Help Me Figure this out

NurseMary · #1 (**permalink**) 01-21-2005, 09:40 AM

Hello Everyone
I am a very frugal lady and I love saving my money the problem is I don't know where would be the best place to keep it.
I just recently started a new career and i've been saving 700.00 a month, I now have 5,000 in my account and after income tax, this amount counld be about 8,000. I have the money in my credit union through my job.
At first my thoughts were to save for a car but I really don't need one, so what would be the best place to put my money and maybe earn more.
I would like to buy another house in about 3 yrs and another car but not now.
Any advice would be greatly appreciated.
PS: I don't want to risk losing any of my money, so things like stocks don't interest me.

Thanks
Nurse Mary

terry1156 · #2 (**permalink**) 01-21-2005, 09:58 AM

I assume from your explanation that you will use this money in about three years and it won't be used for retirement savings? If part of it will be used for retirement, then funding your IRA (or starting one if you don't have one) with part of the money would make sense.

Rates at banks and for CDs are not very good. You could place them there, but would not be making much on your money. http://www.emigrant-direct.com is offering 3% on their banking account which is what most CDs are paying and you'll still have access to the money if there is an emergency without encountering any early withdrawal fees.

NurseMary · #3 (**permalink**) 01-21-2005, 10:41 AM

Thanks Terry
I have a 401k at work, thats the same as ira?

nursemary

akaivyleaf · #4 (**permalink**) 01-21-2005, 11:15 AM

I'm not Terry but an IRA- Individual Retirement Account and 401K aren't the same thing. 401K takes advantage of pretax money and an IRA is post-tax money. Both have different caps on the amount you can deposit per yer and you can have both. (You choose where you have this money invested- stocks, bonds, mutual funds etc.) However tying your money up in either, would incurr early withdrawl penalties if an emergency came up, or if you know that you'll be using the money in 3 years. Its a good idea to have both though, to cover your retirement goals.

I would look into CD laddering for your money for short term goals. Basically this is buying CD's at various maturity rates and dates. Buy some that Mature in 6 months, some that mature in 1 year, some that mature in 3 years etc. That way you have a constant maturity date. The longer you let you money rest in CD's, the higher the interest rate will be. 6-month CD's have a very low interest rate, but the money is "safe" you will gain the interest as long as you let the money remain. You can also roll the CD's so that after it matures, it again starts another cycle.

Keeping your money 100% safe means that you are sacrificing potentially higher returns, but a bank is the safest place for you to keep your money. Look into BANK money market accounts, treasury bonds, CD's, etc. On line banks generally have a higher rate of return than your local bank so investigate them as well.

NurseMary · #5 (**permalink**) 01-21-2005, 11:55 AM

oh sharon thanks so much!! My credit union offers CD's and my money is insured with them, I had it in the back but got tired of waiting in lines etc. plus with my credit union the money is taken right out of my payroll before i get it. I like the conveniece.
I;m going to look into CD laddering like you mentioned.
thanks for so much usefull info

nursemary

MrsChambers · #6 (**permalink**) 01-21-2005, 01:39 PM

WOOHOO

$$700 a month!!

the bank of NurseMary!

)

asrai · #7 (**permalink**) 01-21-2005, 02:40 PM

Good mutual funds with a good track record if you are going to save for over 5 years. Via Dave Ramsey.

NurseMary · #8 (**permalink**) 01-22-2005, 07:25 AM

u think thats a lot? i wanted to save 1000 a month but i'm working part-time now, just cause i'm being lazy.

nursemary

NurseMary · #9 (**permalink**) 01-22-2005, 07:28 AM

TO Asrai
do i risk losing money with mutual funds?
I really don't know what they are.

Mary

terry1156 · #10 (**permalink**) 01-22-2005, 07:58 AM

401k and an IRA are both retirement accounts, but they are different. 401k is through your company while the IRA you set up on your own. You can have both, but there may be some tax deductibility restrictions if you do.

Mutual funds do have risks and are not guaranteed by the government. The do however, give you a better change to make a return on your money. The problem with putting it in a bank CD is that you end up losing money when inflation is taken into account.

I would seriously look at some of the Internet banks before CD laddering. The Internet banks are all fully insured and their rates tend to be higher than CD rates of 2 years or less. It doesn't make much sense to tie up your money in a CD (which has withdrawal penalties if there happens to be an emergency and you need the money) when you can get a better rate and have full access to the money.

akaivyleaf · #11 (**permalink**) 01-22-2005, 09:29 AM

I suggest you read up on mutual funds and exchange traded funds. It is the next step towards savings and although you might lose money, historically over the long term 5+ years you do gain. Its not a place for your emergency fund.

NurseMary · #12 (**permalink**) 01-22-2005, 11:07 AM

so many different opinions, my heads spinning,, but thanks so much for all the advice.
I know I may be asking to many questions, but I really need to know more about this.

Let's say I had 3000 to put in a mutual fund for 5 yrs, around how much would I earn? as opposed to an online bank with a good interest rate. Also a CD or moneymarket, I'm really new to all this so forgive me if my question isn't worded right, also are those online banks insured by the government, its kinda scary trusting an online back with money.

Now that I know about the risks with these all i'm wondering is what kinda money can I earn over 5yrs if left ontouched. I was thinking of 401k being they offer 1/2 on my deposits but then I have to wait til I retire to use it and i'm thinking i'll need the money before that,

nursemary

Mary

akaivyleaf · #13 (**permalink**) 01-22-2005, 11:40 AM

Well there are literally tens of thousands of Mutual funds that you can invest in, so nobody can give you an exact answer to that question. However MorningStar is a company well respected and well known in their analysis of mutual funds. I did a search on MSN and here is a list of the top performing Mutual Funds in 2004. The numbers shown are precentages.
http://moneycentral.msn.com/investor...l&Symbol=%24HF

again, I can't stress enough that while this looks good--11%, 30% there is no guarantee that this will persist through the years and there is a decline across the board between what the fund made in year 1, versus year 5, so you have to shop carefully. They do seem to level off after a time.

Online banks, make sure they say they are FDIC insured and you're ok going with them. If you don't believe they are insured, always go to http://www.fdic.gov/ and check it out for yourself. Ing for instance is offering 2.35% on their savings accounts. Emigrantdirect.com is offering 3.0% . The U. S. Global Investors Global Resources Fund over the past 3 months grew 11.34%, the past year grew 26.7% and over the past 3 years grew 46.54% (I just picked this mutual fund from the list I referenced above.)

Tree0164 · #14 (**permalink**) 01-22-2005, 02:11 PM

Hi Mary

$700 a month is nothing to sneeze at. That is fantastic amount to be able to save.

What are some financial goals?
Retirement maximize the amount you can put in your 401k if you can. You should contact your HR department or look at your account statement to find the 800 number of the plan administrator.

You mentioned buying a house in 3 yrs. This would be the goal that I would focus on to save as much money for a down payment and save atleast 6 months of income.

Even though you may not need a car right now. Wouldn't it feel great to be able to pay for a car in cash in a few years.

If you need the money in less than 5 yrs you want safety-saving accounts, cd, money market accounts are secured. If more than 5 yrs, start doing your research on mutual funds. Mutual funds do assume some risk of losing your principle but if you keep them for a long period of time, you tend to weather out the low times. And there are different levels of risk in a mutual fund. Check out morningstar as mentioned in the above post.

Good luck!

amomof4 · #15 (**permalink**) 01-22-2005, 10:09 PM

I don't like mutual funds because they trade too frequently for my tastes. And when they sell at a profit, you get hit with taxes even though you don't see the money.

I prefer to by stock in companies that are likely to be around forever such as Disney, McDonalds, Walmart, & Microsoft. My husband doesn't like McDonalds because he says they have no more growth potential. But I like them because I know they'll be here forever. You won't make as much as you would in some of the other companies, but it's safe.

Another thing my husband has been doing recently is investing in drips in the same types of companies. That way he doesn't have to watch it too closely. He usually invest $200 per month in drips that do dividend reinvesting.

NurseMary · #16 (**permalink**) 01-23-2005, 06:47 AM

to tree

yes purchasing a house i'd like too do but my real plan is to buy some land first. i'm still in the first stages of the hunt...

about stocks, anyone have google stock or know about it?

JLP · #17 (**permalink**) 01-23-2005, 08:52 AM

NurseMary,

You seem to be in a pretty good position. Being able to save $700 a month is a blessing.

My questions (maybe this has already been addressed in this thread) are:

1. Are you putting back money for retirement? What type of plan do you have? What percentage of your income are you putting back?

2. Do you have 3 to 6 months of living expenses put aside in an emergency fund? Once you do, it might be smart to stash this money in a no-load short-term bond fund of some kind.

3. Once number 2 is taken care of, then you can start saving for your house. Do you already own a house? If so, do you have equity in your house that you can use towards the purchase of another house?

4. The typcial rule of thumb is if you need your money within 5 years, don't invest it in the stock market. So, it is very important for you to decide when you desire to use this money.

5. Finally, if you do decide to invest in the stock market, I would recommend you look at index funds. Dollar cost averaging into Vanguard's Total Market Index fund might be a good place to start. Also, if you aren't going to need this money for intermediate-term goals, you might want to shelter it from taxes by putting it in a Roth IRA.

I hope this helps.

JLP

NurseMary · #18 (**permalink**) 01-23-2005, 11:09 AM

NurseMary,

You seem to be in a pretty good position. Being able to save $700 a month is a blessing.
Thank You very much, i'm only 34 but i'm a frugal nutcase! I love saving money, my biggest problem is figuring out where to put it to yield the best return and also my other problem is finding a better way to save money on food, i'm the mom of two teenagers and food is so exspensive!

1. Are you putting back money for retirement? What type of plan do you have? What percentage of your income are you putting back?

NurseMary Wrote ----> I joined this when I first starting working about 10 mts ago putting i
in 100 a month but I stopped because I started working part-time- also I felt I didn't need it, being I was thinking that with the small 400 a month I get from a pension plan my father left me when he passed away, (i'll get this the rest of my life every month), my house I have i'll be turning into a rental ( 400.00 a month) and with my social security i'd be able to live pretty well when I retire so I felt I didn't need the 401k but I may start paying back into it because they match half of what you put in.

2. Do you have 3 to 6 months of living expenses put aside in an emergency fund? Once you do, it might be smart to stash this money in a no-load short-term bond fund of some kind.

NurseMary Wrote-->Yes I do, I mean my monthly living exspenses are only about 750.00
400.00 on bills and about 250 on food and 100 on other things we need around the house.
I live in a small town in the south where the cost of living is veryyyy low. : )

3. Once number 2 is taken care of, then you can start saving for your house. Do you already own a house? If so, do you have equity in your house that you can use towards the purchase of another house?

NurseMary Wrote-->My father left me a wood frame home and a lot, it''s worth about 65,000 however i'm still dealing with the succession which isn't complete.
About equity i'm not sure what that is. i'm thinking it the the amount owed on the house????? Well I don't owe anything on it.
My plan is to stay here til I save enough, then buy some land and then use that and my house as collateral to get the money to buy me a house somewhere else because I don't like living here. I would rent this house that i'm in now.
I've never had a morgage or a loan or anything like that, I just hate having to pay someone a note every month, I guess i'm old fashioned.

4. The typcial rule of thumb is if you need your money within 5 years, don't invest it in the stock market. So, it is very important for you to decide when you desire to use this money.

NurseMary Wrote-->I'm still not sure about this being there's so many things involved. I'm a really simple lady, very practical and realistic.

5. Finally, if you do decide to invest in the stock market, I would recommend you look at index funds. Dollar cost averaging into Vanguard's Total Market Index fund might be a good place to start. Also, if you aren't going to need this money for intermediate-term goals, you might want to shelter it from taxes by putting it in a Roth IRA.

NurseMary Wrote-->this all goes right over my head, about the stock market and all, and I really don't want to lose any of the money taking risks, that seems too be a big thing with me right now.

thank you very much
Nurse Mary

JLP · #19 (**permalink**) 01-23-2005, 11:53 AM

NurseMary,

You seem to be in a pretty good position. Being able to save $700 a month is a blessing.
Thank You very much, i'm only 34 but i'm a frugal nutcase! I love saving money, my biggest problem is figuring out where to put it to yield the best return and also my other problem is finding a better way to save money on food, i'm the mom of two teenagers and food is so exspensive!

JLP- Yes, I know what you mean. Food is very expensive. Eat lots of beans!

1. Are you putting back money for retirement? What type of plan do you have? What percentage of your income are you putting back?

NurseMary Wrote ----> I joined this when I first starting working about 10 mts ago putting in 100 a month but I stopped because I started working part-time- also I felt I didn't need it, being I was thinking that with the small 400 a month I get from a pension plan my father left me when he passed away, (i'll get this the rest of my life every month), my house I have i'll be turning into a rental ( 400.00 a month) and with my social security i'd be able to live pretty well when I retire so I felt I didn't need the 401k but I may start paying back into it because they match half of what you put in.

JLP-Well, with the 401K, you will get a tax break now. Once you retire and start taking money out of it to live on, you will pay taxes on it. With a Roth IRA, you put in your contributions after tax but then it grows tax free and all withdrawals are taken out tax free. I would recommend you start a Roth IRA. You can put $3000 in it for 2004 (you can make contributions for 2004 until April 15th) and $4000 for 2005. If you are over age 50, you can add another $500 to each of the above mentioned amounts.

2. Do you have 3 to 6 months of living expenses put aside in an emergency fund? Once you do, it might be smart to stash this money in a no-load short-term bond fund of some kind.

NurseMary Wrote-->Yes I do, I mean my monthly living exspenses are only about 750.00
400.00 on bills and about 250 on food and 100 on other things we need around the house.
I live in a small town in the south where the cost of living is veryyyy low. : )

JLP-That's great!

3. Once number 2 is taken care of, then you can start saving for your house. Do you already own a house? If so, do you have equity in your house that you can use towards the purchase of another house?

NurseMary Wrote-->My father left me a wood frame home and a lot, it''s worth about 65,000 however i'm still dealing with the succession which isn't complete. About equity i'm not sure what that is. i'm thinking it the the amount owed on the house????? Well I don't owe anything on it.
My plan is to stay here til I save enough, then buy some land and then use that and my house as collateral to get the money to buy me a house somewhere else because I don't like living here. I would rent this house that i'm in now.
I've never had a morgage or a loan or anything like that, I just hate having to pay someone a note every month, I guess i'm old fashioned.

JLP- Equity is the amount you DON'T OWE on the house. So, your equity in your house would be $65,000 since you say it is worth that and you don't owe anything on it.

4. The typcial rule of thumb is if you need your money within 5 years, don't invest it in the stock market. So, it is very important for you to decide when you desire to use this money.

NurseMary Wrote-->I'm still not sure about this being there's so many things involved. I'm a really simple lady, very practical and realistic.

JLP-I think since you say you have enough to meet emergency expenses, then you should start putting money away towards retirement, using the Roth IRA or 401K you mentioned earlier. Since this money is going to be for retirement use index funds or something like that. Your main battle when saving money is fighting inflation. In twenty years at 3% inflation, your money will lose half its value.

5. Finally, if you do decide to invest in the stock market, I would recommend you look at index funds. Dollar cost averaging into Vanguard's Total Market Index fund might be a good place to start. Also, if you aren't going to need this money for intermediate-term goals, you might want to shelter it from taxes by putting it in a Roth IRA.

NurseMary Wrote-->this all goes right over my head, about the stock market and all, and I really don't want to lose any of the money taking risks, that seems too be a big thing with me right now.

JLP - This is probably where you should consider meeting with a financial planner. I would recommend you find a fee-only financial planner in your area. You can start with Garrett Planning Network (http://www.garrettplanningnetwork.co...asp?tohome=yes). Garrett might be a good choice because they specialize in working with middle income America. You don't have to pay for a full-blown financial plan. You can just get advised on how to invest your money. I think you need a little education on investing. A Garrett Planning Network planner might be able to help you.

thank you very much
Nurse Mary