Where to begin?

[claudius753]

Yes, $50 is all I think I can reliable afford per paycheck. I don't have a high paying job, and the suggestion of 10% per paycheck would be less that $70 per paycheck, as I usually do not make more that $700 per check.

I am 23 years old and I work full time while also being a part time student. I have been contributing to my 401k to get the full employer match ever since I was able eligible for the play, right as I turned 18. I want to fund a Roth IRA, but I am not sure that its necessary to start now. I know a longer time means more time to grow, but is it really necessary to start an IRA now? I was planning to get an emergency fund built up and then with that cushion, feel more comfortable starting a Roth. I like the fact that a Roth IRA is funded with after tax dollars, but the gains are not taxed. Also, with the Roth, can't you also withdraw any of the money that you actually put in without penalty (ie, what funded it but not the gains)?

I am currently searching for a new job to better my financial situation, but in the meantime, I think I could change my tax withholding to 1 dependent (now I have 0 on the W4, but I claim one when I file), and that may increase my extra money per paycheck to the $85 you recommend.

So, based on the advice, I think I have a plan, what do you think of this:

a) Open an account at EmigrantDirect, and fund it with at least $85 per paycheck
b) Once the account balance gets to $5500, take $2500 and open a Roth IRA. That will start the IRA with half of the maximum for 2008 while also leaving $3000 as an emergency fund which would cover approximately 3 months of expenses.
c) Continue to fund the Emigrant account, and each time it reaches a balance of $4000, take out $1000 and add to the IRA.
d) If the maximum contribution for one year to the IRA and funds are already saved for the next years maximum contribution, fund some other investment device.

So, any changes to that plan? I will continue to look for areas to cut spending and increase earnings, but for now, does that plan sound like a good thing to follow?

[jIM_Ohio]

Think of what you gross each year, and see if 10% of that is being invested.

This will help you in 3 or 4 ways

1) if you are saving 10%, you are clearly living on less than you earn
2) if you live on less than you earn now, you need to have less in savings for emergencies and less in savings for retirement
3) if there is a short term financial problem, you can give yourself a 10% raise by stopping retirment contributions for a month or so.
4) more money working for you (instead of you working for money).

that being siad, I was confused by some of your post.

I would not worry about EF until retirement is fully funded (at 10%).

Two reasons
1) the money in retirement accounts should grow at around 8-10% per year. The cash will be lucky to earn 3% each year (I realize you can get 4.5% now, that return is high for a cash investment and won't last long).
2) You can withdraw deposits from a Roth IRA without penalty at any time. Use this to double as the EF until you find another way to get 3 months expenses in cash.

I have been working for 11 years and 2007 was the first year I had 3 months expenses in the bank. My retirement accounts have more than 150k in them. Getting money to grow is more important than having money in the bank.

Especially if you are avoiding credit cards and living on less than you earn each month. Others on this board have a different opinion on this.