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]

Re: Confused about what to do.

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]

Re: Confused about what to do.

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]

Re: Confused about what to do.

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]

Re: Confused about what to do.

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]

Re: Confused about what to do.

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]

Re: Confused about what to do.

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]

Re: Confused about what to do.

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]

Re: Confused about what to do.

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]

Re: Confused about what to do.

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]

Re: Confused about what to do.

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

[tabbycat31]

Re: Confused about what to do.

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]

Re: Confused about what to do.

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]

Re: Confused about what to do.

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]

Re: Confused about what to do.

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.