Best way to save accumulating money

[af16]

Hey guys, this might be might first post, I can't remember. Anyway, I've lurked for a while now.

I'm 22 and am going to be starting a new job with the DoD within a month which pays pretty well (and has automatic promotions the first two years ). I'm also living at home currently with no immediate plans to move out quite yet (my new job is ridiculously close to home). I've a few bills to pay, but long story short I'm gonna have a decent amount of money left over every month after my expenses - no rent, no car payments, debt free other than student loan ($10k, paying around $125 per month).

I've recently come to realize that the days of a high yield online savings accounts are basically gone - %1.2 APR looks like the best you can get these days, which is disappointing. So any suggestions where I should look to save my money instead, or are these probably my best bet? I don't really want to make it completely inaccessible, I just want a place to save it that has a decent interest rate. Thoughts?

Also, any other suggestions? Roth IRA, etc?

EDIT: I'm paying rent to my parents, but it's far less than I'd be paying in my own place so I just lumped that into the "other bills" section.

[bjl584]

How much money are you talking about per month? You are 22 and living at home. You can afford to take on some risk. i.e. stocks and mutual funds. You do need to ask yourself what you plan on doing with the money. You will most likely want to keep at least some of it liquid(cash) for emergencies, a car purchase down the road, a down payment on a house, etc. The rest should be invested. A Roth is a good place to start. Maxing out your 401, or in your case a 403B, not sure, but that is also a good idea.

[creditcardfree]

Welcome to government work! (my husbands in the Army)

First start an emergency fund and look into certificates of deposit or even high yield checking accounts.

Contribute at least 10% (15% is even better) of your gross income to a Roth IRA, maximum per year is $5000. If your income allows more, contribute to the TSP, if eligilbe. This reduces your taxable income. I'd highly suggest investing your Roth money into growth mutual funds.

After that...if there is more savings, you need to consider what your goals are for the money. Do you need it next year or 5 years, 10 years. Your goals determine what kind of risk the money can be subjected to the longer the goal the more risk. If you want to save for a house, or downpayment in 2 years, keep it safe in a CD, money market or high yield checking account.

Great job getting started early!!

[af16]

I figure it will probably be around $2300 per month net the first year, minus around $650 in expenses (bills + gas + food + misc) - $1650.

I'm planning on running my car for at least another year or two - it's only got about 90k miles on it. House not any time real soon, maybe 2 years or so. I'm going to be making significantly more in two years than I am now, so I thought maybe it'd be better to wait to get a house until I could afford a better one. I realize financial goals are important in deciding how to invest/save your money, but I'm just really not sure yet, which is why I was looking at things that were more flexible. CD rates look awful right now - %1.17 national average for a 1 yr CD according to Bloomberg. Granted, that's a lot more than I'd get from a standard checking account.

I'm planning on doing a Roth IRA and am willing to contribute a good amount of money into it, but I need to really dig in and do research on it. Seems difficult to know what to invest the IRA in - what's really safe these days?

[creditcardfree]

On some level, because of your age, you should be able to take more risk within your Roth IRA. You don't need something 'safe' because you won't need to use this money for over 40 years. The bigger the risk, the greater the reward. So, if you buy in and the market drops, you have literally decades to see it recover. When it drops, think of it as a good time to buy. Your money will buy more shares, because the price is lower, that will increase in value over time.

You might consider starting with an index mutual fund, something that follows the market in general. Pick a no load mutual fund, such as Vanguard or T Rowe Price.

As far as the cash earning more, but protecting the principal, you aren't going to do much better than a high yield checking account and very long term cds. That's just the way it right now. The rest of us are just as disappointed as you!

[snshijuptr]

You should only have a high risk if the outcome is retirement. You might want to pay off those pesky student loans unless you are banking on a loan repayment program.

As for savings, begin with a nice cushy emergency fund. These really make you feel like your rolling at a young age b/c no one you know will have them (except me age 23).

Then, I would start to save for a house. Get a decent amount together in a high yield savings account then create CD's every 6 months with a target date to buy a home. Aim for 20% of the local cost of a home (so $40,000 if the average house is $200,000). This can take a while!

Max out your retirement! You can do it so easy right now. If you are really lost, use a Target Index Fund (probably Target 2050). You could also see how much a single meeting with a Certified Financial Planner (CFP) costs. My brother is one and his advice made the process much more worry free.

[af16]

Okay, so I think first I'm going to set up the Roth IRA and work on maxing that out. Now I see why so many young folks don't do this right away... it's going to be tough to shovel 5 grand into something I can't really use for 40 years

As far as maxing the Roth IRA, it seems like about $200-250 from every paycheck will get that job done (is that how it works? or is there a defined payment plan or something?)

I'm also going to set up a high yield checking account and put the rest of the money into that for the time being, until I make some concrete investment decisions. The emergency fund is definitely a good idea, and probably what I'll work on really building strong first - $5000 seems like a good amount to aim for. Should I set up another account to house this, or what? I feel like having it in a completely separate place would keep the "emergency" aspect of it real.

Ooh, I just realized, if my job starts within a month or so I'll hopefully have about $1000 of savings left over to start my EF. That helps, and kind of makes me revamp how much I'll need to contribute to that per month to have it fully stocked in a reasonable amount of time.

Then there's that student loan... $125 per month seems a little low, and I'd like to whittle away at that principle... paying double that per month seems reasonable.




Sorry, this is kind of a stream-of-consciousness post; I'm just trying to kind of lay it all out in front of me, and I know this place is full of budget experts to give me advice.

[maat55]

I figure it will probably be around $2300 per month net the first year, minus around $650 in expenses (bills + gas + food + misc) - $1650.

I'm planning on running my car for at least another year or two - it's only got about 90k miles on it. House not any time real soon, maybe 2 years or so. I'm going to be making significantly more in two years than I am now, so I thought maybe it'd be better to wait to get a house until I could afford a better one. I realize financial goals are important in deciding how to invest/save your money, but I'm just really not sure yet, which is why I was looking at things that were more flexible. CD rates look awful right now - %1.17 national average for a 1 yr CD according to Bloomberg. Granted, that's a lot more than I'd get from a standard checking account.

I'm planning on doing a Roth IRA and am willing to contribute a good amount of money into it, but I need to really dig in and do research on it. Seems difficult to know what to invest the IRA in - what's really safe these days?

I suggest you look at an asset builder with T. Rowe Price. You should allow some for an car fund, EF and house fund, you can find an high yeild checking to park these funds. I currently get 4.10 with RCB Bank, the Go Green checking.

[ktmarvels]

Okay, so I think first I'm going to set up the Roth IRA and work on maxing that out. Now I see why so many young folks don't do this right away... it's going to be tough to shovel 5 grand into something I can't really use for 40 years

Actually one of the great things about a Roth is that you CAN take out your contributions. Usually you have to wait 5 years, but there are some exceptions to that....like a down payment on a house. You have to wait to take out any of the earnings without penalty.

As far as maxing the Roth IRA, it seems like about $200-250 from every paycheck will get that job done (is that how it works? or is there a defined payment plan or something?)

We take some money each month and put it into our roth. Our accounts are with Vanguard and they have a variety of ways which you can do it. The first is you initiate any payment, second you set up a set amount each month (ie 200 per month), third you just say "max it out" and they calculate it down to the penny for you.

I'm also going to set up a high yield checking account and put the rest of the money into that for the time being, until I make some concrete investment decisions. The emergency fund is definitely a good idea, and probably what I'll work on really building strong first - $5000 seems like a good amount to aim for. Should I set up another account to house this, or what? I feel like having it in a completely separate place would keep the "emergency" aspect of it real.

I would do whichever is easiest for you. If you are tempted to spend your EF money if it's in the same account, I'd get a separate account. Although you have to balance that with the need for liquidity. DH and I have about 20% of our EF in our everyday savings account which is nearly immediately accessible and the rest with ING, our "high interest" savings account which would take a while to get to. But there have been times where we've put some in CDs too.

You're going down the right path! Keep asking questions and learning.

[Like2Plan]

Also, any other suggestions? Roth IRA, etc?
.

Don't you get a match for TSP contributions? My advice is don't leave any money on the table. You should invest in TSP--up the the match at the very minimum. You can take as varying levels of risk and TSP has a very low expense ratio.
Really, the TSP is considered one of the three parts of your retirement package (and why you get a match). You can make investments elsewhere outside of TSP but the retirement investment is a something you should not overlook on any given year because the FERS basic annuity is not going to be enough to retire on when you get to the end of your career. link to TSP website I think 15%-20% of your gross is a good target amount to save for retirement.

You could invest in a Roth after you've met the TSP match. Next year, they are introducing a Roth type option in TSP (I haven't seen the details.)

[jpg7n16]

ROTH = retirement. If you are saving with the goal of having money in retirement, that is really the only goal you should use a ROTH for. Likewise with the TSP/457 plan - whichever retirement plan you have. If retirement savings is your goal, ROTHs and TSP/457s are great vehicles to get you there.

Otherwise, the answer depends on why you are saving, and when you need the money.

Sooo: Why are you looking to save money? (ie. A goal purchase - car, house, etc; retirement security and income; building wealth; want more spending cash; etc)

If whatever money you invested today, literally doubled tomorrow, would you: a) take it out and spend it? or b) let it ride for the long term?