Just Starting Out

[KruseF1]

First off, I know that many threads similar to this one have been created and I've searched through the forums and have already learned quite a bit of information. Here's what I want to know for anyone willing to help me start off on the right foot:

I'm 19 and I want the little bit of money that I have saved to start working for me. Here's what I have....

$3500 in a credit union MMA (3.60 %)
$600 between two regular savings accounts (BoA and credit union)
$500 in BoA checking account
$0 balance on my CC from BoA (had since september)

I guess I can say that I'm wanting to save up for a new truck, but that's not all. I also want my money to start making me some money. I know that I dont have too much money to start with but I was hoping some of you guys can start me off the right way. Any help is greatly appreciated and I look forward to learning from this community. Thanks again.


Brandon

[sweeps]

HSBC Direct is currently paying 6.0% for savings. $1 minimum.

Also check out poundwise's MMA thread for other ideas.

[disneysteve]

I agree with Sweeps. Take the money in the low-yielding MMA and savings accounts and move it all to a high-yield account. And just keep the minimum in the checking account to cover your monthly bills and avoid an minimum balance fees.

[anonymous_saver]

First, I would keep enough money in your checking account to cover your monthly expenses.

Second, how much money are you in debt? This information could help me give better advice.

Third, I would open an high interest online savings account with a place like Emigrant or HSBC (I like Emigrant better) and get your money out of the regular savings account and the relatively low MMA.

Fourth, are you going to school? Do you have a job? How much money can you save each month?

Fifth, you say you want a new truck. I would suggest at the very lease by a slightly used one since values of vehicles goes down so quickly.

Sixth, what other goals do you have? Emergency fund? Down payment? Retirement money?


Yes, that's a lot of questions, but I think that's my point. We need to know more in order to give advice.

Good luck!

[KruseF1]

Wow, thanks for all the quick replies. I opened the MMA account at my credit union so I can get a car loan later on down the road, and that is the highest yield I could find locally. Second, I dont have any debt, my current truck is paid for and in my name, and I dont owe any money on my CC. Yes I go to school full time and work for about $500 a month. My only bills right now are car incurance and cell phone which total about $200. I can definitely work more hours to bring in more money but summer time is when I usually work the most, with school being out. I can save whatever I tell myself to each month. My goals aren't too detailed, I just want to put my money to work so it can act as another source of income. I'm thinking about starting to buy a mutual fund. Where to start?? Let me know if I need to be any more clear on my information. Thanks again for the help.

Brandon

[KruseF1]

After looking at different mutual funds from Vanguard and TRP, I'm not sure if I have enough yet to start investing in the account that I want. Maybe I should save about $10000 and then start investing??? Is this a better idea? Thanks again for the help so far guys.

Brandon

[usnavy_233]

Originally Posted by KruseF1

After looking at different mutual funds from Vanguard and TRP, I'm not sure if I have enough yet to start investing in the account that I want. Maybe I should save about $10000 and then start investing??? Is this a better idea? Thanks again for the help so far guys.

Brandon

Vanguard and TRP have many mutual funds that you can open for as little as $1K with an IRA or $2.5K in a taxable account. The compound interest you'll lose by waiting until you have $10K will cost you allot. I'd start now if it was me. Just my $.02

[Broken Arrow]

I have nothing to add right now, except welcome to the forums.

[anonymous_saver]

Originally Posted by KruseF1

After looking at different mutual funds from Vanguard and TRP, I'm not sure if I have enough yet to start investing in the account that I want. Maybe I should save about $10000 and then start investing??? Is this a better idea? Thanks again for the help so far guys.

Brandon

I would wait until you have $3,000 in savings to open a Roth IRA. Vanguard and T. Rowe Price are good places to do so, although I like Vanguard better because of the low expenses. If you don't know much about mutual funds or IRA's, I would suggest the book by Suze Orman entitled "The book for the Young Fabulous and Broke". It has an excellent chapter with details of what index funds are, what expense ratios, etc. It's basically a good place to start off with.

[KruseF1]

Ok so I should open up myslef a Roth IRA, which holds different investments including mutual funds correct? And it also shelters my earnings that I will hopefully make from takes right? 19 with a Roth IRA, lol, I like it! Thanks again for the pointers.


Brandon

[anonymous_saver]

I would say that you should only get an index fund such as Total Stock Market Index Fund or the Vanguard 500 Index. Or possibly a Target Retirement account, although I think most people can do better than those anyways - and that they are too conservative. I really think you need to start reading up on lots of materials about Roth IRA's and what kind of mutual funds to buy. Keep in mind that this money would be for your retirement and is not for a general savings account. If you open one while you are 19 or 20, even if you put in a small amount every year after the first initial deposit, you are going to be amazed at what that money can do for you! Also, with a Roth IRA, it is with AFTER TAX money which means you have already been taxed on the money - this means that when you take the money out of the account when you retire, you can take it out TAX FREE. That's an amazing benefit! Sorry that I may not be giving you all of the information you may need, it's just hard to focus my thoughts on everything I know about IRA's and what investment strategy is good within a paragraph or two!

I hope some of this helps.

[Scanner]

Kruse,

It sounds like you are living with your parents or staying at a dorm while you go to college? Is college being paid for? It sounds like it with having only $200/month in expenses.

Here is my advice:

1. Stay in school and finish your degree - that will be a significant path to wealth unless you do something like social work or something. Okay, I'm being Dr. Obvious here. When you graduate, thank your parents.

2. If I were 19, here's what I would do differently. I would go ahead and open up that Roth IRA but don't worry about "maxxing it out." You can open a Roth IRA for as little as $500 and $50/month contribution. Make the minimum on that for now. As Rod Stewart sang when, "Young hearts beat free tonight. . .time is on your side."

3. Open a taxed account and start saving for a house. I know you are young and getting a house, even a little townhouse, is the last thing on your mind but as much as we all have lofty goals of having a million in the bank, home ownership is still the track to wealth and the middle class. You sound like a male and I know at 19, I had no desire to "nest." I think female college students are thinking about it. Maybe open up a Vanguard Wellington or Wellesley balanced fund and contribute $200/month to that. Learn about shifting the mix as you get closer to buying. I would probably drop $2000 of your 3K into that.

4. Finally, have a small account for that truck (the ING or HBSC is a fine vehicle) you want so you aren't tempted to blow your future house money on that. I'd place $100/month in that - you won't ever need a new pick-up. 21 year olds shouldn't have new pick-ups anyway. Try to minimize your car loan in the future, although realisitcally, you will need to be able to use debt responsibly as you mature. I think saving $3K to $4K and having a small car loan is realistic.

3 accounts - different goals. You are now establishing superior credit and gaining leverage with your savings.

Divide your current assets among them in the same proportion.

Sooner or later, you will have to establish an emergency fund for living expenses, when you strike out on your own. You may have to zig-zag a little with your money over the next 5 years but try to stay focused on the home ownership goal.

Good luck.

[Ima saver]

I like vanguard Index 500 mutual fund a lot. I earned 16% on mine last year. You need a minimum of $3000 to open that. However, if you are saving for a truck, it would be best to open a high paying money market account. You should be able to get at least 5%. I think opening a roth ira when you are young is the greatest thing. But you should have a little more savings than that so you won't use all your cash up to open a roth. Once you open a roth, you should try to never touch that money. You can transfer it around, but try never to take it out.

[kv968]

Originally Posted by Scanner

Maybe open up a Vanguard Wellington or Wellesley balanced fund and contribute $200/month to that. Learn about shifting the mix as you get closer to buying. I would probably drop $2000 of your 3K into that.

Wellesley fund has a minimum of $3000 and Wellington's is $10,000. If you think you'd like to go with Vanguard, try their STAR Fund. It's also a balanced fund and has the lowest minimum that Vanguard offers, $1000.

[Scanner]

KV,

Thanks, forgot about the minimums - but you get the idea - balanced funds for short term goals.

[kv968]

Originally Posted by Scanner

KV,

Thanks, forgot about the minimums - but you get the idea - balanced funds for short term goals.

Got it

[KruseF1]

This site is great. First let me again thanks everyone for their help. Thank you. Scanner, your reply was awesome. I just have a few comments/questions. When I said I wanted a new truck, I meant new as "new" for me. A used truck is what I'll be getting. Sorry for not being clearer. Opening up a Roth Ira for retiring is definitely a good idea since the earlier you start, the better.

Now, as far as my current MMA account with my credit union. You guys are saying I should close it out and put that money into a higher yielding account? And I should close out my BoA savings account that gains hardly any interest as well, correct? The reason I ask is because I thought that opening up new accounts didn't look good on your credit report and can decrease your score. The reason why I even opened up the MMA with the credit union is because 1) they had the best local rate and 2) i figured I could get a good loan later on down the road for a truck. Again, thanks alot for all the help guys.

Brandon

[kv968]

Originally Posted by KruseF1

The reason I ask is because I thought that opening up new accounts didn't look good on your credit report and can decrease your score. The reason why I even opened up the MMA with the credit union is because 1) they had the best local rate and 2) i figured I could get a good loan later on down the road for a truck. Again, thanks alot for all the help guys.

When opening a new account the bank will do a credit check on you. They can do what is referred to as either a "hard" or "soft" pull on your credit. If they do a "soft pull" it will show up on your credit report as just an inquiry and won't affect your score. If they do a "hard pull" however it will show up on your report as if you've applied for credit and may minimally affect your score especially if you've applied for a bunch of credit recently. However, even if it does put a little dent in your score, it shouldn't be much and not for long. You should ask the bank you're planning on using which type of credit check they do.

[KruseF1]

Thank you kv, you too have been very helpful. Thanks for all the advice and if I have any other questions, I'll just ask. Great forum.

Brandon

[kv968]

You're welcome and feel free to ask