Sophmore in college

[fiffer010]

Hi all. This is my first post so i would like to introduce my self. My name is chris and I am currently in my second year of college. I will be working part time in the school year as a private contractor taking care of peoples animals while they are away. I like this job because I can pick my hours and well, all I do is feed and walk animals. I'll be making an average of 1,500 a month doing this and will have about an extra 1,100-1,300 a month I can use for savings. I currently have about 5000 saved and wont need much money for the next year or two until I move out. Also my only expenses right now are food, gas, and entertainemnt; everything else is from parents ( I know I got lucky there). I think that should be enought back round info.

Right now I am putting my savings in Emigrantdirect but I was wonderng what other type of investments should I allocate my money to? should I start putting money away for retirement at only age 19?I have a 401K with Fidelity and has no money in it, It was created for me at my last job. Any feedback would be great.

[terry1156]

First, let me be the first to congratulate you on beginning your savings so early. I'm sure a lot of us here wish we had done the same thing.

I would consider opening a ROTH IRA putting the money in a fortune 500 index fund. Starting at 19, you would only have to fund it for a few years to have your retirement savings set due to the wonders of compound interest.

Since with $1000+ that you can save a month, you'll still have money leftover after that. I would begin saving the rest for things you will need when you move out on your own - a car, a down payment for a house, etc.

You have a lot of options open to you and by beginning now, you will be in great financial shape in your later years.

[pennywise]

I agree with the Roth IRA since you can withdraw the principle without penalty for any reason. The roth is made with taxed dollars. I do not like a 401 because it is government controlled and may affect future social security earnings (I believe - speculation - the 401 is intro to turning SS into welfare), don't trust the government. they are not interested in you, only what they can do for themselves. Put money away into a stable investment (stocks are NOT stable) for a house and car. You may get married and then children. Good thinking and planning. Stocks and mutual funds have fees attached - they don't tell you about that. Be wise and be concerned for yourself. A broker or financial analyst has his own interest at heart because he has bias - his/her salary. Do your own homework, please. Take advice, but listen to your heart and head.

[mbhunter]

Good job on starting to save early!

A Roth is a good choice. Just be aware that if you withdraw from it as pennywise says you can do, you can't put it back in -- your yearly contribution limit is not "net," it's gross. So if you were to take out $10k this year, you can't put in $14k as a 2005 contribution -- only $4k.

401(k)'s can be a good deal as well if you have employer matching. They're less liquid and tax-deferred growth rather than tax-free growth, but if you get matching by your employer it's just like free money.

How much you put into these investment vehicles depends on not only your long-range goals but also what you plan to do in the short term. Down payment for a house, business investment, grad school, marriage, kids, etc., might dictate how much you sock away in these tight containers. It's good at least, though, to squeeze out all the matching you can from your employer. Whether you contribute as much as you can is another story, but at least get the maximum match.

My 2 cents Best wishes!

[fiffer010]

Thank you all for responding with the great answers. I totally forgot to tell you that I will be purchasing a car in about a year. I am willing to spend 12,000-15,000 and would be able to sell my current car for about 5,000, so either I will be paying 10,000 out of pocket or leasing it. I am leaning toward just buying it so I dont have to pay for interest and also I can probablly bring the price down if i pay cash. What do you guys think?

Also, how much of the 1,000 a month should I allocate to to a roth IRA once i create? also are there any suggestions on where I should open it? And is a ROTH IRA non-taxable or is it just the interest that is non-taxable? and also how much of a return would you think I would get annually?

Sorry about all the questions but i'm still new =).


take care all

[jmjj215]

Don't lease it unless you have some employment connection or something (I've heard of rare circumstances where it really is a good deal).

Leasing, 99.9% of the time, is a total ripoff. How do I know this? Because the dealers push it so hard.

[fiffer010]

Could you elaborate on why it is a total ripoff?

[mbhunter]

I'll chime in on this one, too. Leasing is a very expensive way to drive -- probably the most expensive. You have a lower payment than if you purchase through financing, but you never own the vehicle. Usually to get the low payment you have a large amount "due at signing." Plus, they'll charge you when you turn it in if it's in bad condition or if you drive more than your alloted mileage. They're covering themselves well above and beyond any depreciation the vehicle suffers while you're driving it.

Basically, if you add up the down payment plus the payments throughout the lease lifetime, it will almost certainly be more than if you bought the car and sold it when you were done with it. Just run the numbers.

I have a post on my website about this (in the "Shopping" category).

If you will be able to get $5k for your car, why not look for a quality used one and pay cash? I think absolutely that's the better way to go (definitely the "pay cash" part).

Regarding the Roth IRA: You contribute with after-tax money, but it grows tax-free, and you can withdraw it in retirement tax-free. There are federal limits on how much you can contribute per year (I think for 2005 it's $4,000). Any company will charge fees to manage your IRA -- through a flat yearly fee and/or a percentage of the assets. Vanguard funds have some of the lower fees around, but again, run the numbers from the prospectuses (prospecta?) to see what kind of chunk they take out. I think Vanguard index funds are only about 0.2% fees -- very low -- but you also have to ask yourself if you want money in stocks right now.

I can't tell you what return you should get or where to put your money -- just read up and make an informed decision. The good news is that you have a LOT of time, so a couple of bad decisions now won't kill your retirement, and you'll certainly be ahead of most of the country regardless of what you invest in.

[Tree0164]

Do not lease... pretty rip off car dealers do. Pay cash. Stay out of debt

If I know what I knew now at 34 that I did at 19 yr I would be thrilled.

Do the Roth IRA. A recent article I came across How to make your teenager a millionaire really stresses the Roth.

Good luck!

[pennywise]

You are so ahead of the game and I am very proud of you. I hope my dtr will be as good, I educate her all the time. My philosophy is buy the car new and drive it until it does not go anymore (actually the first repair because once they open it it never is the same). You should get 10-12 years on a car. I would buy the least expensive car (get the ego out of the finances, those with big houses and cars have to work to pay for them, no big bills gives a breather for unemployed periods). I would allocate $10,000 for the car including all fees. So when you go in tell them no hidden costs or you walk (they tack on fees at the dealership now). Buy one with great gas mileage (ancillary costs). Small cars require less insurance also. If you pay cash for the car you can put PLPD (the minimal insurance your state allows). Arguement on insurance I got for my 2 new paid for cars - we will not fix them and they are new - my response: I have been driving since age 16 and I have never used my insurance so I will save the money myself thank you. NEVER, NEVER, NEVER pay interest if you do not have to. The interest is what will prevent you from getting ahead. So think, now you will have a car for 10 years with no payments. That frees up a lot of capital for investments, especially once you graduate your income will go up. You are very smart and we all are proud of you.

[terry1156]

Jeffrey just posted in the news that this may be a great time to get a used car. You didn't mention if you were thinking new or used, but i would strongly recommend used.

[akaivyleaf]

Congratulations on your accomplishements this far in life. You're on the right road and I can't help but with you all the strength to continue on the same path! You are doing marvelously (said in my best Billy Crystal voice- but that was probably before your time).

The advice that has been given before my post is sound, so I don't have any more to offer other than my congratulations.

[jmjj215]

Go for the nice used car - depreciation on a new car is unacceptable until you have a few mil in the bank (in my book).

[fiffer010]

I am getting a used vehicle. And I know you all will go against this but its most likely going to be a wrangler, but I am getting the 4 cylinder. I need a utility vehicle like that for my dog (great dane) and my surf board. It would be to much of a everyday hastle to try and fit everything in a small car so i'm willing to pay extra.

I am also going to open a Roth IRA with vangaurd and ask my dad about where to invest it because he was at 13% with his last year. Do you think I should start maxing it out every year from now on? i

[34saving]

Yep. Maxing your Roth is good idea.

[jmjj215]

And the wrangler is cool because it fits your lifestyle - you wouldn't want to get something that didn't work, economical or not.

[akaivyleaf]

yup, max out the roth every year

[fiffer010]

Thank you all for the great advice.

[pennywise]

What is your degree, young man? Curiosity killed the cat but wants to know anyhow. Good idea on the roth. vangaurd has a good name. watch your fees.

[fiffer010]

Right now I have another year of gernaral at a JC and i'm planning to become a Registered Nurse. As we all know majors tend to change so there is a possibility for it to be something else. But for now going fo nursing.