24yrs old, New job.. now what?

[CoryWM]

I'm 24 yrs old, and got a new job. After taxes I should bring in $2000 a month roughly, usually a little more. My old job, was part time and I made roughly 500 dollars a month. So my income has quadrupled. Now rather than going and spending it on crap I don't need. I want to save it smartly, and make good purchases.

Can anyone lend some advice, or point me in the right direction? I've found it hard to find articles for persons in their 20s.

My debt.
Personal line of Credit = -5400(I used this to buy my car) Has 14.5% interest rate or so unfortunately.

Monthly Bills
Loan ~200
Cell Phone 40
Car Insurance 100( full coverage with 1000 deductable)
Health insurance 77
Food & Gas 300(alotment 10 dollars per day)
Rent is free for a few months until my girlfriend finishs school.
Totals: $717

I'm considering taking off full coverage from my car to save a bit. Cell Phone is used for work/home use.

So I have roughly 2/3rds of My paycheck unaccounted for at the moment.

My employer offers 401K.

The part I need help with is. What percentages would you assign for savings goals.

1)Retirement
2)Emergency Fund
3)House
4)Fun Money

Simply shoving all my money into a 401k or something would lead to problems in the future when I need emergency money. Also there are IRAs and Roth IRAs, one of em has a cap of like 4k a year. I wonna make sure my money is being put in the most beneficial places.

The obvious plan of action is pay off debt, and then save. However I want to pay down my debt, and start my other channels of saving. The personal line of credit is too easy to access, and could be disaterous if I get hard up for money. While 401k is much harder to get at.

I have moderate self control over money, however tempting one's self with a huge amount of money sitting in say a savings accont, could lead to a hastey decision to buy a new car, when one isnt required etc.

For my retirement I was thinking:
401k
IRA/Roth IRA?
Company Stock options after a year of employment.

Emergency Fund
ING Savings Account - Something with a few days wait to get at. with a high interest rate.

House
Cds
Mutual Fund

Fun Money
Savings Account connected to my normal bank account with easy access.


If there are any channels i'm missing that are awesome, do point them out. I havent researched bonds yet really.

I'm trying to setup a long lasting plan. I could save every extra penny I had for 3 months, but eventually if I don't buy something, I'll snap. So the fun money section is so that I don't get burnt out on saving hopefully.

This is the disclaimer that I don't know that much about personal finance, and it's what I've gathered from my research, fromt he 20 something articles etc.

Any help/plans is much appreciated.

Look forward to your opinions.

Cory.

[sweeps]

Various comments:

Does your employer match your 401k contributions? If so, you should contribute up to the amount they match. That's an instant return on your money.

Figure out how much you need for entertainment money per month. Maybe $300, maybe $400, whatever. Then stick to it. If you exhaust your budgeted amount that month, wait until next month.

Pay off that loan as quickly as possible. 14.5% interest rate will kill you.

If you still have savings left over, consider a Roth IRA. You should be invested almost completely in stocks in your mid-20's.

What is the value of your car? Depending on how much your insurance payment is compared to the value of your car, it may not necessarily be a good idea to cancel your coverage.

Only you know the importance of your goals and how you should divide up your savings to meet those goals. Definitely get that emergency fund in place. And other short term goals should be in an online savings account.

Best of luck to you.

[disneysteve]

Originally Posted by sweeps

Does your employer match your 401k contributions? If so, you should contribute up to the amount they match. That's an instant return on your money.

Figure out how much you need for entertainment money per month. Maybe $300, maybe $400, whatever. Then stick to it. If you exhaust your budgeted amount that month, wait until next month.

Pay off that loan as quickly as possible. 14.5% interest rate will kill you.

If you still have savings left over, consider a Roth IRA. You should be invested almost completely in stocks in your mid-20's.

What is the value of your car? Depending on how much your insurance payment is compared to the value of your car, it may not necessarily be a good idea to cancel your coverage.

I could have written this exact same post. I totally agree with each of these comments with the possible exception of $300-400/month for entertainment. I think that's kind of high.

Start by getting rid of that 14.5% loan. You can do that in just a few months in you focus on that first.

[tinapbeana]

cory, sounds like you're actually in a really great place right now, congrats!!! technically i'm still a 20-something, so i'll tell you what i would have done (or in some cases what i did)...

1. put enough in your 401k to get any employer match. usually it's 50c on the dollar or a dollar for dollar match up to a certain % of your gross pay. this instantly gets you a 50-100% return on your money, not counting the actual performance of the 401k itself. i'm guessing this will be about 150/month (guessing they'll match up to 6% which is pretty standard). since this will be from post-tax moneh, your take-home will probably only go down by less than 100 to 1900

2. your monthly expenses are really low at $717, which is awesome! if it were me, i'd set 717 aside each month for 3 months, which will give you 3 months worth of expenses in an emergency fund.

so now 1900 take home (after the 401k contribution) - 717 monthly expenses - 717 emergency fund savings = 466 remaining.

if you allow 50 per week fun money that's 200 per month, leaving you with 266 for the first 3 months (983 after you've funded your mini-EF). for those first 3 months i'd shuttle that money off to your loan. then for the next 4-5 months i'd send the whole 983 to the loan, at which point it should be all but paid off.

now you've got 983 extra per month + 200 that was going to the loan = 1183 extra to work with every month and no debt, which is amazing!!! this is where everything starts to get fun...

figure out the goals you have or want for yourself. for instance, some people would continue to pay that 200 loan payment but would put it in a high interest saving account for when they need a car next time (or for maintenance and repairs on your current car). do you want a house someday? maybe set aside 200 per month to a house fund. what about a vacation, or first months rent and deposit on an apartment, etc...

at this point you decide what to do with your money based on what's important to you. if i were in your shoes at this point i would take 1183-200 for car fund - 200 house fund - 333 for a roth IRA = 450 remaining for other personal goals like a vacation, a gift fund, or even a small increase in your fun money.

as for where to invest it: the 401k will be put with whatever company is handling your company's program. for a roth IRA you have a ton of choices, and there are others on this board who can advise you better than i can. the running logic is that any money you might need in the next 5 years or so (like the car money, house money, EF, etc) sould be either in CDs or a high interest rate savings account. i do the savings account, b/c for me i know that while i have it separated by car fund, vacation fund, gift fund, etc, it all could and would be used in the event of an emergency if i needed it.

keep us posted on how it goes, cory!

[CoryWM]

As far as the 401k goes. They don't do any matching... BUT! After 1 year, they automatically contribute 5% of my wage on their behaf. So I could put in 0 and they'd put in 5%. So thats why I am unsure of how much I should put towards that.

401k, Tax free when it does in and comes out, with no penalties if i take the money out after 65? And it usually goes in a mutual fund that should make between like 7-11%?

As for my car, it's worth about 4-5k right now. I had comprehensive when i was making 500 dollars a month, because if I was to get in an accident, I didn't want to be out of luck for a car. I've never had an accident, so I'm probably pretty safe dropping that.

Is there somewhere online, that I can buy into mutual funds and/or stocks? I plan on maxing out my company stock after one year. Here how it works...

I have to be working there for a year. Then I get to purchase at 90% of the start of the quarter price. But I buy it at the end of the quarter. And there are blackout periods for me selling, like I can't sell just before the figures for the quarter come out. Also I have to hold onto the stock for 1 year after purcahse date. So in theory, as long as I only buy when the stock has gone up/stayed the same, thats a 10% return on my money right there. It's an old big company, so I can't imagine it going up or down that much really.

[project15]

What about gas? that is quickly becoming a larger chunk of my income since it's basically a fixed expense of almost $150 a month due to driving to and from my job.

[CoryWM]

I like to hang out at home alot, and I've had my new job for two weeks. And I filled up two weeks ago, and have about 1/4 a tank left. My commute is about 10-15 mins each way in the city. I drive a 96 jetta, so fuel efficiency is nice. I just included it in the total with my food.

[zetta]

I like the guidelines from the book All Your Worth -- 50% needs, 20% savings, 30% wants. If you have $2000 after tax, this means:

$1000 needs -- rent, utilities, groceries, gas, cell phone, car loan, insurance. Your current $717 on monthly bills is within the guideline -- when you need to start paying rent, is it reasonable in your area to aim to spend only $300 on rent if you have a roommate? (And why aren't you paying something toward rent while living with your girlfriend currently?)

$400 savings -- emergency fund, 401k, paying off the car early, and savings for your next car and a house downpayment

$600 wants -- everything else: clothes, entertainment, cash, dining out, vacations, gadgets, fun, etc.

Since you have just gotten this increase and are used to having less to spend on fun, I'd put a bigger percentage toward savings until you have the emergency fund in place and the car paid off.

I would also recommend going for 10% into your 401k. I put 10-15% into my 401k for the first 12 years that I worked, and am very happy I did so. I never noticed the difference, and my retirement is taken care of already at age 36. (The retirement calculators say that I don't have to contribute another penny to retire at my current income level.) This gives me a lot of financial freedom -- I can choose to stay home with my kids and spend a lot more of my family's income on a nicer house and other luxuries because I don't have to play catch-up on retirement.

So if I were you, here is what I would do:

$300/mo to emergency fund until it reaches $3000
$200/mo to 401k fund
$100/mo to paying off the car loan early
$400/mo to wants

When the emergency fund is in place (about 10 months) and the car loan is paid off (I'm guessing 12-15 months?), you will then have $400/mo to split between a fund for your next car and a house downpayment.

As you get raises over the next few years, you can increase the amount you are saving toward these things (as well as increase your fun spending a little), and also start investing in non-retirement stock and funds. I would redommend waiting until your car is paid off before joining the company stock-purchase plan -- the 14.5% interest rate is higher than the 10% likely return.

[CoryWM]

I moved back home, when my girlfriend went to school out of state, she'll be back in august. So thats why I don't currently have rent to pay.

[humandraydel]

Originally Posted by CoryWM

Is there somewhere online, that I can buy into mutual funds and/or stocks? I plan on maxing out my company stock after one year. Here how it works...

Be careful with company stock. It sounds like a good deal, but it's not a good idea to have more than 5-10% of your assets in your company stock (or any single stock, for that matter).

There are a lot of online mutual fund "houses" and/or brokerages. Each has it's advantages and disadvantages, so it depends on what you want. The 3 mutual fund houses usually suggested are: Vanguard, Fidelity, and T. Rowe Price. For buying individual stocks choices include Scottrade, Sharebuilder, Ameritrade, and others.

As for the question of "how much to invest in a 401k", it depends on how much you will be investing each year. In your situation (company contribution with no required deposits) I would first max a Roth IRA ($4k contribution per year). Any retirement savings after that should go into your 401k.

[baking23]

Originally Posted by CoryWM

I'm 24 yrs old, and got a new job. After taxes I should bring in $2000 a month roughly, usually a little more. My old job, was part time and I made roughly 500 dollars a month. So my income has quadrupled. Cory.

Good for you! I'm a few years older with an MA and I'm still looking for a full-time job.

Here's a link to a great budgeting scale. Not quite sure if it's what you want, but it does have some nice percentage ideas to get you started.

I tend to look at this site a lot for self-education purposes.

How to build your first budget - MSN Money

[CoryWM]

My latest idea, is since I already have a paypal debit card. I'm going to put my food/gas money in there, and only use that card for that purpose. so I can easily track my expenses.

I'm trying out the trial of Microsoft Money. But really I find it not what I'm looking for. Like it tracks money transfers etc as expenses, and it's alot of work to label each thing, even if you label something once and buy from it again a couple days later, it doesnt remember what category it's from.

I was wondering if anyone had seen a bank account, where you could allow percentages to funnel money into other accounts. Lets say I deposit a 30 dollar check and a 300 dollar check. I'd want lets say 50% of each to go to bills account, 20% to go to loan payment, 20% to fun, and 10% to food/gas fund. No matter what amount I deposited. I think it'd be the next level of automation. OR is there a nice date people use to auto draft from their checking accounts to their savings accounts, cause as the month's pass, the days in which you get your check changes slightly.

Thanks for all the replies, it's not only educating me, but keeping me motivated, cause I wonna come back and see what people have to say, and I end up researching more.

-Cory

[tinapbeana]

cory:

i've not seen a bank that will allocate percentages as you've requested, but i've got something similar set-up in a round about way...

in real life i have a credit union checking & savings account AND an online savings account with apple bank. so, only 3 accounts.

i use software called Money Manager EX (it's free open source software that is platform independent). in that i have about 14 'accounts' that break down in the following manner:

Credit Union: checking
Credit Union: savings
Apple Bank: Homewoners Insurance
Apple Bank: House Property Taxes
Apple Bank: Car Property Taxes
Apple Bank: Christmas Fund
Apple Bank: Medical Fund

so on and so forth.

in my software i have automatic transactions setup for the 3rd of every month to pull a certain amount from my checking account and put that amount in the respective Apple Bank account (i.e. $55 for homeowners insurance). again, this transaction is virtual, it only happens in my software.

the amount of money that i transfer is based on either the percentages from my budget (i.e. a certain percent for retirement savings) OR the average monthly cost of a certain bill (i.e. my property taxes are X per year, so i budget X/12 for my transfer every month).

i have added up all the transactions that happen in my virtual accounts on the third, and that let's me know a lump sum (in my case $572) that i need to actually transfer between my real checking account and my Apple Bank account. i have this setup to happen automatically on the 3rd as well.

the end result is that my apple bank statement shows one large lump sum, but i can check Money Manager to know exactly how that money breaks down between my individual funds. it also helps me keep things balanced: in my software i can add up all accounts that start out 'Apple Bank: ' and the sum of those accounts should exactly match the balance in the actual Apple Bank account.

[CoryWM]

being that my car loan is a personal line of credit with 14.5 interest rate, should i just put my emergency money into paying this off as well, cause if i do have an emergency I could take it back out?

[Ima saver]

I would pay off the car loan as soon as possible, then put the money into a roth ira each year. Of course, I would establish the emergency fund before I did anything else.

[jIM_Ohio]

Originally Posted by CoryWM

I'm 24 yrs old, and got a new job. After taxes I should bring in $2000 a month roughly, usually a little more. My old job, was part time and I made roughly 500 dollars a month. So my income has quadrupled. Now rather than going and spending it on crap I don't need. I want to save it smartly, and make good purchases.

Can anyone lend some advice, or point me in the right direction? I've found it hard to find articles for persons in their 20s.

My debt.
Personal line of Credit = -5400(I used this to buy my car) Has 14.5% interest rate or so unfortunately.

Monthly Bills
Loan ~200
Cell Phone 40
Car Insurance 100( full coverage with 1000 deductable)
Health insurance 77
Food & Gas 300(alotment 10 dollars per day)
Rent is free for a few months until my girlfriend finishs school.
Totals: $717

I'm considering taking off full coverage from my car to save a bit. Cell Phone is used for work/home use.

So I have roughly 2/3rds of My paycheck unaccounted for at the moment.

My employer offers 401K.

The part I need help with is. What percentages would you assign for savings goals.

1)Retirement
2)Emergency Fund
3)House
4)Fun Money

Simply shoving all my money into a 401k or something would lead to problems in the future when I need emergency money. Also there are IRAs and Roth IRAs, one of em has a cap of like 4k a year. I wonna make sure my money is being put in the most beneficial places.

The obvious plan of action is pay off debt, and then save. However I want to pay down my debt, and start my other channels of saving. The personal line of credit is too easy to access, and could be disaterous if I get hard up for money. While 401k is much harder to get at.

I have moderate self control over money, however tempting one's self with a huge amount of money sitting in say a savings accont, could lead to a hastey decision to buy a new car, when one isnt required etc.

For my retirement I was thinking:
401k
IRA/Roth IRA?
Company Stock options after a year of employment.

Emergency Fund
ING Savings Account - Something with a few days wait to get at. with a high interest rate.

House
Cds
Mutual Fund

Fun Money
Savings Account connected to my normal bank account with easy access.


If there are any channels i'm missing that are awesome, do point them out. I havent researched bonds yet really.

I'm trying to setup a long lasting plan. I could save every extra penny I had for 3 months, but eventually if I don't buy something, I'll snap. So the fun money section is so that I don't get burnt out on saving hopefully.

This is the disclaimer that I don't know that much about personal finance, and it's what I've gathered from my research, fromt he 20 something articles etc.

Any help/plans is much appreciated.

Look forward to your opinions.

Cory.

I've read the first few responses, good advice thus far.

My take would be

1) send 1k to debt while rent is Free. I'd assume rent would be 500-900/month, so maybe add that into budget, then use it to pay down debt.

2) The come up with a multi dimensional plan (you don't have any significant problems, so a broad plan will work).

a) set aside 10% of income for retirement. When you start put 9% into retirement and 1% into a cash (Emergency fund). When the Emergency fund hits 2 months worth of expenses, shift retirement savings to 10%. 401k or Roth IRA will work, my advice is set aside 10% of income. 10% is based on Gross pay, IMO.

b) stay debt free. Keep any debt to under 10% interest rate... so the 14.5% rate you haver is high, and paying it off should be a priority.

c) maintain moderate expenses. No need to cut costs now, as life is good. Just watch adding new monthly expenses. Don't finance anything (pay cash always) for large purchases like big screen tvs, appliances etc...

[ItsDubC]

I'm also 24 and in January opened a Roth IRA account w/ Vanguard invested in the Target Retirement 2050 mutual fund, which is in addition to my employer's Simple IRA (which I only fund enough to get the company matching). I plan on maxing out my Roth IRA every year. This year I think the Roth IRA cap is $4000 but I'm pretty sure it moves up to $5000 starting next year.

I also have a savings account w/ ING Direct which earns far better interest than any savings account I can open at my local bank, and that's where I let any money sit that I have left over. My checking account always has at least 3 months worth of living expenses in it, and any excess gets transferred to my savings account.

I currently am paying off student loans but the interest rate is fairly low so I only pay the minimum per month that I have to (except that I paid a sizeable amount off when I got my yearly bonus). I also try to zero out my credit card every month as much as possible but sometimes I let that slip.

You mentioned that you use your cellphone for both personal use and for work. Your employer may be willing to pay your cellphone bill every month, it's worth a shot.

You claim that you don't know much about personal finance but I think you're a lot more knowledgeable than most at our age. I think you'll be fine in the long run.

[anonymous_saver]

Originally Posted by ItsDubC

I'm also 24 and in January opened a Roth IRA account w/ Vanguard invested in the Target Retirement 2050 mutual fund, which is in addition to my employer's Simple IRA (which I only fund enough to get the company matching). I plan on maxing out my Roth IRA every year. This year I think the Roth IRA cap is $4000 but I'm pretty sure it moves up to $5000 starting next year.

I also have a savings account w/ ING Direct which earns far better interest than any savings account I can open at my local bank, and that's where I let any money sit that I have left over. My checking account always has at least 3 months worth of living expenses in it, and any excess gets transferred to my savings account.

I currently am paying off student loans but the interest rate is fairly low so I only pay the minimum per month that I have to (except that I paid a sizeable amount off when I got my yearly bonus). I also try to zero out my credit card every month as much as possible but sometimes I let that slip.

You mentioned that you use your cellphone for both personal use and for work. Your employer may be willing to pay your cellphone bill every month, it's worth a shot.

You claim that you don't know much about personal finance but I think you're a lot more knowledgeable than most at our age. I think you'll be fine in the long run.

I would suggest that you lower the amount of money that you keep in your checking account. Even if you were in an emergency, you probably wouldn't need 3 months at once. Plus, you could earn more interest on that money then letting it sit in your checking account. Maybe you should lower that amount to 1 month or so of an emergency fund and let the rest sit in ING to gain interest.

Also, have you opened up subaccounts with ING so that you could have a different account for various savings goals? For example "Emergency fund", "Down payment", "Vacation" etc.?

[ItsDubC]

Ya I've always felt that 3 months-worth of living expenses in my checking account was a lot but that's one thing my parents have always adamantly drilled into my skull haha. I'm always afraid of being in a situation where I have to transfer funds out of my savings account to cover unforeseen expenses, so that's why I keep that much in checking. I may reconsider, given your advice.

As for the ING subaccounts, I was thinking of having one for a house, a car, and miscellaneous (which would include things such as entertainment and leisure expenses). Are those good categories to start with?

[zetta]

I'd love to hear what the original poster decided to do!