Saving: Retirement vs. House/Car

[Fillanzea]

The situation:

I am 24. I have a part-time professional job making 19,000 a year. So, I'm living with my parents. (I graduated without enough experience, in a tough job market for my field; I expect to get a full-time position next year making about $36,000, and move out).

I'm putting about $150 a month into a 401k including the company match. In addition to that, I have about $200 or so a month that I can save. I want to buy a cheap used car in about two years, and a house eventually. I have no debt, $850 in savings, and $700 in a mutual fund (parental gift). Also, because I anticipate spending my career in government or university jobs, I'm likely to have some kind of pension when I retire.

The question: how should I save my money? Should I try to save about $200/month for eventually buying a car, house, appliances, furniture, that kind of thing? Or should I be diverting more of that money into my 401k?

[Diolla]

Iwould like a little more information if you are willing. You say you are making $19k a year and saving $350 a month of that. If you have no debt what is your budget for the rest of the money? I assume you are paying some sort of room & board to your parents? Perhaps you should make a budget of your projected expenses when you move out and put together an Emergency fund that would cover 3 months of that. A rule of thumb is 15% of you post tax income should go into a retirement fund. Kudos for contributing now when time is still on your side. Yes you should save for things you want to buy in the future but I think a budget and a plan might be a good idea at this stage to determine how much & how often.

[Ima saver]

It seem like you should be saving more than that. I reccommend opening and funding a roth IRA as soon as possible.

[puck36]

Originally Posted by Fillanzea

The situation:
The question: how should I save my money? Should I try to save about $200/month for eventually buying a car, house, appliances, furniture, that kind of thing? Or should I be diverting more of that money into my 401k?

1. I would start of my getting on a budget. So that way you know where your money is going and how much you have left over to save. You might find out that you have more than the $200 per month to save.

2. I would then pay off all debt you have, starting with the smallest amount to largest amount.

3. Then I would open an online savings account (HSBC is at 5.05% APY right now), and put any extra money you have in that, so you can save for a car (which should be paid 100%) or house (which you should have 20% down) or what ever you like. Plus a emergency fund - 3-6 months in savings

4. Then when you get a full time job I would open a Roth IRA and do more in the 401k.

If you have heard of Dave Ramsey or not I would check out is website at www.daveramsey.com or read his book The Total Money Makeover, which will get you going on the right track in life.

I was in the same boat as you are a few years ago. I was working part time and wanted to save for a house and a car. Well by following Dave Ramsey's plan I have paid off all my debt (Student Loan & Car Loan) in 2 years and now have $500-$800 per month to save for a down payment on a house.

[Snoopy2645]

I will agree try to save as much as you can for the house & car wont give life history but I did & bought my first house at 22 & car at 16 with no loans. So save as much as you possibly can a month I never even made nearly that much either when I was saving for the house & car.

[Ima saver]

Good plan, Puck!!

[WellManicuredMan]

I'm 26 and saving for a house right now and trying to juggle this with planning for retirement as well.

My advice:

Open a Roth after you get the max from your employer's matching contributions with the 401(k) (nothing beats free money). If you need the money at any time you can take it out of the Roth without paying penalties or taxes - ON THE MONEY YOU PUT INTO IT ONLY. Not the earnings. In this way a Roth can be a form of an emergency fund - although a bit more risky than a savings account.