Seeking future financial advice

[rmarchiselli]

Hello!

I'm posting here seeking some financial advice from all of you who may be much more knowledge than myself. I hope I'm posting in the right place and all. I'm going to give you a brief understand of my situation and hope for the best. Any suggestions for budgeting, investments, even any wise old tales are greatly appreciated

I'm 20 years old, living on my own, completely financially independent from parents. I've actually been working since I was 15, and living on my own since 16. It's pretty rough growing up in this economy... I haven't pursued any kind of post-secondary education because I don't want to stack up debt if I'm not sure what I want to do in life. Despite all this, I'd say I'm in a good spot for my age.

Right now I'm making approximately 33k/yr gross in a corporate office job. After all my bills and food, I'm managing to have roughly ~$300 to save and use for fun.

I'm sitting in approx. 7k debt on a motorcycle loan, which with minimum payments I should have paid off by the age of 24. At that point, the vehicle will be worth approx. $3000. I also own a car that about the time I have my motorcycle paid off, should be worth $2000.

Here's my two biggest questions:

1) Out of that $300/mo I have leftover, I've figured that instead of paying my motorcycle off early, it may be more wise to save $200/mo. That way I'll have the money in savings for unexpected emergencies but I can also one day use it to pay a lump sum if I choose. If I save $200/mo until I'm 24 and have my motorcycle paid off, I should have approximately $8,000 saved up. Which brings me to question two...

2) So at age 24, as long as I follow my budget closely and discipline myself with savings, I should have $5000 in equity (car + motorcycle) and roughly $8000 in savings. At that point, I would be able to afford a brand new car (Probably one of those shiny, affordable Hyundai's) with cash in hand (maybe a small amount financed depending where I stand).


Would you say having a brand new car fully paid off at the age 24-25 to be a good long term goal to have?
Anything here I'm missing in the bigger picture?
Better ways I should spend/invest my money?
Reasons not to get a new car?


Once again, thanks for taking a read and I appreciate any and all responses

[Wino]

I suggest you listen to a few Dave Ramsey podcasts. What he says is common sense. When it comes time for you to invest (and the sooner, the better), I suggest you look into the "big three" of: Vanguard, Fidelity, and TRowe Price.

In a nutshell:
1. Save $1000 for emergencies.
2. Pay off your debts ASAP.
3. Invest 15% toward retirement.
4. Save up 3 to 6 months of expenses
5. Buy/pay for a house

The basic idea is to live within your means. $33K is enough to live and save on, depending on your location. That's "rich" in rural Nebraska. That's "subsistence" in downtown NYC.

You're doing well to think about this now. The idea to have a "brand new, paid off car" is absurd. Almost everyone on this board is going to tell you to buy a used car. I'll be the first. Don't buy a new car. Buy a used car, but only if you need a car. Why not just keep the bike and continue to save?

You can reasonably expect to have more than $400K if you invest $200 per month until you're 65. That's assuming only 5% return on your investment, which you can do with almost no risk. As you're only 20, you can afford a lot more risk. At 10% return, that same $200 per month becomes over $2 million dollars. Compound interest is your friend at your age. The index funds at the sites I mentioned will get you reasonably near 10% if past performance is used as a guide.

[MonkeyMama]

No, buying a brand new car is not a good long-term goal to have. Why? Because you are throwing money down the drain that could be used elsewhere. Buy a car that is one or two years old. Basically, the same difference, but you only have to pay half as much for it. At your income, I'd just shop granny cars. (Older models that have barely been driven). I once paid $5k for a car that only had 15k miles and that new car smell. It was a sports car that I am sure anyone would have guessed was rather new. Just to say, this does not mean deprivation. You can get a cool/mostly new car if that is what you want. Every time we have bought a used car, we have saved $10k-$20k for something more important.

Not going deep into debt for an education that you are not sure about, is wise. But, I would be thinking more outside the box for the long run. In a Corporate environment, there are opportunities where employer will pay for degree.

I hope you are saving for retirement? You are making a great salary given your age. (I was on my own from a young age too, but not making that kind of money until I graduated college). Just to give you a perspective that you have a great income, and we hope you are saving some of it and using it wisely for the future. I understand at your age that the long-term is not your first priority, BUT, if you start saving now for the long-term future, the less you will have to save for it later. So, you will get a lot of encouragement to take advantage of your age and your interest in financial goals.

[rmarchiselli]

Thank you for your replies! I mean to make a correction, I would NEVER buy a brand new car. That seems so foolish, haha. I'd get a certified pre-owned more than likely. No point in throwing away all the money when I drive off the lot. (Already learned that lesson with my motorcycle. I owe 7k on it and it's only worth $3000.)

I am saving for my retirement at the moment. I'm only putting in 5% into my 401k at the moment to get our company match. I feel as if my budget would be very tight if I increased it any more than that right now though. I feel as if once my debts get paid down, I'd be able to increase that to 15% or more. Thoughts?

I took a glance at mutual funds as suggested by Wino. From my understanding, the average rate of return is about 12% per year? If that's the case, that sounds like an AWESOME investment over the course of 5 to 10 years or more. $5000 turning into $8000 over the course of 5 years? Wow.

My company actually does reimburse me for college education up to $5,000 a year. I'm just very hesitant to get started with school because I'm just a very uninterested person. I have tons of ambition and passion for what I love... it's moreso just not knowing what I love to do to begin.

I know being in an office my whole life wont work for me. There's future opportunities for me to become a manager here in 4-5 years that would start me out at about 60k/year. But I'm not sure I could see myself being here for 5... 10... 20 years to come. I've got a lot of searching to do to figure out what makes me happy.


Let me ask you, would you suggest that I pay off my large debt quickly (7k) vs. saving up the money (having the cash for emergencies) and paying it in a lump sum? The interest over the couple of years only comes out to a few hundred bucks more since I snagged a nice 5.95% apr.

[bigdaddybus]

I agree with the other posts 100%.

And this thread makes me smile because it reminds me of myself 15yrs ago. Then I was making in the low 30's at a top fortune 50 company in a entry level job and fairly content. then I decided to Bust my butt for 3 yrs and double majored in IT and Business from a local state school in my off time.

Last yr I made 97K and the wife made 87K. I have never regretted continuing my education. From 18-27 I worked with my back, from 28-39 I have worked with my head for alot more money with tons of room for advancement.

BTW, even though we made 185K last yr, I bought a 3yr old car for 28K rather than buying a new one for 51K. We live in a house 1.5x our income rather than 3-4x like the bank would tell us we could afford.

Being smart with your money over a career will really put you ahead of most in the long run.

As fair as your 401K is concerned I suggest upping it by 2% each yr and you will be at 15% by age 25.

[rmarchiselli]

Thanks for your reply bigdaddybus. Your suggestion to up my 401k by 2% a year sounds like a great idea. I think it will be okay on my budget to up it a little amount every year as I save more and become more financially sound..

Since you've mentioned your success in your career, out of curiosity, what is it you do in the tech field? I've always been a very technical person and knowledgeable about computers. But I find such a headache in working with any programming, for example, that makes it stay as just a hobby as opposed to being my career and life in essence.

Any advice you'd have regarding student loan debt in general? I'm not sure how far a free $5,000 a year would get me with school.

[breathemusic]

If you don't have any sort of emergency fund saved up, then you absolutely need to do that for a while instead of paying extra on the bike. As another poster said, you should save up at least $1k minimum, but ideally a few months worth of living expenses. And once you save that up... it shouldn't be then emptied to pay off your loan early. If you really want to tack that loan, save up $1,000 and then start taking your extra savings and splitting so half goes to increase your EF and the other half goes toward your loan. But as a rule, your EF is supposed to be for emergencies, so you never want to empty it out just to pay early on something. What if you paid off that bike loan early and emptied your savings only to have some actual emergency crop up and not have the money to pay for it?

I can understand being worried about getting a degree when you might not know what you wanna do, but that's part of what college is for. You take a few classes, learn some stuff, and figure out what interests you. As for taking on student loan debt, the most important thing you can do is always keep in mind what the monthly payments of any student loans would be once you had to start paying them back. And also be aware of what the average person makes when first starting out in whatever career field you might be interested in. Having $100K in student loans is crazy if you're going to graduate into a career that pays $30k per year.