How to start? Ideas requested.

[element]

I'm 22 years old, about to graduate from college without any debt. I'll likely come out of school with about 40k in savings. I'm set for 100k salary per year and likely a 6-8% raise every year up to 180k. It's impossible to predict the future I could make more, but not likely less than 100k a year. That being said after college I plan to stay at home for about 2 years to save money and invest. I'm just not sure how to proceed?

I'm seeking advice from those who can look back now and suggest what they would have done (and what would have worked). My thoughts:

- 401k started as soon as I start working full-time, put in as much as my company will match.
- savings account, will be used as a little more fluid for moving funds to pay for bills and such, checking will go hand in hand.
- money market, account for putting money in every month that will be more restricted, just for the purpose of saving and maybe using this account for big purchases (like a car, house downpayment etc.)

Since I'm staying at home for 2 years, I project that I'll likely be able to have roughly between 100 - 150k in savings. I could do a number of things such as purchase 3x smaller condos and have them put on 15 year mortgages so they will be paid off by the time I'm in my late 30's and have them as income after they are paid off. They will be rented out and I'll only be putting a down payment to ensure that I get the best interest rate.

On the other hand....I could purchase a big house on the water, pool, have it basically all set. I'd imagine that this home would be 500k - 1million and it would be basically something I'd like to pay over a 15 year period but with the expectation that I'd be staying there for awhile.

As you can see I'm kind of all over the place, I'm just trying to see how I can save as much as possible and ensure a comfortable future. The only thing I can say for sure is the following:

100k-150k in savings by 25
100k+ per year salary, expected percentage increase over the years (very stable)

So based on that information...how can I make the most out of it given that I'm young and have time to work on it?

Thanks!

[bjl584]

I'd like to know what sort of a job you have lined up making 100K with an undergraduate degree at 22yrs old.

[element]

Network Engineer (certifications also played a big part to supplement my undergraduate)

[bjl584]

You have the right idea. I'd start saving as much as possible in a 401K AND open a Roth IRA and save the max in that as well. Beyond that, I'd save cash for a house and for an Emergency Fund. Also, do you have any need for a car, furniture, or anything else in the near future? You will want to save for that too.

For the house, rule of thumb is not to buy anything that costs more than 3x your annual income and to put 20% down.

[element]

What are the advantages regarding the ROTH IRA, any details you can provide (interest, restrictions etc.)

A more specific question regarding real estate, do you think it makes more sense to have smaller purchases (such as condos for 150k each with the 20% down payment) or a big house that everything is put into. I've heard advantages to both, one thing that comes up a lot is that people say its pretty tough to make that big down payment for that "one" house you've always wanted.

Currently making payments on a car (rather high ones, just because its my only expense) but I think in 3 years I'll go with a more....realistic vehicle and just have it paid off before I make any big purchases like real estate.

Thanks for the rule of thumb, good to know!

[JoeP]

Don't set yourself up so that you have a lot of commitments based upon your projected income levels. I know a lot of young adults who feel flush with cash and end up making decisions they end up regretting because they go from basically $0 income to something greater. Examples include: new car(s), new house, boat, rentals, bling. Then dating/marriage/etc enters the equation...

My advice would be to max out your Roth and 401k every year, set up an emergency fund (6-8 months expenses), keep your current car, and rent for a couple years while saving for a house and saving toward your next car.

IMHO, rentals are a bad idea for someone just entering the workforce. You need to focus on establishing yourself so that you can reach your internal growth goals as well as the salary goals you projected. Last thing you want to do when starting out is fielding service calls for leaky toilets or a broken furnace in the middle of your training.

With every financial decision, you should ask yourself this: What happens if I lose my job, or have to take a pay cut?

[element]

Okay based on the discussion let's see if I can wrap up a few things.

401k (start upon graduation)
IRA (start immediately) ~ need more details, how much to invest, interest, restrictions etc.
Build savings (for car, real estate etc.)
Emergency savings

We haven't really discussed it yet, but assuming I have the savings indicated. Would it be a good idea to invest in the real estate (something smaller) and have basically someone else pay them off.

[JoeP]

We haven't really discussed it yet, but assuming I have the savings indicated. Would it be a good idea to invest in the real estate (something smaller) and have basically someone else pay them off.

It feels to me as if you're putting the cart before the horse. Do you have a job yet? Do you know the location of your employer and what the real estate market looks like in that area?

You take risks when you decide to obligate yourself contractually to pieces of real estate by being the mortgage holder, and rent them out with hopes of having renters who will not default or damage the property you're paying on. This is an awfully risky use of your projected income IMHO.

[bjl584]

Okay based on the discussion let's see if I can wrap up a few things.

401k (start upon graduation)
IRA (start immediately) ~ need more details, how much to invest, interest, restrictions etc.
Build savings (for car, real estate etc.)
Emergency savings

We haven't really discussed it yet, but assuming I have the savings indicated. Would it be a good idea to invest in the real estate (something smaller) and have basically someone else pay them off.

Roth IRA contribution limit is $5500 per year currently. All contributions are post tax, so when you withraw money in retirement (59.5yrs old or older) all money is tax free.

Investing in real estate is hard. At least, harder than buying stocks and watching them. Do lots of homework. Talk to local investors and lenders, pick up some books on the subject, check out some real estate forums. Don't just jump in blind. You will get burned.

[element]

Yes, the job is secured (and will be under contract for several years after college). I appreciate the insight, seems like real estate can be tough - but can I see the same returns with stocks w/ less risk? how would you suggest reading into that?

Thanks for the IRA information, I'll work on researching and starting one of those soon (prior to the 401K).

[element]

Also...curious is there anything more short term? for example a savings program like an IRA, but its done in 20 years or so? I figure it might be nice to have one that ends midway before retirement and then the 401K at retirement.

[Petunia 100]

Also...curious is there anything more short term? for example a savings program like an IRA, but its done in 20 years or so? I figure it might be nice to have one that ends midway before retirement and then the 401K at retirement.

A taxable account. You withdraw your money any time that you please. Choose tax-efficient investments, such as total market index funds, or funds with "tax-managed" in the title.


Also, I suggest that you pay a fair rent to your parents. A mature adult pays his/her own way.

[KTP]

Network engineer makes 100K right out of college? Dang, electrical engineers are vastly underpaid. We only get about 70K right out of college if lucky.

[MoneyTips4U]

Hi element,




Might I say, you sound like you are doing awesome at the moment. You impress me.

Regardless, matching your company's contribution to 401k is wonderful, and doing it right away is even better. IRA first is also good.

Real Estate is also wonderful to invest in, especially compared to the market 4 years ago. Personally, I would go with the condos and use them for income once they are paid off (and then you can always buy the house with all the fixings -- with a little extra for a guest house).



-MoneyTips4U

[element]

Hi element,




Might I say, you sound like you are doing awesome at the moment. You impress me.

Regardless, matching your company's contribution to 401k is wonderful, and doing it right away is even better. IRA first is also good.

Real Estate is also wonderful to invest in, especially compared to the market 4 years ago. Personally, I would go with the condos and use them for income once they are paid off (and then you can always buy the house with all the fixings -- with a little extra for a guest house).



-MoneyTips4U

Thanks! Okay great, so match the 401k, start an IRA and purchase smaller investments (condos) sounds pretty much like I'm on the right track. I've just reached out to a close friend who has a lot of experience in the market and will be managing the renting, fixing etc. for me.

Appreciate all the insight!