New, Young and Clueless

[AloisWolf]

Okay so here's the scoop:

I'm a 22 yo male from Jersey. I just finished paying off a 3000 dollar college debt, and two credit cards both of which were way over due and one of which was canceled by the bank. Needless to say my credit score is around pretty low at around 615.
I've been saving as much money as I can and I have a full time job making about 1400 a month. I'm currently in nursing school for my LPN.

As far as saving goes, I have quit smoking (felt kinda hypocritical being a nursing student and all), always pack my lunch now and I live at home with the parents (and swallowed my pride...). At the end of the day, if I even use my debit card, I subtract extra money into my savings account through online banking.(ex: if i have 432.86, 2.86 will go into my savings account).

I just got my tax refund and my checking account is above 1000 for the first time in well over a year. I have all, or most of my debt paid off and I feel I finally have a grasp on my finances.

My question though is... now what? Do I just continue saving money and paying for my needing expenses (cell phone, student loan, tuition, car insurance, gas etc.) or should I try to start to put something away for later. What are CDs? What's an IRA? At what time should I start worrying about this stuff? What can I do to improve my credit now that I've paid off my outstanding debt? My parents tell me that I'm lucky that I messed up early in my life and am now fixing it, rather than messing up later because it wont affect me as much... is this true? I just feel so unsure about my financial savvy and wish they would have taught me a thing or two in high school... but I guess that's neither here nor there.

I guess a better question to ask is, if you were in my situation at 22 what would YOU do or wish you would have done when you were my age.

[buzz]

- Get in the habit of saving something every time you are paid. Live below your means.

- Pay off your debts.

- Learn how to make a budget and stick to it.

- ALWAYS pay your bills on time. Always.

- Establish good credit.

- Set goals and have a plan.

- Read. Learn. Be educated and be wise.

[TBH]

Congratulations on paying off your debt. That is fantastic.

Do you still have an open credit card? If you do, keep it open, and spend a very small amount on it every month and pay it off in full every month. Never spend more on your credit card than you can pay off when the bill comes. Doing this over time will help rebuild your credit.

You should start saving regularly. You need to save up a cash cushion so that if you have an emergency or lose your job or something, you won't get back into debt. You should also start saving for retirement.

If you can manage it, save 10% of your income for retirement and another 10% or so into a savings account for emergencies (REAL emergencies, like a medical disaster or a job loss or something, not an emergency like you want a new toy or want to take a vacation). If that seems like too much, start smaller--just start saving a percentage of your income every single month for retirement and another amount into a savings account for emergencies.

It might be a good idea to hold off on starting to save for retirement until you have a small emergency fund saved up, say $1000 or so.

I won't explain IRAs--there are a million articles online that will explain it better than I can. But you might want to think about opening a ROTH IRA when you're ready to start saving for retirement, unless your job offers a 401k plan.

Keep reading this forum and ask lots of questions and you'll pick this stuff up in no time. I think your parents are right that you are lucky to have gotten some mistakes out of the way early. You have nowhere to go but up, and you are starting from a good place--with no debt, low expenses, a good career in health care ahead of you, and the desire to learn how to manage your money.

[wincrasher]

Congratulations - you are off to a good start.

Getting thru your schooling without debt will be a major accomplishment.

Having $1,000 in the bank may seem like alot, but it won't get very far if you have an emergency.

Keep on track, stay at home, study and save what you can.

After you get thru school, and get a permanent job in nursing, then starting your long term planning.

[MonkeyMama]

Good advice above.

I have a slightly different perspective. Since you are in school and living on little I would work on a cash cushion. I think staying out of debt and saving nothing is a decent start. Saving a little is better, but not always possible while in school. But on a low income, I think having cash is more important than anything. I assume you will graduate soon - in a year or 2?

I would hold off retirement until you get your first post-college job. I think a lot of focus on retirement while you are in college can be misguided. You can make it up pretty quickly, out of college, if you are used to staying out of debt on very little income.

However, if you have more money than you need, by all means, stash it in a retirement fund!

By the same token, if you *can* save money and you are building up a lot of cash, a ROTH IRA can be a good investment. If you invest it in cash you can always pull it out penalty free in an emergency. So if you feel inclined to start a retirement fund, that is where I would start. IT just depends, I don't know what your living expenses are and what kind of wiggle room you have. If you can build a decent cash cushion, the next step would be to invest in mutual funds - in an IRA or 401k. Since you are only 22 a ROTH IRA is probably your best bet. (It grows tax free "forever" and power of compounding is on your side, so young). But just keep in mind if you use your ROTH as an emergency fund vehicle, you should invest in cash. When you have ample cash, then you can invest in more aggressive things like mutual funds. For now you can stash $5k/year into ROTHs and regular IRAs.

When you graduate and get a higher paying job, I would advise living on as little as you can for a year or 2 or 3. If you can continue living on that $1400/month, it will make a huge difference for the rest of your life. Even if you can only swing it for one year, you can build a decent start to your savings, pretty rapidly. & by the same token, don't immediately live up to your post-college income. It's the biggest mistake I see people make. Buying a house is expensive. Having kids is expensive. You need to save money while you are young so you can more easily afford those things later on, and whatever else life may throw out at you (layoffs, disability, etc.).

Post college I would work on maxing out 401ks and ROTHS - they are the best tax advantage.

[AloisWolf]

Thanks for the advice guys!

[isthisused]

Good stuff already but let me emphasize a few points.. STAY OUT OF DEBT!!!! Build a good emergency fund. Keep your monthly expenses well below your income. Start saving for retirement early.