Just Starting Out

[Scanner]

I'm sorry, here's what I would do, to be more specific:

$2000 into a balanced mutual fund. Name this the House Account. Contribute $200/month to it. Now, what kind of balance is up to you. For a 19 y.o., I think you may want a house by age 25, to get things started, even if it's a little townhouse. So, that's a 6 year goal. I like a 60% bond/40% stock fund for that, the Wellesly I talked about - however, maybe the STAR fund kv recommended would be better because of the minimums. When you turn 23 and 1/2, I would move the money to a money market and keep contribuing.

In fact, if I were doing things over again, I would probably have skipped the apt. and near your age, gotten a trailer. I know. . .glamourous mobile home life - but I think it's a great and affordable way to begin being upwardly mobile.

Anyway, moving along. . .

$500 into a Roth IRA. Pick an aggressive mutual fund. Maybe a small cap fund from Vanguard. This is your retirement. Fund at $50/month and start bigger contributions as your income rises.

$600 in your credit union account is fine. Contribute $100/month to this account. Call this "New used truck account." This will be your downpayment and you will have a little car loan to take out too come time. We usually pay 50% in cash for cars and finance 50% but you do what feels comfortable.

That leaves a little left over - leave that in your checking account for emergencies. At 19 y.o., your emergencies should be minimal but it's a good habit to have a cushion - your old truck may need a new clutch or your wisdom teeth coming in may become impacted - you never know, and you don't want to those things to detract from your 3 goals.

When you get your own place someday, the standard recommendation is 3 to 6 months living expenses for an emergency cushion or a home equity line of credit equal to that amount.

[KruseF1]

Ok, I like the game plan Scanner, however, I dont have $600 in my credit union accounts. This is what I have:

Credit Union- $100 in savings (2% and a must have to be a member of the CU)
$3500 in MMA (3.6% compounded daily, paid monthly, and a minimum $1000 to
keep account open)

Bank of America - $500 in checking
$500 in savings

My BoA accounts are my oldest accounts that I have and that is the only reason why I have a savings account with them still. I think I might just save up $5000 in my current MMA and then close it and invest the $5000 into the accounts you suggested (or similar ones). Is keeping the credit union accounts open a good idea, so later down the road I can get a good loan? Or should I close them out and transfer all my money to different, higher-yielding accounts? Also should I keep my Bank of America savings account since it is my oldest? Or is it just tying up $500 that could be working for me else where?


Brandon

[Scanner]

Is keeping the credit union accounts open a good idea, so later down the road I can get a good loan? Or should I close them out and transfer all my money to different, higher-yielding accounts? Also should I keep my Bank of America savings account since it is my oldest? Or is it just tying up $500 that could be working for me else where?

Okay, well, you get the idea of the game plan. Adjust accordingly.

In a nutshell, with the way credit is so loose nowadays, no. . .don't worry about giving your business to a credit union so you can establish credit. Banks no longer consider collateral - it's all your credit rating. Just paying a credit card bill on time every month would do you better (don't go crazy).

It's not like the old days where the bank manager got to know you. My bank, now B of A, was formerly Fleet, formerly Summit, formerly something else. Everytime they changed, they became somethign different - Fleet was very small business oriented - Summit really wasn't.

And no, don't worry about which one is the oldest or who is the nice babe at Bank of America (they are all babes there, aren't they? that's where I have my business checking).

Business is business, my boy - get the highest yield you can (2 % is pathetic). The only thing I use bank savings for, and I mean the only thing, is an "escrow savings account" for my quarterly taxes. I take out a little each week from my checking, place it in savings and every Jan, April, June and Sept. 15th make my quarterly payments as I transfer it back in.

It keeps me straight.

That's all they are good for, IMO.

When we say money markets, there are two kinds - bank money markets (FDIC insured) and non-bank money markets (non-FDIC insured) - the non-bank ones are very safe (never had a loss) and get you a higher yield, probably around 4%, not really sure. That's the money markets I mean when I talk about them - they are availabe from any investment co and are considered a "cash position", it's that safe.

There are also people around here talking about ING and another internet bank where you can get 5% yield. Consider them for your "Truck Account."

Remember, the big near term prize is a house - for that, you need to branch out into a mutual fund and start dabbling in "investing." Your IRA - well, that's years away but it's kind of nice to think about you'll have a million someday by starting your action now.

Good luck.

[KruseF1]

Alright, Im getting it now. Thanks for all the help, I'm sure I'll be asking for more soon.


Brandon

[anonymous_saver]

If you are just opening up a high interest online back account, there will not be an effect in your credit report or score - or if you close down your MMA accounts & savings account. There would only be an effect if you closed your credit card which I would highly not suggest unless there is an annual fee.

[sweeps]

Originally Posted by anonymous_saver

If you are just opening up a high interest online back account, there will not be an effect in your credit report or score

Not necessarily. If the bank does a hard inquiry on your credit, that could have a negative effect on your credit score. Number of inquiries to your credit is one of the factors that goes into the calculation of FICO.

[anonymous_saver]

Yes, I know what effects hard & soft inquiries have on your credit score. I was only speaking from what typically happens, most banks do not do a hard inquiry to open/close savings accounts. Although I guess it's good for Kruse to get all the information they can!



By the way it feels really good talking (and hopefully helping) a 19 who has questions about finances. I know I have been saving at least 25% of whatever I've ever earned towards my retirement since I can remember (seriously, if I got $10 in a birthday card when I was 10, I took out $2.50 and put it towards my retirement!). It will make such a difference in your life Kruse if you keep this up!

[kv968]

Originally Posted by Scanner

And no, don't worry about which one is the oldest or who is the nice babe at Bank of America (they are all babes there, aren't they? that's where I have my business checking).

I gotta quit doing all of my banking online

[kv968]

Originally Posted by Scanner

$2000 into a balanced mutual fund. Name this the House Account. Contribute $200/month to it. Now, what kind of balance is up to you. For a 19 y.o., I think you may want a house by age 25, to get things started, even if it's a little townhouse. So, that's a 6 year goal. I like a 60% bond/40% stock fund for that, the Wellesly I talked about - however, maybe the STAR fund kv recommended would be better because of the minimums. When you turn 23 and 1/2, I would move the money to a money market and keep contribuing.

$500 into a Roth IRA. Pick an aggressive mutual fund. Maybe a small cap fund from Vanguard. This is your retirement. Fund at $50/month and start bigger contributions as your income rises.

Let me just make a recommendation here. Although Vanguard is an excellent fund company I'd suggest you go with someone like T Rowe Price or Fidelity for now. They allow you to set up an automatic deposit plan where you can start a fund without having the minimum amount. At T Rowe it's just $50/month and I think Fidelity's is $100/month. Vanguard doesn't offer a service like this.

[Scanner]

Kv,

As much as I appreciate Vanguard's position in the marketplace, I gravitate towards T. Rowe Price and Janus too. I'm sure TRP has a balanced fund - lemme look it up:

Here's one that's 65% stock/35% bonds:

http://www.troweprice.com/common/ind...rn&rfpgid=7128

Here's another that's 50% stock, 40% bond, 10% cash:

http://www.troweprice.com/common/ind...rn&rfpgid=7128

I guess I'd pick that one.

I don't know - I like that 60% bond mix for 5 to 7 years out. Historically, you will only get 1 year of loss, if any at all. Maybe Fidelity has something that matches the Wellesley Fund.

[kv968]

Originally Posted by Scanner

Kv,

As much as I appreciate Vanguard's position in the marketplace, I gravitate towards T. Rowe Price and Janus too.

I use T Rowe myself and I'm quite pleased with them and their funds.

Another good fund you might want to look at Kruse isCapital Appreciation

Although it's 61% stock/20% cash/14% other/ and only 5% bonds it's shown to have been not very volatile over diverse market conditions.