Advice for young people

[Ima saver]

I like to see young people in their teens and early 20's get started on an early savings plan.
Anyone that has any earned income should open up a Roth IRA as soon as they can.
I have tried to advise many young people, but they don't seem to want to listen. I say if you want to learn about money, talk to someone that has money.
I had a hard time with making ends meet when I was young, but I always had a savings acccount for emergencies. Almost everyone can save a dollar a day. That is a start!

[abowers]

Re: Advice for young people

I'm trying to decide if I should put money into a 401k through my work, which has a matching program.

However, I just graduated from college, and I am hoping to go back to school in July to start a Master's Program.

Some people have said to start saving as early as possible, others are saying that I don't want to lock away that money when I will have more immediate expenses (i.e. some of grad school tuition, my car payment, undergrad loans). And I've also heard that I should be saving money toward a down payment on a house before I start saving for retirement.

[sweeps]

Re: Advice for young people

Contributing enough for the 401k match should be your top priority. Otherwise you're leaving free money on the table.

In most cases, paying off education loans should not be a priority. The interest rate is usually low and tax deductible.

[Ima saver]

Re: Advice for young people

I agree that saving in a 401k should come first. I was never lucky enough to work anyplace that offered one, neither was my husband. I have always had several savings goals , therefore, several savings accounts.
I went to a financial seminar once. Here was the question we were asked.
Susan starts saving $2000 a year in her IRA from age 20 to age 30, then she stops and never adds another dime.
Judy starts saving $2000 a year in her IRA from age 30 til she retires at age 65, that is 35 years compared to Susan's only 10 years.
(We assume they get the same interest rate)

Who has the most money at age 65, Susan or Judy?

I was the only one to get it right, it is Susan of course. The power of compounding interest is great! So start early and don't touch the money and you will retire as a millionaire.

[Optsol]

Re: Advice for young people

This year, I forced my early 20s subcontractor to start a SEP. Sat him down, filled out the forms with him -- even should him a few mutual funds to consider.

30 years from now, he'll thank me large, but I did get that ****-eyed glance a few times...

[PRICEPLUS]

Re: Advice for young people

I gave one of my nephews a copy of "Everybody's Money Book". I found it to be full of all the basics one needs to know starting out. My advice to all the kids is get out of debt, live below your means, and squirrel away every penny you can!

[fiffer010]

Re: Advice for young people

There are a few of us youngins saving and becoming financially savvy.

Heres my situation, maybe you guys can help me fine tune it.

-Living at home so no expenses other then car maintence, gas, and entertainment.
-Currently taking 16 units and wont be done for about 4 years
-Maxed out last years Roth and need 2,000 more to max out 2006
-emergency fund of about 1700
-making about 1,000-1,500 a month

How does everything look? Any changes that would be better?

[gakline]

Re: Advice for young people

I'm trying to decide if I should put money into a 401k through my work, which has a matching program.

However, I just graduated from college, and I am hoping to go back to school in July to start a Master's Program.

Some people have said to start saving as early as possible, others are saying that I don't want to lock away that money when I will have more immediate expenses (i.e. some of grad school tuition, my car payment, undergrad loans). And I've also heard that I should be saving money toward a down payment on a house before I start saving for retirement.

I was in the same boat. But I think you should do the ROTH IRA before the 401k. The tax advantages are just better at a young age. I have had a Roth for 7 years now and I just started a 401k 6 months ago. I set a limit to contribute every month and saved the rest for something. But set your priorities and stick to them. Pay off your car, it's only losing money. If you can't take out loans for grad school, then save.

[Ima saver]

Re: Advice for young people

I think abowers should do both if possible. I would favor the roth over the 401k if there was no match, but there is, so that is free money. Even if she can't fully fund the Roth, she should open one and put whatever she can in it.

[Ima saver]

Re: Advice for young people

Fiffer, you are doing everything right, but you emergency fund should be 3-6 months pay, so you need to put more into your emergency fund. Probably 3 months would be ok for you since you have no homeowner emergencies to worry about.

[flash]

Re: Advice for young people

First, is there a limit to the company match? Often they have a cap, and there is a limit on what you can set aside anyway. Even if you can't put the MAXIMUM into the 401K, definitely get it started.

You CAN get money back out, you just pay large penalties and taxes. Evaluate what the balance is, the "free money" the company is providing: with the gains the investments will make, the savings MIGHT balance out the penalties if worst case happens and you do need to withdraw it.

Living costs through grad school really depend upon your location. MD and I both attended grad school on next to nothing, but rent was not bad, and scrubs and lab coats were provided, as well as fellowships, etc. Our postdoc/internships etc. were in Southern Cal, and much more expensive for housing. Professorship was not bad. Going out in a real job, having to buy suits, etc., was much higher costs.

It really helps to put pen to paper (sorry Princess, fingers to keyboard?) and lay out what your costs will be before you make decisions about what you are going to need, what your emergency account should be, etc.

[flash]

Re: Advice for young people

Oh, and it used to be that school loans could be deferred while in grad school. Definitely check it out.

[tomkat]

Re: Advice for young people

I sure wish I had known about money in my 20s. I made a lot of it, but I spent a lot of it. Didn't start saving for retirement until a year ago (I am now 33). My previous company had a pension plan, so I didn't worry about doing the 401k that they offered (with matching up to 6%--talk about throwing away free money!). Plus, I had a whole life insurance policy that I was told would accumulate cash value and I could tap for retirement. I think that was a big mistake with the whole life policy...I probably would have been better off paying that 60-odd dollars a month into a 401k. After holding that policy for almost 9 years, it has only $5000 cash value. I am no longer with my previous company, and after working for them 8 years, my pension balance is about $10,500. Not a whole lot. Now, I feel like I'm behind the ball when it comes to retirement.

And, let's not talk about the credit card debt I've dealt with through the years. I was able to pay it off when I got ready, but that was money that could have stayed in my savings.

Boy, was I ignorant about money! I cringe just thinking about it. If it were not for my husband of 2.5 years, I'd still be spending money like water and thinking everything is okay as long as I'm able to pay my bills on time, and put some in savings (which I inevitably ended up dipping into). I'm doing better now, though, but I've lost some precious money-saving years. Now, I probably won't be able to retire like I want to until I get well into my 60s!

And, I've still got a long ways to go. I now pay my credit card in full every month, but I'm still spending waaaay too much, so much that it hurts to pay the credit card each month and I end up dipping into my savings! I put around $2100 in my various savings accounts (brick and mortar, credit union, ING, 401k) each month, yet I end up withdrawing almost a third of that each month to help pay my credit card! So, I'm a work in progress...

Kudos to you young people who have grasped the importance of saving and investing at an early age! I wish I were in your shoes!

[Ima saver]

Re: Advice for young people

But you are only 33 and you are seeing the error of your ways. You are still young enough to accumulate a lot. I did n't really start investing until I was 44, plus my husband and I have not made big money! I mentioned once that I have worked for minimum wage all my life. My husband made more than that, but not that much. Get those credit cards paid off and put them away , freeze them in an ice tray and don't thaw unless it is an emergency!