Confused about what to do.

[bandelove]

Hello! This is my first post and i'm hoping you can help me make some important decisions. First off i'm 22 and pregnant with our first child which is due end of March. I work FT making $2500 a month, rent is $400, i spend about $200 on food, work pays for my gas, and i have no debt or car payments. I have over $15,000 saved, $9500 is in ING, about 5k is in my bank savings, and the rest in checking.

I'm not contributing to my 401k and my work only contributes .25 for every $ up to 6% of salary. My mom told me to open a roth ira but i dont know where to start. My maternity will only last 3 months and i plan on starting it beg of march. I've started saving $900 each month to my ING and should have another 5k+ in it by Feb.

My fiance and i plan on buying a home in the next year but i'm thiking it may be unrealistic at this point since the only homes in our range are around $220 for a manufactured home which is basically a mobile. Our other option is to look into town homes.

What do you think would be the best thing for me to do?

[Ima saver]

You need to do some research into mutual funds. If I were you, I would open a roth ira in a mutual fund called Vanguard. I like the Index 500 fund at Vanguard. It requires a $3000 minimum to open a roth ira.. I think you should still contribute to your 401K. If they give you .25 cents for every dollar, you are still making 25%, right?

[Ima saver]

I did not have the literature in front of me, but Vanguard also has retirement funds based on your age and about when you want to retire. There is a vanguard retirement 2015, 2025, 2035 and 2045 funds. Since you are so young, Vanguard retirement 2035 and 2045 might be good choices.

[pearlieq]

I do agree that contributing to your 401k is a great idea. Not only does it reduce your taxable income, meaning you're paying less in payroll taxes, but also they company match means you're getting an instant 25% return on your money. Can't beat that! You might want to think about at least putting that 6% to get the company match when you get back from maternity leave.

A Roth IRA would be a great thing to set up as well. I personally prefer the targeted funds offered by the brokerage house T. Rowe Price. The funds are called Retirement 2040, Retirement 2045, etc. You invest in that fund, and they do all the balancing of your portfolio and make the appropriate changes as you get closer to retirement.

With all that being said, I would make sure you keep a good portion of your savings as an emergency fund. It's always nice to have a cushion for a rainy day--it gives you choices options when crises arise.

You'll also probably want to set aside at least a few hundred dollars for all the things babies invariably need. You may get lucky and get lots of hand-me-downs or shower gifts, but something always seems to come up!

How will you be paid during your maternity leave? Will your pay switch over to disability? That will probably only be 60-70% of your salary, so just be prepared for that. You may also have a waiting period before your disability kicks in, so you might either need to use your vacation time or go without a paycheck for a week or two.

As for the house question, that's a tough one. It sounds like you're in a really expensive real estate market. Are you planning on staying there for the long haul or would you consider moving? A townhouse might be a good place to start for a while, though your rent sounds really reasonable too. Maybe you could stay put for a while and save up instead of taking on a house right away.

Good luck with everything!

[HalMd]

You're doing great. I would do this.

1. Open the 401(k) and RothIRA and fund them for 2006. Opening them is as easy as opening a savings account. You don't necessarily need to buy mutual funds right away. The money can set in the retirement accounts until you have a chance to pick funds. Maybe during maternity leave is a good chance to read about mutual funds.

2. As others have said, begin to save for an emergency fund. Set aside a certain amount when you get your paycheck. Automatic deductions are great for doing this and you won't miss the money. After you reach 3-6 months wages in your emergency fund, then begin saving for a house.

3. Make sure your cash is getting the best interest rate you can find in the mean time.

[bandelove]

I’m not currently enrolled for disability so when I go on maternity so my 3 weeks of vacation will be the only money I’ll receive. My bf will continue to work and he’ll be bringing home at least $3000 a month by Nov. which is more than double what he makes now so we should be ok financially. When I got promoted and started working FT back in March I didn’t need benefits since I’m covered by my mom while in school but I graduate this December. Since its not open enrollment I cant sign up for disability and get 60% of my income while on leave so I have started putting away at least $900 a month to be on the safe side.

As for our apt, we lucked out and got our 2 bedroom apt for the price of a 1 bdrm but they have slowly brought us up to market value and when our lease expires we’ll be paying close to $950 and our utilities will no longer be included. Our apartment is old, cabinets are rotting away, and we have no washer dryer hook ups so we’re definitely moving. Other 2bdrms are going for over 1k and most dont include utilities. By the time our baby arrives we should be making at least $75k together but I’m still figuring that wont be enough for a home although my fiancé thinks so as long as his mom gives us a down payment. There’s just so much think about I think I might go crazy.

[Broken Arrow]

Welcome, bandelove.

Please don't worry. You are in a good financial position right now, you have decent cash in-flow, and most importantly, you have your head screwed on straight. Can you do me a favor and have a talk with my ex?

I agree about the 401k. Even at $0.25 to the dollar, it's still a better return than a Roth. If you can swing a Roth as well, then feel free to do so, though with a baby on the way, I would start to shore up your finances for this more immediate priority. Essentially, you want to be in the best financial shape possible before your baby arrives. Most couples take a hit on their income after that, and it can get tough, even if it's temporary.

Well anyway, best of luck, and believe me when I tell you that you're doing much better than many others out there in the real world.

[Snoopy2645]

I realize I am going against the others here but shouldnt she invest in a home down payment before going to retirement I would put in highest interest cd you could find for short term & then keep saving you stated you have over 15k saved which would be a nice start on a downpayment on a house!!!

[Broken Arrow]

Actually, I do agree with you Snoopy, although my previous response may not have been clear on that.

I think the 401k is too good to pass up, but it may not be worth funding a Roth right nnow. Again, with the baby on the way, it may be better to direct that money towards more immediate needs.

[HalMd]

Those retirement accounts are going to compound over 40-50 years, so I would contribute right away. It's okay to rent for a few years.

If you save for a house first, that's fine too. But from the standpoint of getting in good habits, at least put something into your 401(k).

Try not to get overhelmed by it all. I find writing a letter to myself once a year helps me focus on financial goals for the coming year. Then you can look back on what you wrote a year from now.

You have no debt--that is a huge advantage. Sounds like you're living within your means, another plus. And, you are thinking about finances which is good. Give yourself a pat on the back.

[Ima saver]

I agree with Hal, you will have so many years for your retirement accounts to compound.

[tabbycat31]

I wish that I was doing so well financially at the age of 22. You are that much farther ahead of me.

One major question for you. Do you plan on going back to work when the baby is born?

[bandelove]

I grew up with a single mother who struggled to raise me and my 3 siblings so i think going through that made me more aware of money and making sure i'm secure. You never know what can happen down the line so i'm glad i have built up this small cushion of money at a young age. We have to look into the real estate market further, but after shopping a few weekends ago i'm strongly opposed to making that leap. We moved here for school and things just magicly worked out for us with finding good jobs because most places around here pay min wage since its a college town. Realisticly i think we'll be here another two years and to me that seems too short to buy a home with prices the way they are right now. I'm going to sign up for my 401k tomorrow, i've just been procrastinating for months now so it's time. When our baby is born i will be returning to work. I toyed with the idea of staying home and going back to selling on ebay like i did a couple years ago but i live 2 hours away from the stores i used to buy things from. You never know though.

[poundwise]

Originally Posted by HalMd

I find writing a letter to myself once a year helps me focus on financial goals for the coming year.

It's ok to write a letter to yourself. If you get a reply, however, then you may need to seek professional help.

[poundwise]

Originally Posted by bandelove

I grew up with a single mother who struggled to raise me and my 3 siblings so i think going through that made me more aware of money and making sure i'm secure. You never know what can happen down the line so i'm glad i have built up this small cushion of money at a young age. We have to look into the real estate market further, but after shopping a few weekends ago i'm strongly opposed to making that leap. We moved here for school and things just magicly worked out for us with finding good jobs because most places around here pay min wage since its a college town. Realisticly i think we'll be here another two years and to me that seems too short to buy a home with prices the way they are right now. I'm going to sign up for my 401k tomorrow, i've just been procrastinating for months now so it's time. When our baby is born i will be returning to work. I toyed with the idea of staying home and going back to selling on ebay like i did a couple years ago but i live 2 hours away from the stores i used to buy things from. You never know though.

You should definitely not buy if you are only going to be in the area for two years.

Also, I agree completely that you should contribute to the 401(k) plan in order to take advantage of the company matching funds.

Beyond that, it seems as though you have done well in terms of savings, etc. You ought to continue saving so that in two year's time, when you move to another city, you can perhaps buy a house then with a substantial down-payment.

My best to you and your child.

[vishenda]

First off, CONGRATULATIONS O THE BABY and marriage..

Ok....you've got a lot of issues going on here. Obviously, you're kind of scared with this new baby.

The good news is that you're saving for it and trying to plan ahead.

Here's my suggestion:

You and your fiance need to get on a written budget. You need to have shared goals and an understanding of how you (as a couple) are going to spend money.

You don't need to have money fights with a new baby and being newly married. Start talking about money now and continue talking about it throughout your marriage.

You'll need to understand if your new husband has any debt. Because once you're married, it become our (yours & his) debt.

Buying a house in a year might be too much stress for a newly married couple with a new baby. Instead, I would suggest finding an affordable place to rent while you save money and get use to each other.

Most people (meaning well) will tell you that rent is throwing money away and you need to buy a house. Rent is a short-term strategy until you have the money to buy a house.

So, pay off debt (if you have any) and save money while you're renting an affordable place. You'll never regret waiting.

Don't buy any kind of manufactured home because they go down in value. Talk to a Realtor if you don't believe me.

well life continues to be beautiful

[vishenda]

Let me make a pitch for 1 thing:

You should definitely be investing 6% in your 401k. This only costs $150/month (which you seem to have b/c you are saving 900 each month). It would also give you an automatic 1.5% raise (6 times 0.25 . . . as a side note your company is stingy).

Don't worry about starting small. You have 1 huge benefit. You are young and have time on your side. Time will more than make up for the small amount.

Starting young is huge. If you do this now, by age 65, (with 9% returns) you'll have $1 million for your retirement. If you wait until you are age 35 and start (with the same salary), you'll only have $336,000.

Overall, you are in a financially good position. Don't waste it by confusing what you "need" verse what you "want".

Hope this helps dearie

[greedy4chips]

Vishenda stole my thunder!!!

One addition would be that the funding of your 401k is with pretax money so you will notice even less of a difference in your paycheck. $150 invested would cost you approx. $135 on your paycheck.

$150 extra saved per month is not going to get you a house very quickly either ($1800/year) but as vishenda stated it will cost you a fortune if you wait 13 years to start investing.

Good luck with your decision!

[HalMd]

This thread about becoming a millionaire seems relevant...

My "How to become a millionaire presentation"

[bandelove]

My fiance and me have been together 6 years in Feb and have been living together for two years. He has no debt and neither do and I don’t imagine either of us falling into debt for any reason other than to buy a home. We make a great team because we have similar goals and want the same things out of life. We discussed finances and stuff when we 1st moved in together and so far we haven’t had any issues. When we got engaged last Feb we started talking more about issues besides finances and we’re definitely on the same page. Now that we have a baby on the way we’re not necessarily freaking out because i know its not going to be a big financial burden. Instead, I just want to save as much as I can because theres no reason i cant and i know its the smartest thing i can be doing for us at this point. At this point my fiancé has almost 6k saved and he saves a what he can each month which at this point isnt much but its better than nothing. Last year I made 13k, and he made 11k so we weren’t able to save much by any means, especially with paying for school and everything else on our own. Needless to say I went saving crazy when I got my promotion which I’m glad. I know that if we survived last year with making 24k combined and didn’t have to sacrifice much, that we can survive this coming year more than double that income. I finally went ahead and put in the max to my 401k yesterday which was 1800.

As far as manufactured homes go in my area, they have been appreciating like crazy. However, when we looked at one place our agent said the lady was selling because she was upside down and that turned me off completely. She mentioned we could offer her what it was appraised at which was $230k and have her pay the closing costs, etc but to me that seems like the stupidest thing to do. I know in general manufactured homes depreciate but that hasnt been the case here. Homes are priced rediculously hight right now and owners are having a hard time selling. Everyone says now is a good time to buy, but i'm not sure i'm buying that.