Need help setting up a financial plan

[dtbilin]

I'm 18 years old, going to be a sophomore at Michigan State University next year; studying business.

My parents are paying for tuition, room and board, and 70 meals per semester along with $200 in "spartan cash" each semester. I have to pay for utilities, books, party necessities, and extra food but that's basically it.

I'm currently making $50 to $100 in profit per day with my online business. My current short term plan is to save $1,200 and invest at least $1,500 into expanding my online business every month.

My goal is to have at least $100,000 saved by the time I graduate from MSU in 2015.

What would your recommendations be for saving, investing, and anything else you would like to share. I'm very excited to hear any thoughts.

Dave

[danieldroga]

Start by shopping for a checking account. Many banks offer special accounts for college students, but you are mainly looking for features that benefit you the most.Use credit cards wisely. Know their limits, fees, and due dates. Pay them on time and within your budget. Build your credit by using your card judiciously and paying it off monthly. It's ok to carry a small balance ($10 to $50 or so) to further help build your credit, but don't do it if you might be tempted to let the balance creep up.Pay all of your other bills on time.Finally, start saving. Even if you can only save ten dollars a month, starting to put money away at an early age is a good thing.

[Ricky008]

1. Budget Successfully

In order to truly manage your money you should have a working budget for each month. A budget allows you to give each dollar you make a purpose. It puts you in control of your money. It lets you track your spending and helps to measure whether or not you are meeting your financial goals. Although a budget may seem like a lot of work or too basic when you think about creating a long term financial plan, it is key to real, lasting financial success.

2. Eliminate Your Debt

The second step is to get out of debt. This is important because it does not make sense to save or invest money when you are paying a higher interest rate on the money that you owe to others. Getting out of debt takes discipline, but it is possible. If you have a lot of debt you will need to drastically cut your spending and increase your earnings in order to pay the debt off more quickly. You should include of all of your debt in this except for your first mortgage on your home.

3. Build an Emergency Fund

Once you are out of debt you should build an emergency fund of six months of expenses that you leave in the bank. This cushion will allow you to leave your investments alone in case you fall on hard times. It should only be used for real emergencies such as a job loss, and it is set up to protect your investments and retirement savings. If you dip into your emergency fund you should focus on bringing it back up to the full amount as quickly as possible.

4. Save for Retirement

After you have done that you should work towards building your retirement and investing savings. Many financial advisors, such as Dave Ramsey, recommend putting fifteen percent of your gross income into retirement each year. However if you have specific retirement goals you may need to increase this amount. You should talk to a financial planner who can help you determine the amount you need to be able to retire comfortably. You can use your 401(k) at work as part of your plan, but you should also use a Roth IRA and other investment tools to increase your investments.

5. Invest and Diversify

Once you match out your eligibility on your retirement accounts you can use other tools such as mutual funds or real estate to increase your investment portfolio. It is important to diversify your types of investments. If you are consistent and careful with your investments you will reach a point when your investments generate more income than you do. This is a good thing and you should have this in place by the time you retire.

[Ricky008]

I'm 18 years old, going to be a sophomore at Michigan State University next year; studying business.

My parents are paying for tuition, room and board, and 70 meals per semester along with $200 in "spartan cash" each semester. I have to pay for utilities, books, party necessities, and extra food but that's basically it.

I'm currently making $50 to $100 in profit per day with my online business. My current short term plan is to save $1,200 and invest at least $1,500 into expanding my online business every month.

My goal is to have at least $100,000 saved by the time I graduate from MSU in 2015.

What would your recommendations be for saving, investing, and anything else you would like to share. I'm very excited to hear any thoughts.

Dave

1. Budget Successfully

In order to truly manage your money you should have a working budget for each month. A budget allows you to give each dollar you make a purpose. It puts you in control of your money. It lets you track your spending and helps to measure whether or not you are meeting your financial goals. Although a budget may seem like a lot of work or too basic when you think about creating a long term financial plan, it is key to real, lasting financial success.

2. Eliminate Your Debt

The second step is to get out of debt. This is important because it does not make sense to save or invest money when you are paying a higher interest rate on the money that you owe to others. Getting out of debt takes discipline, but it is possible. If you have a lot of debt you will need to drastically cut your spending and increase your earnings in order to pay the debt off more quickly. You should include of all of your debt in this except for your first mortgage on your home.

3. Build an Emergency Fund

Once you are out of debt you should build an emergency fund of six months of expenses that you leave in the bank. This cushion will allow you to leave your investments alone in case you fall on hard times. It should only be used for real emergencies such as a job loss, and it is set up to protect your investments and retirement savings. If you dip into your emergency fund you should focus on bringing it back up to the full amount as quickly as possible.

4. Save for Retirement

After you have done that you should work towards building your retirement and investing savings. Many financial advisors, such as Dave Ramsey, recommend putting fifteen percent of your gross income into retirement each year. However if you have specific retirement goals you may need to increase this amount. You should talk to a financial planner who can help you determine the amount you need to be able to retire comfortably. You can use your 401(k) at work as part of your plan, but you should also use a Roth IRA and other investment tools to increase your investments.

5. Invest and Diversify

Once you match out your eligibility on your retirement accounts you can use other tools such as mutual funds or real estate to increase your investment portfolio. It is important to diversify your types of investments. If you are consistent and careful with your investments you will reach a point when your investments generate more income than you do. This is a good thing and you should have this in place by the time you retire.

[naomibatac]

I agree with dtbilin. Start with a checking account and a credit card. Pay your utilities and purchase basic necessities using the credit card to establish your credit score. Ask your bank representative if they prove portfoliio management or short term investments. Start saving and let compounding wealth work for you.

[KennySoward]

I can't express how important budgeting is in all of this. Budgeting might not seem like fun, but it is really the key to getting the things you really want, hence fun.

[thefrugaltoad]

I agree with most of the advice given above. Create a budget based upon your personal goals. Where do you want to be financially and personally in 5,10,20,30 years? Build your budget around these goals and stick to your budget. Since you are young, you would benefit by investing in a ROTH IRA/401K which is funded by after tax dollars however you can withdraw them tax free after 59 1/2. Invest monthly in a diversified portfolio and re-balance quarterly.

[BMEPhDinCO]

I'm 18 years old, going to be a sophomore at Michigan State University next year; studying business.

My parents are paying for tuition, room and board, and 70 meals per semester along with $200 in "spartan cash" each semester. I have to pay for utilities, books, party necessities, and extra food but that's basically it.

I'm currently making $50 to $100 in profit per day with my online business. My current short term plan is to save $1,200 and invest at least $1,500 into expanding my online business every month.

My goal is to have at least $100,000 saved by the time I graduate from MSU in 2015.

What would your recommendations be for saving, investing, and anything else you would like to share. I'm very excited to hear any thoughts.

Dave

While the advice you've recieved is good, I don't think it's germane to your situation...so here's my two cents:

1. Make a budget - textbooks can cost up to $500 or so a semester (engr) so budget for that immediately for the remaining 2.5 years; utilities can include cell, insurance, water, sewer, recycling, trash, gas, electric, and so forth so you are a little vague here...but again, I would estimate the cost for the month and set that aside from the first week's worth of "income"

So your budget would be:
Day 1-7: $350 profit - to textbook fund
Day 8-14: $350 profit - to utility fund/bills
Day 9-12: $200 profit - to party fun & extra food
Day 13-25: $650 profit - to savings account
Day 26-end of month: up to $300 profit to go into business

This budget would allow you to cover needs and within 4 months, you could have school needs covered for the rest of your time there, then diversify that into the business or into savings. The savings account would be for summer expenses, an emergency fund, a new car fund, a new cell phone fund, whatever you wanted that would cost more. The $200 a month should be plenty to enjoy and the $300 a month into business expenses (taxes!!!) and building would be helpful for you.

2. I don't think you can open a RothIRA unless you have earned income - I'm not sure if investing counts...a SEP-IRA might be better but honestly the first thing I'd do with that $300 is hire a good accountant! They can tell you what to do better than anyone here for your special situation and you don't want to be in trouble with the IRS before you even get a degree.

3. Your goal is to "save $100,000 before graduation" - but save for WHAT?? Will you use that for a house? a car? a wedding? further investments? Clarify this for yourself and it will help decide HOW to invest that much money...

4. You have a lofty goal in mind, and that's great, but make sure you don't over reach yourself either - don't take on student loans, for example, if you don't have to and reduce them before investing in risky activities...also, as a sophomore, you should have 3 more years left - but you said 4 above, are you planning on a co-op or something for a year? If so, build that into your budget as well.

Hope that helps, good luck!

[jpg7n16]

I'm currently making $50 to $100 in profit per day with my online business. My current short term plan is to save $1,200 and invest at least $1,500 into expanding my online business every month.

My goal is to have at least $100,000 saved by the time I graduate from MSU in 2015.

What would your recommendations be for saving, investing, and anything else you would like to share. I'm very excited to hear any thoughts.

Dave

Just as a matter of pure math, you'd need to average $68.50/day [after taxes and living expenses] for the next 4 years to accomplish your goal.

My recommendation: don't forget about taxes

It's likely gonna be considered self-employed income, and you're gonna have to pay SE tax + ordinary income rates + any state/local taxes. [SE tax in 2011 is SSI 10.4% and medicare 2.9% = 13.3% per Self-Employment Tax (Social Security and Medicare Taxes)] Michigan state income tax rate is 4.35% (per Retirement Living - Taxes by State: Kansas - New Mexico)

And then you'd have to take your living expenses out of your profits too.

Depending on your lifestyle costs, I'd estimate you actually need to average a profit around $90-110/day for the next 4 years to actually make your goal.

Again, that's an estimate - but it gives a better picture of just how successful you need your business to be to reach that goal. Definitely possible if you keep growing the business.

[krantcents]

Do you have a business plan for your online business? Since you are studying business, this would be a real world project. Good luck.

[Petunia 100]

I agree with most of the recommendations except for investing in a Roth IRA or 401(k). I am anti IRA/401(k) for these reasons. RISK - most of the time the funds are invested in the stock market and very much subject to loss or risk. ACCESS - you will not have access to your money without penalty for 40 years!
There is a savings strategy which eliminates stock market downside risk and gives you access to your money within 1 year. Plus you can use the money you pull out for any purpose and it is tax free! With your lofty goals and early start, you're headed places. BTW, I am an accountant so I would be happy to help you set up your business properly. Good luck.

You're an accountant, but don't know that:

1. IRAs can be invested anyway you please, including in cash.

2. You can access Roth IRA contributions at any time with no penalty.

3. You can access traditional IRA contributions with no penalty by electing 72t rules.

Hmmm. You'd think an accountant would know those things. You sound more like an equity index annuity salesperson to me.

Risk and reward go hand in hand. Always. No exceptions. No free lunch.

[Dseals]

The blog is truly fantastic! Lots of great inspiration, which we all need!b Keep 'em coming... you've done such a great job very appreciating... can't tell you how much I'm pleased from your work.