Need help setting up basic plan

[Jnkhan82]

Hey,

I have a few questions about setting up a good financial plan. Personal finance or money management has never been a real strong point in my skill set; but seeing my parents retire with almost no savings was a real wake up call. I've started reading some books, rich dad poor dad, automatic millionaire and a few others. This has led to so many investment options I feel a bit overwhelmed. Especially since I'm still constantly trying to focus on my career at the same time. Most my time is dedicated to learning new materials to better myself to increase my income, I'm a graphic and web designer; this leaves me with little time to keep up with the market or be some avid day trader or become a real estate investor.

I'm 28years old, current salary is 60k, I have 401k at my company and I do the full 6% they match. I have a Orange savings account I auto-save to as well monthly. But in terms of other mutual funds or investments, nothing. I don't have day to day spending, except public transportation. I cover half the mortgage with my brother and food/utilities. I also have a monthly car payment and student loans; after everything I still have roughly $500-700 left in my account.

After doing some research I'm thinking of just opening a Vanguard account. I've read some advice against this notion, advising to avoid investing until my emergency fund is covered or until I have more cash on hand. But with the market being so low, I feel like I'm going to miss this opportunity to buy.

sorry for the long paragraph, I'm just trying to provide a clear scenario of the situation. But going with the above information, What direction would you take? would you focus on paying the car and student loan off before investing? or spread everything out? What form of investments would you consider? Mutual funds? ETF's? or just focus on certain companies and build a portfolio on my own slowly? or should I just stick with whatever I'm doing currently, focusing on 401k, saving to my MMA.

Thanks in advance.

[snshijuptr]

I think one problem with personal finance books is they get you too excited about "investing" such that people try to go out and open a brokerage account right away. Here are some better steps:

1) Pay off any high interest debt (5-6% or more)
2) Setup a 3-6 month efund in a high yield savings account
3) Get full company match in 401k
4) Max out a Roth IRA every year (if you can) OR Max out a traditional IRA
5) Contribute 15% of gross income to retirement
6) Contribute to other financial goals (paying off other debt, buying a house, paying cash for cars, paying cash for wedding, children's college) in your own order of importance. Anything less than 5 years away keep in savings/CD accounts
7) Max out your 401k plan every year
8) Start a brokerage account

The right time to invest is the time that is right for you. There will be other recessions. If you want to "get in on the action" then use your 401k and Roth IRA, not a taxable brokerage account. Step 6 can take a long time, but it is very important that you are saving for a goal, not because you are scared. Fear and emotions should not rule your investment decisions otherwise you will stop saving when the market looks good and sell as soon as the market starts to drop.

[bjl584]

I agree. Before worrying about investing in the markets, start by making over your personal financial situation. Set up a budget and track your spending for a month or two, then trim out some of the fat. Pay off your high interest debt and your auto loan. Build up your EF. Set up automatic withdrawls to a savings account for future purchases. Once your situation is where you need it to be, then you can venture out into the investment world with some of your money.

[Jnkhan82]

I think one problem with personal finance books is they get you too excited about "investing" such that people try to go out and open a brokerage account right away. Here are some better steps:

1) Pay off any high interest debt (5-6% or more)
2) Setup a 3-6 month efund in a high yield savings account
3) Get full company match in 401k
4) Max out a Roth IRA every year (if you can) OR Max out a traditional IRA
5) Contribute 15% of gross income to retirement
6) Contribute to other financial goals (paying off other debt, buying a house, paying cash for cars, paying cash for wedding, children's college) in your own order of importance. Anything less than 5 years away keep in savings/CD accounts
7) Max out your 401k plan every year
8) Start a brokerage account

The right time to invest is the time that is right for you. There will be other recessions. If you want to "get in on the action" then use your 401k and Roth IRA, not a taxable brokerage account. Step 6 can take a long time, but it is very important that you are saving for a goal, not because you are scared. Fear and emotions should not rule your investment decisions otherwise you will stop saving when the market looks good and sell as soon as the market starts to drop.

I have 1,2, 3 completed. Except for my student loans, which are really high for me to pay off fully at for the time being. But otherwise I have zero credit debt and my car is at 2%/$190 a month; I paid for my car mostly in cash. I pay higher payments comfortably every month and aim to have it paid of this year. I purchased it last year.

As for option 4, You recommend I open an Roth IRA in addition to my 401k at work? interesting.

6, I'm paying a mortgage for a home me and my brother own together.
7. I just put the max 6%
8. This is the confusing part. I opened a Scotttrade account, but its empty.

I agree. Before worrying about investing in the markets, start by making over your personal financial situation. Set up a budget and track your spending for a month or two, then trim out some of the fat. Pay off your high interest debt and your auto loan. Build up your EF. Set up automatic withdrawls to a savings account for future purchases. Once your situation is where you need it to be, then you can venture out into the investment world with some of your money.

I clarified I did all this in the above mini-novel I wrote on the OP.

Thanks for the replies

[disneysteve]

You recommend I open an Roth IRA in addition to my 401k at work? interesting.

This is pretty standard advice. Invest enough in the 401k to get the full company match. Then fund a Roth. Then, if you still have money to invest for retirement, return to the 401k.

The reason for this is that passing up the company match is just plain stupid so you always want to get that free money first.

That said, Roths are much more versatile accounts. You have far more control of the investments in a Roth. The money is tax-free in retirement. There are no required distributions. The account isn't tied in any way to your employer so if you change jobs, nothing needs to change with the Roth account since you own it separate and apart from your employer.

[littleroc02us]

I'm a graphic and web designer; this leaves me with little time to keep up with the market or be some avid day trader or become a real estate investor.

Day trader is for someone who thinks they can time the market, but the truth is no one can.


After doing some research I'm thinking of just opening a Vanguard account. I've read some advice against this notion, advising to avoid investing until my emergency fund is covered or until I have more cash on hand. But with the market being so low, I feel like I'm going to miss this opportunity to buy.

The market has rebounded ten fold and is very high right now, but that isn't what matters. Take your 700-800 each month and if you don't have an EF of 3-6 months get that done quickly. Then pay off all of your debt. Next you can use that amount to max out your Roth IRA through Vanguard. The key here is to buy shares and different mutual funds and hold them forever. Trading is a losing man's game. Your only 26, you have all the time in the world to invest when you get your debt paid off... Get to it...

[Jnkhan82]

Quick recap because I think people are getting confused on my current state.

I have an efund that will last me 6months.

I have no CC debt. I do have student loans, which are to large to tackle all at once at the moment and then I have my car payment which I will have paid off within the year.

I have my 401k maxed at the 6% match.

Now, I'm going to check out a Roth IRA with Vanguard, thank you guys for that advice!

Anyone have feedback on their Star program?

[MrPolarZero]

The thing with investing here is that you really need to assess the current situation first. As you have said the market is still low, but you can still purchase some as a start.