New here, how am I looking, where to improve?

[red92s]

Just found this forum and it seems very helpful. I'd like a little advice. I'm not in "trouble" per se, but I'm not where I'd like to be financially.

Quick Stats:
- 24.
- Graduated from school last August with an engineering degree.
- Started working immediately for a Fortune 300 company.


Income:
- Salary of ~$52k/year
- Take home $2720 after taxes, insurance, 401k, and ESPP deductions

Debt:
- $5k, 36 mo car loan (~$160/mo). I paid the rest of the $7800 purchase price in cash, KBB was ~$12k at the time. 30 months remaining. First car loan.
- Citi Credit Card; $2,900 limit, $1k balance (recently incurred a lot of moving expenses and had to front several cash deposits, so a lot of other expenses went on the card). First and only "real" card, only 16 months of history.
- Macys card, $100 limit, rarely used.
- No late/missed payments on anything
- No college loans

Monthly Bills:
- $535/rent
- $50 cell
- $120 power/cable/internet/heat/netflix
- $120 gas
- $250 food (typical)
- $150 insurance
- $50 gym
-----------------------
$1275 total fixed(ish) costs

Investments
- 8% into 401(k), YTD about ~$6k including emp. match
- 4% into company stock; purchased at 5% off market value.
- IRA from an internship 401(k) rollover, ~$1k
- Pepsi/Mc'd stock gifted from relatives, $5k

Now, my problem: I've been working almost an entire year now, and have essentially zero in savings. I have a lot of stuff that I didn't have before that I consider "essential" (stuff to sit on and eat off of, a TV, a car to drive), but no money. I'm paying into retirement pretty heavily, but have not really established a liquid savings to fall back on. This has mainly been due to having 20-something fun, buying furniture (I never owned any before), and having a car totaled and fronting cash for the new one. Having checking and savings accounts (ING) linked makes it waaaaayyy to easy to buy that new DVD player, or other cool thing.

Should I pay less into retirement and stock purchase programs, and more into savings? My local bank pays 6.01% on a savings account, which would not be linked to my current checking account . . . out of sight, out of mind mentality. I've run the numbers, and it SEEMS like putting $400/check into savings (~$9600/year) should leave me with at least some discretionary income. I was considering laddering some CD's once I build up some cash. I know the interest isn't great, but NOT BEING ABLE TO SPEND IT almost seems like a good thing.

I've settled down a good bit in the last several months and weekly bar tabs are not nearly what they used to be, and dropping $10/day at lunch everyday has been replaced with $2.50 made at home meals. The new car gets 32 MPG as opposed to 22 MPG, and I know split utilities with a roommate . . . but any other advice is MUCH appreciated.

[Ima saver]

Yes, I would definately open up a savings account. Where in the world can you get 6%, I can only get 5.25% and that is with a balance of at least $50,000.

[red92s]

Originally Posted by Ima saver

Yes, I would definately open up a savings account. Where in the world can you get 6%, I can only get 5.25% and that is with a balance of at least $50,000.

Florence Savings Bank (can't post the URL, new member). It's actually checking, but I needed an account with paper checks for rent since I only had ING before. They have a few stipulations to earn that rate:

- 12 debit transactions a month (met, morning cup of Coffee at Dunkin')
- ACH payment or direct deposit (met, payroll DD)
- E-statements (I hate paper statements to begin with).

BUT, if you meet all those, they refund ATM fees and pay 6.01%

[pearlieq]

It's a personal decision, but I'm not usually too much of a fan of company stock purchases, for the simple reason that it puts a lot of your eggs in to one basket.

Not only are you holding a great deal of one particular stock, but you're also investing quite a bit of your financial future in a company simply by working there. If your company pulls an Enron, (or Tyco, Andersen, etc.) not only are you out of a job, but out of a great deal of your portfolio.

Are you also getting company stock as all or part of the 401k match at your work? You don't want to get overloaded with any one type of investment.

You'll have to figure out what works for you, but my personal advice would be to tighten your belt for 4-6 weeks and pay off the CC while also accumulating about $1500 is a liquid savings account (no CDs). Yes, you might be tempted to spend it, but to be blunt, you're just going to have to get over that. Part of getting established is learning to to keep your mitts off the savings!

Once you're done with the CC and small savings fund, go ahead work up a liveable budget that includes money for the fun stuff a normal 20-something does, along with money to put aside both for long term savings and short term wants (that DVD player, a vacation, etc.).

I would recommend creating an emergency fund (laddering CDs is fine, or a high yield savings/money market) of about 9k or so (6-7 months expenses) and also starting a Roth IRA.

Good luck to you!

[Ima saver]

You need to have an emergency fund of at least 3-6 months take home pay. In your case, that would be about $9000 - $18,000 you should have saved in this savings account. I go for six months cause we are self employed. (that is a great rate)

[Ima saver]

After that, I would open a roth IRA. You have the power on compounding on your side right now. Please start young. You have the potential to be a millionaire if you start saving early.

[red92s]

Originally Posted by pearlieq

Are you also getting company stock as all or part of the 401k match at your work? You don't want to get overloaded with any one type of investment.

401k and match is not going into company stock. I don't plan on investing in the company beyond what I contribute through ESP. It's a company that has recently added some great leadership and is diversified in several consumer-product SBU's, many of which are showing strong growth within their respective industries.

Thanks for the advice. Today is payday, and so begins the quest of building liquid savings.

[DebbieL]

I think you are doing fantastic for your age! Congratulations, and keep it up. You will be sitting pretty in no time with your financial attitude. I was nowhere near where you are at that age.

[mekish]

i think you're getting a good deal on the company stocks, if its a growing company that 5% discount could mean thousands in a years time. you can keep buying abd selling those shares.

[project15]

A tip on the random spending: give yourself an allowance.

Give yourself $50 or $100 a week or whatever you think is reasonable for this point in your life and don't spend more than that. If you want that $300 LCD monitor or $50 video game, you'll have to save your allowance for a few weeks to get it.

So if you have $1500 in expenses, and an income of $2500 a month, with the allowance, you know that you'll only spend $200 a month on entertainment/eating out/other and you won't be spending the other $800 on random bar visits or something else like you may have been doing without knowing this whole time.

[kv968]

I know your original question was about an EF (which I wish you luck on building), but I'd like to comment on the company stock also. Although you're getting a good deal with the 5% discount, you shouldn't really have it account for more than 10-15% of your total portfolio. I'm sure it's a great company but anything beyond that may be too many eggs in one basket. Take it from me, I work for a major pharmaceutical company and had way too much in company stock when it took a dive. I'm still recovering 10 years later. Not saying it'll happen with your company, but just be careful no matter how rosy the future may look.

[red92s]

Originally Posted by kv968

I'd like to comment on the company stock . . . Although you're getting a good deal with the 5% discount, you shouldn't really have it account for more than 10-15% of your total portfolio.

At this point, it's a fairly small percentage of the investments I have (neglecting retirement accounts). I've only been contributing for a few months, and have another investment account with some diversification (although not a ton, due to my age and length of investment history).

I made a large CC payment last night, put the credit card in a zip-lock baggie full of water, and threw it in the freezer. It's now encased in a solid block of ice. Getting to the card for an impulse buy requires waiting a few hours for it to thaw, allowing time to think about the purchase, but it's still available if it becomes a necessity in an emergency.

[FrugalFish]

You are doing fantastically! There are many people twice your age that don't have their stuff nearly as together.

I'm surprised no one tossed out the old adage of "pay yourself first"- once you have your budget where you like it, figure out how much of it you want to save and put it in that savings account immediately! I use to have my emergency fund in a separate savings account at the bank- one that required a signature to complete transactions. That way it couldn't be taken out without actually walking into the bank. If you are prone to skimming too much from your savings, that's a good way to break the habit.

[pennrj430]

Red, here is what I would do in your situation. It might seem a little extreme, but it will work fast for you, and you can start saving a lot more then the way you are thinking of going about it. Just an idea.

I'm guessing that after your Total fixed costs (1,275) + your car payment (160) + your estimated credit card min payment (85) + some fun money (200) are subtracted from your total take home after deductions (2,720), you are left with about $1,000 extra money a month.

Now, here is what I would do... Take that 1,000, and pay off your CC in one shot the 1st month, now the credit card is gone and now you have about 1,085 in extra money per month. Now take that 1,085 and throw it all towards the car starting the 2nd month. Buy the middle of the 5th month, you will be debt free, and have an extra 1,245 a month. If you then start putting the 1,245 in your savings, you will have $7,470 saved a year from now. And in 2 years from now, if you kept putting that away, you would have 22,400 saved and 0 debt!!

Anyway you go about it is going to be a great start. I just wanted to throw in my 2 cents. Good luck Red! Keep us updated.

[jIM_Ohio]

You are doing well.

Keep the stock purchase plan
keep the 401k at 8% (is this the % you contribute?)

I would put $50 a month or $50 per check into a savings account to build it up. Your direct deposit will probably allow up to 3 accounts be used. Set up a third account not linked to your atm card and just let the money grow.

In addition I would make it a point to get the CC debt to zero. Your most important objective should be staying out of debt and the second objective should be living on less than you make (take home).

[red92s]

Originally Posted by jIM_Ohio

You are doing well.

Keep the stock purchase plan
keep the 401k at 8% (is this the % you contribute?)

I pay in 8% to the 401(K). Company match is an additional 3% on top pf that.

I think I'm going to pay $200/check into savings until the CC is zeroed, then go to $350-400.

[fairy74]

I agree with Ima and frugal fish. Get that emergency account up and going...

[jIM_Ohio]

Originally Posted by fairy74

I agree with Ima and frugal fish. Get that emergency account up and going...

I respectfully disagree that this is priority #1. I have it as #2 or #3.

I would continue
a) paying down debt (I would send $500/mo to CC before sending $250 to savings and $250 to cc debt)
b) contributing to retirement accounts
c) maintaining a budget which spends less than you earn

You are young and have time to build up the emergency fund. I have been working for 10+ years and my EF is not where I want it... but most other financial goals (retirement, house, cars, no debt) is well on track.

[kv968]

Originally Posted by jIM_Ohio

I respectfully disagree that this is priority #1. I have it as #2 or #3.

I would continue
a) paying down debt (I would send $500/mo to CC before sending $250 to savings and $250 to cc debt)
b) contributing to retirement accounts
c) maintaining a budget which spends less than you earn

You are young and have time to build up the emergency fund. I have been working for 10+ years and my EF is not where I want it... but most other financial goals (retirement, house, cars, no debt) is well on track.

I somewhat agree with Jim in that you shouldn't totally focus on an EF although I do think you should get some money in there since you have none. IMO, you should pay off the CC and get a least a few thousand in an EF just to give you some breathing room. Contributing to your 401k all the while.

One option you may want to think of once you have a little in savings is opening a Roth IRA. Doing so could kind of kill two birds with one stone. You could contribute up to $4K this year and $5K next year and if the situation arises, you could take out your contribution without paying taxes or penalties. Not that I'm suggestion you take the money out, but at least the option is there. This approach would also help in deterring you from nonchalantly taking money out since it won't be "waaaaayyy too easy" as it is with your ING account. It'll still be easy to get your money but I think you'll think twice before just cashing that money in and spending it on that "DVD player or other cool thing".

[red92s]

Originally Posted by kv968

I somewhat agree with Jim in that you shouldn't totally focus on an EF although I do think you should get some money in there since you have none. IMO, you should pay off the CC and get a least a few thousand in an EF just to give you some breathing room. Contributing to your 401k all the while.

Good advice. Having the CC zeroed and seeing the savings grow twice as fast afterwards with larger contributions sounds better to me than having to force/remind myself to pay the CC every month. As I said, it's now encased in a block of ice, so the balance will certainly be heading south and not north.

Found this in the articles section which addresses my situation. Verifying my balance, paying off the CC in the next 2 pay periods seems totally feasible. Luckily, I'm not in so deep as the examples in the article where the debt-free horizon is on the order of years (just weeks). I'm healthy, my car is reliable, I'm not taking any non-business trips soon, have $800 in Delta vouchers if I had to travel quickly . . . but then again, no one anticipates emergencies.

I opened an HSBC savings account yesterday with an initial $100 deposit; 5.05% with no linked checking or card. Should act as a good safe-haven for the savings contributions, once I get the CC cleared.