Help a teen make the right choice.

[ChipWPB]

Hey guys,

I'm really glad I found this forum. I'm 18 and I'm a Software Engineer in Ft. Lauderdale Florida. I make close to 85k/yr and I want to make sure that I develop the best savings/investing plan to make me happy later on in life. I have a BoA Savings account (.5%) and an ING Direct account (4.15%). Can you guys set me in the right direction as to a savings plan I should use (BoA or ING or something else)?

Thank you so much, and great to meet you all!

[laceshawl]

Budget budget budget! Work out how much you have going out as well as coming in and how much you can put aside.

You don't say whether you have any loans. If so, you need to pay them off, ASAP. Whatever your loan situation, you should first have an emergency fund. I second Dave Ramsey's suggestion of $1000 if you have loans, if you don't ,aim at fully funding it with 3 - 6 months expenses. The online account is good for this, or you could look at buying Govt bonds.

Retirement. Ask about your company's plan; do they match contributions? If so, take advantage of it for all your worth. The sooner you start, the less you need to pay. 10 % of pay is a good figure to aim at. If your company has no plan, look at starting your own individual retirement account.

Consider your long term plans. What do you want to do in the future? Get married? Buy a house? Do post grad study? Travel? Start putting money away for these goals. If you plan to do something within the short term, say within 5 years, I would stick to low risk savings vehicles. Longer, you can afford to invest in the stock market.

Hope that helps.

[cptacek]

I would say, throw as much money as you can towards your 401(k) (i.e, max that sucker out...$85k at 17.65% is $15000) and fully fund a Roth IRA ($4000 this year). Then, start saving for a house. Start investing in taxable accounts as well. At 18, your retirement accounts can be mostly (> 90%) stocks, but anything you want for near term should not be in the stock market.

Now, I think that you should plan for retirement, but you also need to have fun. What do you want? A car? A boat? Every video gaming system ever invented plus games? Well, don't just put that on a credit card. Instead, save for it and pay with cash (or, get a credit card with rewards benefits, pay with the credit card and pay off the balance when the statement comes in.)

Do you want to work until you are 59 1/2? That is over 40 years from now. If not, then you need to put aside even more so you can retire early. I think setting goals will be the most important, and hardest, part of getting your savings and investing off the ground. Let us know some of the things you want to do...

[Haku]

Hey Chip. Wow, that's a great way to start off in life; to have a decent paying job AND have the willingness to be financially responsible.

The advice you're getting is pretty spot on.

I agree with the others that you need to start with a budget and learn to track your expenses. Ideally, down to the last cent.

Then, you'll want to work on an emergency fund of out to roughly 6 months of your living expenses. Your ING account is good enough for this purpose, but you'll want to ditch your BoA.

I also agree that you'll want to max out your 401k and make sure you are getting your full employer match. While we're at it, I would also open and max out an IRA fund (probably Roth, but I recommend to researching some more before deciding).

After that, I would also start up a house and car fund. That will save you more money in the long run.

That should keep your money busy enough for now.

[ChipWPB]

WOW! Thank you guys so much for the quick repsonse and warm hearts. I do, however, have about 13k left on my car loan. You're saying pay this off first before trying to save?

[terry1156]

You are way ahead of the game right now. I'm sure there are more than a few people here in the forums who wished they had been thinking about these issues when they were 18. I know i sure wish I had been. So give yourself a nice pat on the back for doing the research and getting way ahead in the game.

What percentage is your car loan at? Depending on the rate, I would likely make first priority the 401k plan (especially if you get a match), then start to pay down the car.

You have a lot of money coming in at your age, so try and save a significant portion of it. If you do that for the next 5 years, you won't have to pay another cent toward retirement (the beauty of long term compound interest). Decide how much you think you can save while still enjoying yourself and you should do well. Start paying in cash now and saving for what you want before you purchase it and you'll really come out ahead.

Again congrats. If you have specifics of what your financial goals are, please share and I'm sure you'll get some good suggestions on how to meet those specific goals.

[jmjj215]

What are you expenses? What's your cost structure? How much 'outflow' do you have each month? I like to see the budget before offering much advice

[Ima saver]

I think opening a Roth IRA and putting$4000 in each year is very important! You don't know how lucky you are. Most of us are much,much older and have never made that much money in our lives, so you need to be really smart with the money and start socking it away early.