IS Saving $5,000 a year a good idea?

[Ima saver]

Re: IS Saving $5,000 a year a good idea?

I think you will be ahead of me! However, once you get your emergency fund established, I encourage you to then fund a roth IRA for your retirement.

[Savingmonster]

Re: IS Saving $5,000 a year a good idea?

I think you will be ahead of me! However, once you get your emergency fund established, I encourage you to then fund a roth IRA for your retirement.

I always thought a Roth IRA and 401k were the same thing, I'll have to read up on that.

[Ima saver]

Re: IS Saving $5,000 a year a good idea?

No, the 401K is thru your job. a roth Ira is opened usually at a mutual fund or at a bank. You are allowed to put $4000 a year into one. The neat thing about it is, when you turn 59, you can start taking the money out and you will pay NO TAX on it!! That is what you will live on when you retire. They were not available to me when I was your age.

[Savingmonster]

Re: IS Saving $5,000 a year a good idea?

No, the 401K is thru your job. a roth Ira is opened usually at a mutual fund or at a bank. You are allowed to put $4000 a year into one. The neat thing about it is, when you turn 59, you can start taking the money out and you will pay NO TAX on it!! That is what you will live on when you retire. They were not available to me when I was your age.

WOW, MORE TO THINK ABOUT.
I'll definitely look into it, it sounds good based on what i've read.
But I see you make contribution AFTER TAXES.


DECISIONS.... DECISIONS......

[threebeansalad]

Re: IS Saving $5,000 a year a good idea?

I would suggest that you not concern yourself witha Roth until you've maxed out the allowed 401(k). 401(k) is pretax so it lowersthe income you currently need to pay tax on.

[PRICEPLUS]

Re: IS Saving $5,000 a year a good idea?

In the end compound interest is your friend. So basically save as much as you can for as long as you can. Fund the EF. Max out the 401K and fund a ROTH! You have time on your side. Good luck!

[humandraydel]

Re: IS Saving $5,000 a year a good idea?

IMHO, you need to be INVESTING right now, not SAVING. Increase your 401k contribution and start funding a Roth with 4k a year. The great thing about a Roth is that, since it's after tax dollars, you can take out the CONTRIBUTIONS (but not earnings) at any time penalty free. And of course the earnings can be withdrawn tax FREE at retirement.

Just as a point of reference, I'm 25 and make the same amount as you and I'm saving 8% (~5k) in my 401k and an additional 10k in after tax dollars (4k in Roth, 6k for house downpayment). I am pretty frugal though, so I realize not everyone would be willing to save as much as I do.

[autoxer]

Re: IS Saving $5,000 a year a good idea?

One of my biggest dilemma is, should I increase my 401k contributions and decrease my high yield savings.

Is there a company match? If there is, then you should find out how much you have to put in to get all of the match. You wouldn't want to turn down free money.

This is the main reason I am a little hesitate to contributing more to my 401k. I just feel better having the money liquid, I feel safer. In a 401k, I don't feel like the money is mine lol.

One thing that has helped me keep my savings on track is to keep track. At the beginning of each month, I fill in my Net Worth Worksheet that lists all of my assets & liabilities. Seeing my assets grow & my liabilities shrink feels good. It has become a ritual & I look forward to seeing January's numbers next week.

Compounding interest is a beautiful thing.

[Savingmonster]

Re: IS Saving $5,000 a year a good idea?

IMHO, you need to be INVESTING right now, not SAVING. Increase your 401k contribution and start funding a Roth with 4k a year. The great thing about a Roth is that, since it's after tax dollars, you can take out the CONTRIBUTIONS (but not earnings) at any time penalty free. And of course the earnings can be withdrawn tax FREE at retirement.

Just as a point of reference, I'm 25 and make the same amount as you and I'm saving 8% (~5k) in my 401k and an additional 10k in after tax dollars (4k in Roth, 6k for house downpayment). I am pretty frugal though, so I realize not everyone would be willing to save as much as I do.

didn't know you were able to take $$ out of a Roth. I guess since it's after taxes, it would make more sense to put more into the Roth than a savings account. I rarely take $$ money out my Saving account w/o putting it right back.

Whats a typical percentage rate for Roth? I'll definitely continue to read up on it.

[autoxer]

Re: IS Saving $5,000 a year a good idea?

Whats a typical percentage rate for Roth?

A Roth is a type of account, not the actual investment. After you open a Roth IRA (individual retirement account), then you can buy equities (stocks, mutual funds, bonds) that all have different rates with different levels of risk.

[Ima saver]

Re: IS Saving $5,000 a year a good idea?

Well if you put it in a bank, you will know the interest rate. Most of us put our roth ira's in mutual funds. My vanguard mutual fund (Index 500) has averaged about 10% a year, some years better and some years worse.

[Savingmonster]

Re: IS Saving $5,000 a year a good idea?

A Roth is a type of account, not the actual investment. After you open a Roth IRA (individual retirement account), then you can buy equities (stocks, mutual funds, bonds) that all have different rates with different levels of risk.

Ohh I see, I understand now. As long as the Money I contribute is liquid, it might not be such a bad Idea to decrease the amount I put into my savings account and contribute more to the Roth.

[Savingmonster]

Re: IS Saving $5,000 a year a good idea?

Well if you put it in a bank, you will know the interest rate. Most of us put our roth ira's in mutual funds. My vanguard mutual fund (Index 500) has averaged about 10% a year, some years better and some years worse.

Do you think it ever drops below say 3%?

[threebeansalad]

Re: IS Saving $5,000 a year a good idea?

Savingsmonster- I suggest getting a personal finance book from your library and reading it over. It will help clarify the differences in the types of the retirement accounts, general yields you can expect to earn, etc.

By all means, stay on the boards, too.. but I have found it really helpful to have a good book to reference with questions-- especially when I was first getting a handle on things (which was, err, like 3 months ago).

David Bach's books (Smart Couples Finish Rich, the Automatic Millionaire, etc) are a little cheesy, but a good place to start.

[Ima saver]

Re: IS Saving $5,000 a year a good idea?

When the stock market has a real bad year, most stock mutual funds go down also. You have to look at this for the long haul. I feel most comfortable with a mix of mutual funds and then lots of cash earning over 5% interest, but I am much older than you. You need to be a little more agressive than I am. "The Wealthy Barber" is a very simple book to understand.