millions? Even with high interest?

[Ima saver]

No, you are wrong, it is Susie. The person who starts the earliest will have the most money. I reccommend you look or order a book called the Wealthy Barber by David Chilton. It will explain better than I can how important compound interest is to your future. At just 2 dollars a day, you , not the 30 year old, but you the 18 year old, can become a millionaire if you put it into a good mutual fund adveraging 10% growth annually.

[Future]

Sorry, I thought nancy was the 18 year old.. in the example above..

So is the Roth IRA a mutual fund then?

Also, 10% would make alot more sense..

So its not that hard to get rich, it just takes patience.. Is there a cap on how much a year you can put into a account, because I would love to push the boundries, and try every year to get more and more saved into it.. I don't want to work when I am older..

[boefixepa]

No it's not hard to get rich...just don't spend your money. A Roth IRA is a type of savings account...it can be invested in any sort of way...bonds..money market..stock etc. I second IMA on Vanguard being a great way to go once you get the 3K to start.

I also worked and put myself through college, similar perental income and care, so take hold that we come from very similar circumstances, which I had found this place and had your foresight when I was 18!

For know, read, learn and save everything you can. Get all the financial aid you qualify for and get through school. There are some great threads on college stuff, do a search under college and hunt up some of those threads.

It takes patience, practice and desire and you've got all on your side...wouldn't it be great to start over again!

[kealina]

welcome future, glad to see you here...there is a lot to learn and this is a great place to do it. i agree with all the previous posters and their suggestions...
sweeps advised you to check into financial aid... it's a great resource, which i wish i had realized before so i could have taken advantage of it...
boe had good advice too... go to the library and read some of the favorite financial books... they will give you lots of information and a whole new outlook...
Roth IRA's, which ima suggested, are a great vehicle for retirement savings... you can do a search of this site for all the threads about them and find out a little more if you want... lucky for you, time is on your side and that is a great advantage...
there are a few things i'd like to add... the first is that you should start an emergency fund so that if something comes up where you need money it's there for you... the second thing is that you should develope a budget... track your spending... often people spend more than they realize on small or unnecessary things.. sometimes it's called the "latte factor" because those $3 or $5 every day on a latte will add up over time to hundreds of dollars...
i'm sure there is more that the other posters will ad but those are the two that popped into my head...

[Ima saver]

This is what i have learned, wealth beyond your wildest dream is possible by doing one thing: save 10% of all you make and don't ever touch it. Put it into a mutual fund(s) and just let them grow.
A roth IRA has a cap right now of $4000 a year. It makes good sense to have an emergency fund at the bank, a roth ira and then an investment mutal fund that you can put as much away in that fund as you would like.
BTW, I have never made over $8000 a year. You are making double what I use to make. I still made it financially because I always saved that 10% and invested it into mutual funds.

[creditcardfree]

A Roth IRA is a way to title an account, it specifies that the money contained in the investment is for retirement. And because it is a Roth IRA, not a Traditional, you can take the money out tax free at retirement (at least 59 1/2). Roth IRA money can be put into almost any kind of an investment. These investments could be stocks, bonds, mutual funds (a group of stocks) or a savings account at a bank.

The maximum amount you can put into a roth ira each year is currently $4000. Remember this is money for the long term, you will be penalized in taxes if you take the money out early. So it is important to also save for shorter term goals...school, a newer car, house, emergency fund, as well. Money needed for shorter term goals (less than 5 years) should be put into a savings acccount earning interest.

Compound interest works something like this

You save $100. You earn $10 in interest (the bank pays this to you). So now you have $110 earning interest. The next time they pay you earn $11 in interest. So now you have $121 saved that keeps earning interest. Then they pay you $12.10 in interest. The interest you earn keeps increasing because the interest is now earning interest.

That was a hypothical example. Savings accounts don't pay 10% interest right now. However mutual funds have averaged over 10% return in 70+ years. Some years they are up, some years they are down...but it averages out to over 10%.

I hope that helps. It's important to know your goals and expenses. Once you know those you can make a plan.

[Future]

You say the roth IRA cant be touched untaxable until 5 1/2 I want to retire around age 45, how would I do that..?

[scrava]

Congrats Future!
I think you are well on your way to a successful future.
Just thinking about your life, planning and having some goals is
a GREAT start at your age. I come from a lower income household myself.
My Mom (who is deceased now) was a single mom who w.o any help from my Dad) raised me. I went to a 4 year college and also received my master's degree. Start saving! Even if it's $10/week, sock it a way.

Will you continue to be living at home?

Originally Posted by Future

I come from a lets say middle to high lower class, okay ill just tell you my parents make 38k a year combined..

If I get a full time job, I would be making 15-20k a year.. (Which is really really bad, but what can I do)..

I am perfectly willing to move go anywhere, do anything thatll help better my situation.. Which is I have practically nothing, so I am basically at the lowest possible point in american society that you can be.. All I have is a car..

For the Spring, I will be applying for federal aid, and due to my parents income, I should beable to get quite a sufficient amount..

Community college is only 3-4k a year, so I should be able to handle that no problem with grants.

4k (School)
+ 2k (Insurance)
+ 1.8k (car)
+ 2k (food & clothing)
---------
6.8k worth of bills that I will need to pay.

Well thats pretty much, all my expenses, I just need to learn how I can take this and move up, I don't want to get stuck in some warehouse, I have no idea what I am to do, I plan on majoring in criminal justice, but I don't know yet..

[creditcardfree]

Future, as current laws stand you would be able to pull the principal, the value of all the contributions you made into the roth ira, tax free at 45 years. The earnings would not be available without a penalty before 59 1/2. You can also invest into a mutual fund that would be titled just in your name, but without the retirement designation. This creates tax implications...you will pay taxes on the earnings the mutual fund makes each year, as well as, capital gains taxes when you sell shares out of the mutual fund. The taxes aren't necessarily a bad thing, but if you can avoid them, it saves you money.

In my opinion, it would still be best to start with the roth ira and a savings account for an emergency fund. You will have a much clearer idea if you will be able to retire at 45 once you know your future earnings potential and career path. It's still not a bad goal.

It is really important to start slow while you are learning. There is a lot more to know. Let's see if anyone else has any other advice.

[Saving in So Cal]

Future, I came from amazingly similar circumstances. I'm am very impressed that you are thinking about things like this. I did things the hard way for awhile.

I can't really top the savings advice, but would say this about your job search. Consider a government agency or a good-size company with a tuition assistance program if there are any in area you are planning to live. Either should have entry level positions. The government agency will have a good retirement plan and health benefits, which will allow you to focus your money on your education. A company with a good tuition assistance program will ususally cover a good chunk of your tuition and books, provided you choose a major they can use. (My brother got his bachelor's degree this way.) Such a company will usually also have health benefits and a 401(k) retirement plan. A 401(k) plan allows you to put a portion of your pay in investments tax-deferred (you don't pay taxes until you withdraw the money). Most companies will match some or all of your contributions.

Working full-time means you will probably have to take classes at night, online, and on weekends. In addition, it will probably take you a little more time to get your degree than the standard four years. In the meantime, you'll be gaining work experience, which will help set you apart when you are ready for your first professional gig. This approached worked really well for me.