Just Turned 18

[creditcardfree]

Re: Just Turned 18

A Roth IRA is a way to title an account, it specifies that the money contained in the investment is for retirement. And because it is a Roth IRA, not a Traditional, you can take the money out tax free at retirement (at least 59 1/2). Roth IRA money can be put into almost any kind of an investment. These investments could be stocks, bonds, mutual funds (a group of stocks) or a savings account at a bank.

The maximum amount you can put into a roth ira each year is currently $4000. Remember this is money for the long term, you will be penalized in taxes if you take the money out early. So it is important to also save for shorter term goals...school, a newer car, house, emergency fund, as well. Money needed for shorter term goals (less than 5 years) should be put into a savings acccount earning interest.

Compound interest works something like this

You save $100. You earn $10 in interest (the bank pays this to you). So now you have $110 earning interest. The next time they pay you earn $11 in interest. So now you have $121 saved that keeps earning interest. Then they pay you $12.10 in interest. The interest you earn keeps increasing because the interest is now earning interest.

That was a hypothical example. Savings accounts don't pay 10% interest right now. However mutual funds have averaged over 10% return in 70+ years. Some years they are up, some years they are down...but it averages out to over 10%.

I hope that helps. It's important to know your goals and expenses. Once you know those you can make a plan.

[Future]

Re: Just Turned 18

You say the roth IRA cant be touched untaxable until 5 1/2 I want to retire around age 45, how would I do that..?

[scrava]

Re: Just Turned 18

Congrats Future!
I think you are well on your way to a successful future.
Just thinking about your life, planning and having some goals is
a GREAT start at your age. I come from a lower income household myself.
My Mom (who is deceased now) was a single mom who w.o any help from my Dad) raised me. I went to a 4 year college and also received my master's degree. Start saving! Even if it's $10/week, sock it a way.

Will you continue to be living at home?

I come from a lets say middle to high lower class, okay ill just tell you my parents make 38k a year combined..

If I get a full time job, I would be making 15-20k a year.. (Which is really really bad, but what can I do)..

I am perfectly willing to move go anywhere, do anything thatll help better my situation.. Which is I have practically nothing, so I am basically at the lowest possible point in american society that you can be.. All I have is a car..

For the Spring, I will be applying for federal aid, and due to my parents income, I should beable to get quite a sufficient amount..

Community college is only 3-4k a year, so I should be able to handle that no problem with grants.

4k (School)
+ 2k (Insurance)
+ 1.8k (car)
+ 2k (food & clothing)
---------
6.8k worth of bills that I will need to pay.

Well thats pretty much, all my expenses, I just need to learn how I can take this and move up, I don't want to get stuck in some warehouse, I have no idea what I am to do, I plan on majoring in criminal justice, but I don't know yet..

[creditcardfree]

Re: Just Turned 18

Future, as current laws stand you would be able to pull the principal, the value of all the contributions you made into the roth ira, tax free at 45 years. The earnings would not be available without a penalty before 59 1/2. You can also invest into a mutual fund that would be titled just in your name, but without the retirement designation. This creates tax implications...you will pay taxes on the earnings the mutual fund makes each year, as well as, capital gains taxes when you sell shares out of the mutual fund. The taxes aren't necessarily a bad thing, but if you can avoid them, it saves you money.

In my opinion, it would still be best to start with the roth ira and a savings account for an emergency fund. You will have a much clearer idea if you will be able to retire at 45 once you know your future earnings potential and career path. It's still not a bad goal.

It is really important to start slow while you are learning. There is a lot more to know. Let's see if anyone else has any other advice.

[Saving in So Cal]

Re: Just Turned 18

Future, I came from amazingly similar circumstances. I'm am very impressed that you are thinking about things like this. I did things the hard way for awhile.

I can't really top the savings advice, but would say this about your job search. Consider a government agency or a good-size company with a tuition assistance program if there are any in area you are planning to live. Either should have entry level positions. The government agency will have a good retirement plan and health benefits, which will allow you to focus your money on your education. A company with a good tuition assistance program will ususally cover a good chunk of your tuition and books, provided you choose a major they can use. (My brother got his bachelor's degree this way.) Such a company will usually also have health benefits and a 401(k) retirement plan. A 401(k) plan allows you to put a portion of your pay in investments tax-deferred (you don't pay taxes until you withdraw the money). Most companies will match some or all of your contributions.

Working full-time means you will probably have to take classes at night, online, and on weekends. In addition, it will probably take you a little more time to get your degree than the standard four years. In the meantime, you'll be gaining work experience, which will help set you apart when you are ready for your first professional gig. This approached worked really well for me.

[tgavin71]

Re: Just Turned 18

If you major in criminal justice what jobs can you apply for? Does that mean you will be a lawyer? If you are keen to work in the criminal justice field maybe joining the police force could be an option. Not sure how it works in the US but here in Australia but you can get your university degree paid for by the government. My cousin's husband joined the police after school he worked hard and when the opportunity to go to university for free he grabbed it with both hands. He graduated last year with a Bachelor Of Social Work. Using this method meant that he was earning an income from the start.

[LuxLiving]

Re: Just Turned 18

Hi Future! You're about the same age as two of my sons and I've been helping them with some of the same questions you are having.

You can take some of your money out of your Roth IRA early - I believe they call it something like withdrawals in even incremental amounts. IOW, once you begin to make withdrawals you can take 5000.00 a month out regularly, but not 3000.00 one month and then 2000.00 the next, etc. Someone check me if I'm wrong here.

Also, listen to Ima - she is the voice of experience here.

Between now and next paycheck start tracking your expenses by making a log book.

First thing next paycheck sit down with it before you spend a dime and on a piece of paper put the income in the plus side and then start subtracting everything you'll need to spend till the next payperiod. This is called your spending plan or budget.

My boys' spending plans look something like this:

Income +300.00
Tithe - 10% -30.00 270.00
LT Savings 10% -30.00 240.00
ST Savings 5% -15.00 225.00
Car Insurance -75.00 150.00
Gasoline -75.00 75.00
E-Fund -25.00 50.00
Clothes -2.50 47.50
Health CoPay -5.00 42.50
Allowance/Spend -20.00 22.50
Kitty (ckbkbuffer) -1.50 21.00
Misc. -3.00 18.00
Car Tag -2.00 16.00
Car Repair -6.00 10.00
Car Replacement -8.50 1.50
Electronic Equip -1.50 .00

Hope the columns hold out up there. But basically they make a zero based budget, meaning they pre-plan for each purchase/need. LT Savings = Long Term Savings = Retirement, ST = Short Term Savings = Medium length goals such as a new guitar or drumset for my kids or a new bathroom window for me on my budget.

Some good websites to visit are the Mevelopes site, Jesse's YouNeedABudget.com and one called budgetmap. Each of these are some tools that would help you execute your plans. You may not need to invest in each of their products, YET - but each site will help educate you in how to map your quest.

INGdirect.com will allow you to open a Roth IRA at age 18 with as little as 250.00. You'll have to start there with just a single mutual fund inside of it, but with your future contributions out of your Long Term Savings you'll be able to get 'diversified' (eggs in more than one basket) over time.

First get thee hence to a bank w/some cash. Get the student checking at a bank which should be FREE as in no monthly service charge. You might have to pay for your own checks. There are places to get them cheaper than from your own bank usually.

Then once you have the checking you can link it to INGdirect and then make monthly contributions to 1)your emergency fund/savings account and 2)your Roth IRA online - even automate it if you wish. Then once you have a goodly amount built up in there you can look around at some of the other brokerage accounts and do what is called a rollover.

Starting you could make your LT savings go towards a Roth IRA maybe at 30.00 and ST savings of 25.00 towards the emergency fund. Or something of that nature. Be prepared to make adjustments. It's okay.

These folks will truly try to help you so stay tuned here!

Another good book to read is: Cashing in on the American Dream: How to Retire at 35 by Terhorst, Paul.

All the best to you!!
~~~~~~~~~~~~~
LuxLivingFrugalis

[CheaplyClever]

Re: Just Turned 18

I retired at 40. Good luck to you, this is a very good start and all of this advice is super. Let me add one comment and two suggestions.

Comment- The Roth IRA is your "Old Man/ Old Lady Money" don't even count it right now because it is not availble until (I like to think) 60.

Suggestion One- Consider a government job. You can't beat the benefits. They have plenty of entry level position, for example, Correctional Officer. Get your foot in the door.

Suggestion Two- When I got my "Real World" job I listened to my Mom's advice. Establish a budget and be resonable because it will be with you a really long time. When I was starting out I brought home $320 every two weeks so I made that my budget. Every raise I got went in the bank. It didn't take long to start investing. I did Roth's, and savings bonds, maxed out my 401K, did the company stock thingy, and still paid cash for my very first brand new car. I later went the financial advisor route. When I finally did retire, I was still "paying" myself $320 every two weeks.

This wasn't over-night, it took me 25 years and it didn't hurt that I married someone as frugal as I.

[creditcardfree]

Re: Just Turned 18

You can take some of your money out of your Roth IRA early - I believe they call it something like withdrawals in even incremental amounts. IOW, once you begin to make withdrawals you can take 5000.00 a month out regularly, but not 3000.00 one month and then 2000.00 the next, etc. Someone check me if I'm wrong here Lux Living

I think one might need to check on that applying to the Roths.

With a Traditional IRA, there's rule in the tax code called a 72t that allows you to begin making withdrawals prior to 59 1/2, in substantially equal amounts. These amounts need to continue for 5 years or until 59 1/2, whichever is longer.

So in the case of Future, who may retire at 45, he would need to make substantially equal withdrawals (same amount every month or same amount every year) for 14 1/2 years. After that time any amount could be withdrawn. The amount is determined at the beginning of the withdrawal period. There is a formula for determining how much the amount could be, that I think is base on life expectancy tables.

I worked in customer service at a mutual fund company over 6 years ago, so I just am not clear on this rule applying to the Roth IRA's. It's possible it does. Roth's were still pretty new then...still are.

Again, the principal (the amount contributed) can be withdrawn after it has been in the account for at least five years with out penalty or taxes. At age 45 most of the principal would be available for withdrawal.

There are other forms of investments that might provide cash flow before the official retirement age. How about owning an investment property...or more than one...if you own the home free and clear, most of the rent the tenant pays would be cash in your pocket each month....then you wouldn't need to pull out of your other retirement vehicles.

Future, remember this can all be a bit overwhelming and it doesn't all happen overnight or need to be started right away. Keep learning. I'm sure you'll here more.

[Future]

Re: Just Turned 18

Yes, I will be living at home for the next two years, and my parents have only asked me to help them with the groceries when I can.. So bills shouldn't be an issue beyond car insurance, and soon to be a cell phone..

Yes, I have intentions of joining local police, and hopefully moving up to state police, but considering my physical capabilities, I really want a get something more intense within law enforcement..

But that's not for a few years yet..

This advice is going great so far.. This is my to do list..

1. Get full-time job (Preferrably one with tuition asst, but its unlikly)
2. Get checking acct
3. Have checks directly deposited
4. Save 3k
5. Start Roth IRA (10-20% of weekly income sound good?)
6. Apply for federal Aid for college (Meanwhile continue saving for tuition)
(By this time it should be nearing January-feb. I will be starting college in the spring)

Repeat for the next 4 years.

[Ima saver]

Re: Just Turned 18

Sounds like you are very much on track!! Lux, that was a good budget for your son, I liked it!

[creditcardfree]

Re: Just Turned 18

Looks very good. Save 10-20% towards roth weekly is fine...just don't go over the $4000 limit. The limits do change (upwards) as well, so be aware of that.

[LuxLiving]

Re: Just Turned 18

Future is looking good!

You will have the 3000 saved by when? It's always good to give yourself a date when goal setting.

What is this 3000 earmarked for? This is going to be your emergency fund?

Look to future car repairs...they'll likely be coming!

You have set yourself some fine goals and I am so proud of you!!!

Giant Mom Hugs,


~~~~~~~~~~~~~
LuxLivingFrugalis

http://luxliving.savingadvice.com

[Future]

Re: Just Turned 18

Well, hopefully I will ahve the 3k saved up and more by January-feb and it was for the Roth IRA/Retirement fund.. But if I can start the account cheaper that would be nice, but I want to put as much in as possible each year from now and until I take it out (27 years from now)..

Well, the point is I have learned so far that getting rich is wicked easy, getting rich NOW is extremly hard..

Which brings me to a dillema (Sp?), I want to enjoy life, how can I enjoy life if I am constantly worrying about saving my money, and what not, it seems alot more stressful, sure itll pay off in the end, but that's 27 years of my life gone, because of money.. What gives??

I am going to do this regardless, because I have every intention of being rich, super-wealthy, and passing it around my family.. Maybe they don't have the ambition, but I do, and I plan on taking them to the top with me. My family has spent generations in poverty, and I plan to get them out. The next generation, will be living in leisure, that is the meaning I have now given my life.

[JBinKC]

Re: Just Turned 18

I agree starting out early and becoming financially cognizant will be important to reach your goals. Definitely, have some basic knowledge of accounting, finance and taxes.

I wouldn't go that far to saying getting rich is easy you have tons of obstacles everyday and it seems there are new ones popping up all the time. I think the biggest future obstacle people ignore will be acquiring money at a faster rate than the rate of the depreciating dollar.

I think at your age I would first find something you excel at and milk it for all its worth. If you can find that early in life your chances go up significantly.

Good Luck.