need advice: 26, no debt, earning 3k/month...

[youngmoneh]

Living with parents, netting 3k/month (after biweekly pay), age 26,
working for the CA University system. No debt after paying off a 16k
student loan. I'm a frugal spender--credit cards are always paid in
full. Monthly costs are 450. Savings account is 10k.

When I was a per diem worker, the university took 7.5% pretax out of
each paycheck towards a 401a plan ("UC DCP") which now totals 7k. I'm
not sure what this plan details. Been working full time for 6 months
and will continue to do so.

I have no other investments, and I'm new to investing. I will probably
buy a 20k car late 2011. Thoughts in my mind are CD, Roth and
traditional IRA. The university also has a 403b and 457b option. Maybe
buy a condo and get it rented, and later use equity for more
investments or maybe a downpayment on a house.

Any more advice you could give me? Am I on the right track? How much
should I allocate for all this stuff?

[CalisFinancialGuru]

You sound like you are on a great path so far. Here are some suggestions I have: Continue contributing to your retirement in both the plan your employer offers and also open an IRA (traditional allows deductions of contributions on taxes and is taxed upon withdrawal-ROTH does not allow for deductions on taxes but is not taxed when funds are withdrawn. Refer to my site for more on IRA's). However, I suggest learning a bit about stock investing and having an IRA account with a brokerage. Your returns will be much higher (average 10%) than in a CD or money market IRA (3% max/year-barely keeps up with inflation rate)and you can still minimize risk by diversifying more or investing in a fund that follows the S&P 500 (averages 10% return/year). I like your idea of investing in real estate. Just be sure to research heavily on the area where you invest and possible rules involved (typical mortgage requires owner occupancy as do many condo complexes-renters tend to bring value of of the units down). However, if all your homework is done then it is a great income source. Hope this helps.

[disneysteve]

Living with parents, netting 3k/month, age 26

Savings account is 10k.

I will probably buy a 20k car late 2011.

Maybe buy a condo and get it rented, and later use equity for more
investments or maybe a downpayment on a house.

Welcome. A few thoughts. Why is a 26-year-old still living at home with his parents?

20K is way to much for you to spend on a car. The most you should possibly consider borrowing is about $10,000. That would give you a monthly payment of about $300 for 3 years which is the maximum recommended and really, when you are just starting out, you shouldn't go for the max, so I'd suggest a fair amount lower than that. Maybe put down $2,000 from your savings and borrow $5,000, or something like that. You can get a very nice used car for $7,000.

You mention buying a condo to rent out but don't mention anything about getting yourself a place to live. I think your priorities are backwards. First step is to establish yourself, get yourself a place to live. Then you can start saving for other purposes and investments.

Shoot to save 20% or more of income. Keep living expenses (NEEDS) to 50% or less. Keep discretionary spending (WANTS) to 30% or less.

[jpg7n16]

Welcome. A few thoughts. Why is a 26-year-old still living at home with his parents?

It's actually becoming more popular among 20-somethings to move back in at home right after college. Offers low rent (if any) - an easy way to work on getting out of debt, comfort, and a lot of us 20 somethings are still trying to figure it all out. So moving out of the city for a job we don't know that we'd even enjoy is enough discouragement to keep many people living in the comfort of home. (I personally live on my own, and I don't live in the same city as my folks)

With little to no rent, it makes paying off student loans much easier. I know a few of my friends who had this as their goal. Graduate, move back home, get out of debt/save up for a home, then move out. I chose differently.

Here's an article I found on the subject. They refer to many 20 somethings as being in 'extended adolescence.'

USATODAY.com - It's time to grow up later

20K is way to much for you to spend on a car. The most you should possibly consider borrowing is about $10,000. That would give you a monthly payment of about $300 for 3 years which is the maximum recommended and really, when you are just starting out, you shouldn't go for the max, so I'd suggest a fair amount lower than that. Maybe put down $2,000 from your savings and borrow $5,000, or something like that. You can get a very nice used car for $7,000.

I agree 100% with every statement there

I have a made up rule that says the car should be worth no more than 30% of your salary MAX. So $3k * 12 = 36k/year. 30% * 36k = $10,800 MAX. Which is right in line with DS's suggestion. Except my rule of thumb is based on the value/price of the car, not the loan. Preferably you'd make a larger down payment, and borrow less.

If you buy a $20k car, you'll find that the payments take much more of your income than you'd prefer. Too much car, and too much for housing are the main causes of excessive credit card debt.

And though I don't follow the 50/30/20 plan DS suggests, I think retirement savings alone should ultimately be from 15-20%. A lot of people can't start there, but that should be the goal IMO. And if you want to save for a home, or car, or vacation - you should do that in addition to the retirement money.

[CalisFinancialGuru]

DisneySteve,

I also agree with you in regards to his choice of vehicle price. I think he might be under the impression that it would be an investment since he had put it in his paragraph about his investment plans? Remember YoungMoneh, unlike real estate which has the ability to appreciate in value based on the current market (and depreciate of course), vehicles are not investments because they will only depreciate (10% for a new car right off the lot). The only exception to this is purchasing a "investment car" which is a car about 15 years old that will soon become a classic car (at 20 years)and is a car that will be in demand in the classic car collector market, so not just any 15 year old car. Also another note in regards to your real estate interest, maybe consider purchasing a condo for your own use as well as renting out to others (2 or 3 bedroom unit). You will find that the rent from the other tenants will help pay towards a large portion of your mortgage and you will not have any rent to worry about. This will also give you some experience as a landlord. If you are not sure you want to remain in that area for at least 5 years (you will most likely lose money if you sell a new property before 5 years with the exception of "flipping") then remember to try to find a complex that does not require owner occupancy so you can continue to rent it out. you have great goals and have made the right choice by asking for advice first instead of jumping right into it. You will be out of your parents house and on your way to wealth in no time!

[krantcents]

Living with parents, netting 3k/month (after biweekly pay), age 26,
working for the CA University system. No debt after paying off a 16k
student loan. I'm a frugal spender--credit cards are always paid in
full. Monthly costs are 450. Savings account is 10k.

When I was a per diem worker, the university took 7.5% pretax out of
each paycheck towards a 401a plan ("UC DCP") which now totals 7k. I'm
not sure what this plan details. Been working full time for 6 months
and will continue to do so.

I have no other investments, and I'm new to investing. I will probably
buy a 20k car late 2011. Thoughts in my mind are CD, Roth and
traditional IRA. The university also has a 403b and 457b option. Maybe
buy a condo and get it rented, and later use equity for more
investments or maybe a downpayment on a house.

Any more advice you could give me? Am I on the right track? How much
should I allocate for all this stuff?

It is very important to start your 403B! I would do this before I become a landlord. Owning and renting out property always have surprise expenses. You would probably need to invest more than 20% to avoid a negative cashflow.

[disneysteve]

It's actually becoming more popular among 20-somethings to move back in at home right after college. Offers low rent (if any)

Just because something is becoming the norm doesn't necessarily make it a good thing (the obesity epidemic is a perfect example of that). We've discussed this topic here before and I think I've made my feelings on the matter very clear. I think this is a trend that is not at all positive for our society. Newly minted adults aren't willing to struggle at all. They don't want to leave the nest until they can have the same lifestyle they've enjoyed at home with their parents. They don't want to live in the run down apartment on the not so great side of town. They don't want to share a place with 2 or 3 other people. They don't want to drive a clunker until they can afford something better.

And I'm not placing all the blame on the 20-somethings. The parents are just as responsible, if not more, because they've raised these kids with unrealistic expectations and they allow these "extended adolescents" to keep living at home with limited financial responsibilities. They may believe they are helping the kids but what they are really doing is enabling them. And the parents also don't want to see their kids struggle, even though they themselves went through it and turned out just fine. They want to give their kids a life that they themselves had to earn when they went through it.

We've made it very clear to our daughter that we expect her to go to college, live on campus and, after graduating, get her own place and make her way in the world. We will certainly help her when necessary but we won't pay her way or support bad decisions or laziness. If she falls on hard times despite her best efforts and really needs a place to live temporarily, we will certainly provide it, but we won't have her living here just to make things easier or give her more to spend partying with her friends or to drive a nicer car or pay off debts a couple of years earlier. The sooner she gets out on her own, the sooner she learns to manage her own affairs (with appropriate parental guidance as needed).

[youngmoneh]

Welcome. A few thoughts. Why is a 26-year-old still living at home with his parents?

You mention buying a condo to rent out but don't mention anything about getting yourself a place to live. I think your priorities are backwards. First step is to establish yourself, get yourself a place to live. Then you can start saving for other purposes and investments.

Shoot to save 20% or more of income. Keep living expenses (NEEDS) to 50% or less. Keep discretionary spending (WANTS) to 30% or less.

Mom has an anxiety disorder and dad works all the time. I'm not doing anything anyway. She needs help and it helps me. Win-win on how I look at it. Period. =D

[cypher1]

Mom has an anxiety disorder and dad works all the time. I'm not doing anything anyway. She needs help and it helps me. Win-win on how I look at it. Period. =D

I'm also guilty of living at home till 28 while saving for a home. My main regret was not saving for a bigger downpayment. Typical view of me, in my parents basement, where all I did was sleep and shower at home. I never had a home cooked meal, still paid parents a few hundred a month for rent, while still working on their cars, did the lawncare, shoveled, maintenance house, (parents aren't getting any older). I even went to laundry mat for doing my own laundry. I'm not ashamed of admitting my lifestyle, and girls I dated didn't have a problem understanding my priorities. Parents knew I had a career of my own, and made decent money, but admitted to depending on me more for support.

While I do agree there are many who take advantage of their parents and mooch off them, and there are parents enabling the problem, a lot of us have different reasons (in your case medical). I still know a few friends living from home while finishing their degrees, men and women, while there are others who still do absolutely nothing to help them out. A small regret was not moving out earlier to just rent, but staying at home to save more, was worth the sacrifice for me. So I say keep doing what your doing, while you can. Deep down a lot of people who criticize you are secretly envious of your situation and saving.

[littleroc02us]

Living with parents, netting 3k/month (after biweekly pay), age 26,
working for the CA University system. No debt after paying off a 16k
student loan. I'm a frugal spender--credit cards are always paid in
full. Monthly costs are 450. Savings account is 10k.

When I was a per diem worker, the university took 7.5% pretax out of
each paycheck towards a 401a plan ("UC DCP") which now totals 7k. I'm
not sure what this plan details. Been working full time for 6 months
and will continue to do so.

I have no other investments, and I'm new to investing. I will probably
buy a 20k car late 2011. Thoughts in my mind are CD, Roth and
traditional IRA. The university also has a 403b and 457b option. Maybe
buy a condo and get it rented, and later use equity for more
investments or maybe a downpayment on a house.

Any more advice you could give me? Am I on the right track? How much
should I allocate for all this stuff?

As a person who has treaded waters infested with sharks (debt) and making tons of mistakes before I learned, I would not spend 20k on a car first of all. What does a 20k car do that a 10k car doesn't? Buy a minimal used car, they are total liabilities and depreciate daily. Work more on maxing out Roth IRA's and other non taxable investments. You won't regret it. Start saving for 20% down on a house.

[bjl584]

I agree with what others have said about the car. A $5K car or a $10K car will get you to work just as reliably and safely as a $20K car. Keep it simple. Find something used that is affordable and economical.

And I am sympathetic to your situation regarding caring for a parent. That being said, it is important for a person to establish their own life at some point. You could find a place in close proximity to your parents, so that you can visit daily if need be. Moving out taught me more about budgeting and life in general than anything else that I ever did. You may not agree, but it was a big help to me.

[RAYT721]

The idea of buying a condo is a good one but not always for investment purposes. Are you aware of the house market? The condo market is worse. Also not all condo associations will let you rent out the units. Research is the key!!! As for the car that is a good move if you need one but don't buy a car just to buy a car. A good 1-3 year old car will be a wiser choice for purchase... still under warranty but without the depreciation cost. You are only going to get so many "WOW" responses when your friends see a new car. You have the payment and that's high for a few WOWs on a brand new car. Unless you plan to live in a car, don't spend the max for your budget and consider paying cash instead of financing. Shop rates at bankrate.com. When it comes time to buy property, use your heart on what you can afford and not what a bank or realtor tells you that you can afford. Saving is important but so is living!!! Those are just a few tips from a crazy middle aged man who wished I had written and followed a plan when I was your age. You are doing fine. Take time to smile!!!