ok so i'm 20 years old, still living with my parents and just started my first full time job (currently working on my ratings). the extent of my financial situation is that i have a checking account and a savings account. heh. where do i start? where do i go from here? how much do i start saving? etc etc etc etc...

 

If the job offers a 401K, take advantage of it. If they offer a 401K match, then contribute enough to take advantage of the full extent of that - It's free money. If they don't offer a 401K, then start yourself a Roth IRA and set up an automatic monthly deposit of some easily manageable amount. You won't even have to think about it (just remember to account for it when you track your bank balances).

My advice is to load your 401K or IRA with mutual funds that are made up of large/midcap stocks, but that's my speed. At your age, you can afford to be fairly aggressive, but don't get too excited about individual stocks, unless you consider it a hobby and are really knowledgeable about investing.

You may not feel like you can't contribute much, but at your age, every little bit you can put away will go a long way due to compounding interest. Also, everytime you get a raise, increase your contribution by some percentage of the raise.

Don't go crazy with the credit cards. Don't buy a brand new car. Don't eat out every night. Don't go to every first run movie that comes out. Don't keep buying the latest techno gadgets. That stuff all adds up and will kill you financially.

I envy you. I didn't start thinking about this stuff until I was 26. I'd love to go back and get that 6 years back. I'm not doing bad as it is, but time is everything.

 

yeah, they offer 401k but no matching... so i guess just max that out? i was thinking about doing that and then starting a high-interest internet savings account... what percentage would be a good amount to put in from every paycheck? as much as i can afford?

and good thing for me i hardly ever eat out and buy new stuff, so im fairly good at saving.

 

Actually, at your age with no Match, you're better off maxing out your Roth first (up to $4000/yr/333/month). Unless you're in a high tax bracket (25%) then I would max out the 401K.

 

Investing

W/401K that has a company match

• Invest max amount needed to get company match
• Invest full amount allowed by IRS into a ROTH IRA
• Now invest to max allowed by IRS for 401K plans
• If you still have money left over put it into a lifestrategy / lifecycle fund and forget about it.

W/401K that has no company match

• Invest full IRS amount into a Roth IRA / Traditional IRA
• Invest all additional money into a 401K
• Have money left over put into a lifestrategy / lifecycle fund and gorget about it.

Investment allocation

% of stocks should be your age - 120. The rest in bonds.


1st things first

Pay off all debt / cerdit cards
Build an emergency fund equal to 6-8 months of monthly income and put into high interest savings account
Now start investing the rest of your money

Never leave free money on the table...Ever...

-LAFF

 

And have all this done before you take that first instructor job

 

And find an instructor job that lets you CONTINUE to invest. There are some good ones out there if you are willing to look.

 

what do you mean?

 

so does that mean i should start my "emergency fund" before i start putting into the roth?

 

IMO, yes. But the very first thing you need to do is read and learn. Go to the library and load up on personal finance books. A simple read that will get you on the right track is Total Money Makeover by Dave Ramsey. Then read anything and everything and develop your own plan. Also watch/listen to podcasts and tv shows with finacial topics.

Summary of the TMM and a good starting point IMO:

1. Save $1000 in a money market (savings) account as a baby emergency fund.

2. Get out of debt (everything but the house which I guess you don't have).

3. Finish the emergency fund (3-6 mos of expenses, I suggest 6 in this business).

4. Begin to save 15% of your gross for retirement. Do the 401k first up to what will be matched (if yours is no match then do the Roth), additional amounts go to a Roth IRA.

I personally would modify this a little based on my own knowledge/tendencies regarding personal finance. For instance I would do the 401k up to the match before any other step to avoid passing up free $$. However, you need a knowledge base and a good feel for how you handle money before you will be able to devise a smart, workable plan for yourself.

The quick start for you seems to be: save as much as you possibly can in a savings/money market account (4-5% interest should be easy to find). Let it amass for a few months while you read, read, read. Then disperse those funds to the various targets as you develop a plan. You are in great shape starting so young. Save big now and you'll be in very, very good shape later on due to compounding and developing good habits with your money.


Good luck!