Author Topic: 25 years old and looking for a place to put my money  (Read 5342 times)

MIM

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25 years old and looking for a place to put my money
« on: February 08, 2013, 08:41:52 AM »

Hi,
Iím 25 years old and could use some advice from all the experts on this site about my financial situation. I am pretty frugal and love saving money; I just donít know what I should do with it. I have a four year business degree but an unfortunately low income of $35,000 a year. I donít like my job but itís one of the highest paying in the area. Eventually, I would like to move to an area which offers more opportunities but then there are these mountains, and this fresh air, and a boy Ö. and you get the picture. I need a little extra motivation.

I am very interesting in buying an apartment house at some point. It is wise to spend almost my whole savings on the down payment? (Rental properties usually require 20-25% down) Should I be aggressively investing since Iím young? Should I be maxing out my retirement account and saving less? Since I donít have a large income I worry about having less money on hand in case of an emergency. However, I think itís pointless to have my money sitting in an account when Iím only making $185 a year on it. Any suggestions with where I should put my money and/or what I should do with my money would be very helpful.

Below is a summary of my expenses and savings:

Expenses (per month):
Student Loans: $0 (2 loving parents and working my ass off)
Rent: $270 (All-inclusive - heat, hot water, electric, garbage, and parking! I share an apartment with two others, this is my share.)
Car: $290 (I mistakenly leased this car for three years. I only have three payments left and the lease will be over in August. At that point I plan to go carless for as long as I can until I have enough money saved up to buy a small used car.)
Cell Phone: $0 (Luckily for now, my parents still cover this charge in exchange for free labor.)
Internet/Netflicks: $20
Gas: $30 (I walk to and from work every day.)
Food: $100 (I donít eat meat but make up for the savings by buying organic and specialty foods whenever I can. I eat as healthy as possible.)
Other: $50
Total Monthly Spending: About $760 per month

Salary: $35,000 a year = $1,910 a month after taxes, dental care, and my 403B contribution is taken out. Health care plans are available through the company but are very expenses and it is my personal choice not to have health care at this point in my life.

Retirement Account: I put $2,100 a year into a 403B retirement account which the company contributes 3% ($1,050). I put another $100 a month into a separate ING Sharebuilder IRA Roth account.

Savings Account: I have an ING savings account which I started while I was in college. Right now, I have $29,800 in this account. Iím only making $185 a year in interest and contribute anywhere from $700 to $900 per month to this account. In March, I am going to transfer this money to an Ally account because red is NOT the new orange and I donít like this whole Capital One ordeal.

Emergency Fund: Another $110 a month goes into an ING ďRainy DayĒ Account which I will not touch unless it is a serious emergency. There is about $4,500 in that account now (transferring to Ally soon.)
 
Monthly Savings Contribution: $800-$1,000)
Monthly Retirement Contribution: $275

Thanks for your thoughts!

RoseRelish

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Re: 25 years old and looking for a place to put my money
« Reply #1 on: February 08, 2013, 08:56:26 AM »
Sounds like you're doing pretty good in saving a good chunk of income every month. I think you have WAY too much in cash. I'd also personally get some form of healthcare, just in the case of some type of terrible accident. I would start buying stocks with your savings. Heck, keep your current cash as a safety net and start funneling your $1,000/month of savings into stocks. You'll have a solid little 'stache in no time!

Freedom2016

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Re: 25 years old and looking for a place to put my money
« Reply #2 on: February 08, 2013, 09:08:56 AM »
I was 25 once and remember thinking I didn't need health care -- so I get where you're coming from. My parents made me get a catastrophic policy (maybe that's not the actual name but you get the idea). It was cheap and I didn't need to use it -- but in retrospect it was still a good thing to have.

I say that because at 36 I was diagnosed with breast cancer. Was otherwise completely healthy (had just run a marathon, was a rock climber, etc). Crazy stuff can happen out of the blue, and you don't want your great financial situation to be wrecked in one blow because of a random stroke of bad health luck. Good luck to you!

jpo

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Re: 25 years old and looking for a place to put my money
« Reply #3 on: February 08, 2013, 09:12:45 AM »
In your shoes, I would at least:
  • Get a High Deductible Health Plan with an HSA - start contributing to the HSA
  • Max out an IRA (traditional or Roth)

No Name Guy

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Re: 25 years old and looking for a place to put my money
« Reply #4 on: February 08, 2013, 09:17:03 AM »
First off:  EXCELLENT savings rate.  You'll be to FI / ER in no time if you keep up the low cost lifestyle and saving / investing such a high fraction of your income.

What others said on the high deductible insurance.  Cover your arse.

You have PLENTY in your savings / emergency account.  6 months = 6 * 760 / month spending = 4560.  Double that to be conservative, then round off to a nice even 10k.   You state you have 29,800 in the ING Savings and another 4,500 in a "rainy day" account - that's a combined 34,300.  That leaves about 24k for other uses besides being emergency / rainy day.

What is your time frame on that place you want to buy?  6 months, 12 months, 2 years, 5 years?  If you have plenty of time, then don't sweat it in the short term.  No matter what, DO NOT use all your savings for a down payment.  Owning means, if anything, you should have more saved up for the post purchase rainy day fund.  That 10k noted above will need to be factored up, most likely, to cover 6-12 months of the mortgage, which will probably be more than your current $270 in rent.  Also factor in maintenance surprises.  If you're buying an "apartment" (condo for everyone outside of NY) watch out for the assessments for building / complex level repairs.  Factor in the monthly maintenance fees and taxes and home owners insurance over and above the principal and interest payment on a mortgage - some places can really ream you on these other costs.  And recall, in any socialized ownership structure (condo, NY style apartment, etc) you have to deal with neighbors on the board - some are financial idiots, who will delay small maintenance issues out of being cheapskates, resulting in huge repair bills / assessments later instead of small or modest ones today.  Others could be grandiose consumers - spending way more than necessary on fluff, and sticking you (as one of the owners) with the bill.  Pick you building / condo carefully (I personally wouldn't choose a condo / apartment for those reasons alone - YMMV, different strokes for different folks, etc).

Also a bit of note on your terminology:  "Savings" and "retirement account" are both forms of capital accumulation.  One, in the common lexicon, a "savings account" is just more liquid and with FDIC insurance and on average lower returns in today's ZIRP environment than the other which may also have some tax advantages.  Excess income over spending, no matter what you do with it immediately (put it in a "savings" account, retirement account (401k, 403b, Roth IRA, Traditional IRA, etc), a taxable investment account (with stocks, bonds, money market funds, tax free bonds, ETF's, mutual funds, etc), cash under the mattress, etc) is SAVINGS - its just that some forms are more immediately liquid and have different potential tax implications.

Are you putting in enough on your contributions to get the maximum company match?  If not, you're leaving "free" money on the table.  Increase the 403b allocation of your savings (e.g. income over expenses) if / as required to take full advantage of the match if you're not getting everything you can from the employer.

Re the car:  Once you ditch the lease, you already have enough cash on hand to replace.  See above where you have 24k more than needed for a rainy day account.  That said, the longer you delay, the better you'll be.  I presume that $290 INCLUDES car insurance?  If not, be sure to price out what it'll cost if / when you buy a cheap used car in cash.  Also, Financial Samurai suggests that a car shouldn't be more than 10% of your annual income - so using his rule of thumb, keep it to ~3,500 for the used ride. 

Crash87

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Re: 25 years old and looking for a place to put my money
« Reply #5 on: February 08, 2013, 04:28:51 PM »
I would hold off on buying a house if you think you may move. Your living expenses are crazy low and buying won't improve that anyway.

Since you live in the mountains I'm guessing you need a car every now and then. If so just get a cheap beater (maybe cost around $5k?). You hardly drive so don't spend any more than you have to.

I would open a Roth IRA since you're in a low tax bracket and put in the $5,500 limit.

With the $20ish left in savings I would keep $5k as your emergency fund and invest the rest along with your monthly savings. If you're serious about buying a house I wouldn't invest in anything too risky (or at all) so you don't lose your downpayment.

You're way ahead of 99% of your peers. Congrats!

Side question: Why is Red not the new Orange?

JamesL

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Re: 25 years old and looking for a place to put my money
« Reply #6 on: February 08, 2013, 07:56:58 PM »
Great advice from a lot of people already. I'll just add that I think you should add all of the money in your savings into the stock market, since you already have an emergency fund. I have all of mine in VFIAX with Vanguard, which is an admiral 500 index fund that is often recommended by these forumers and Mr. MM. The admiral means you need to invest at least $10k, and the expense ratio is .05% (crazy good).

I'd also recommend doing a Roth IRA, and the HSA, since the HSA is essentially a Roth IRA in that when you're 59 1/2 you can take the money out for ANYTHING, not just health care. Plus it's got crazy tax advantages (more so than Roth).

I'm doing the above (will be doing HSA when open enrollment opens at my work), and I'm 23. I prefer 100% investing in stocks because I'm young and overall they gain more than anything. As long as you don't panic sell.

JamesL

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Re: 25 years old and looking for a place to put my money
« Reply #7 on: February 08, 2013, 07:58:53 PM »
Great advice from a lot of people already. I'll just add that I think you should add all of the money in your savings into the stock market, since you already have an emergency fund. I have all of mine in VFIAX with Vanguard, which is an admiral 500 index fund that is often recommended by these forumers and Mr. MM. The admiral means you need to invest at least $10k, and the expense ratio is .05% (crazy good).

I'd also recommend doing a Roth IRA, and the HSA, since the HSA is essentially a Roth IRA in that when you're 59 1/2 you can take the money out for ANYTHING, not just health care. Plus it's got crazy tax advantages (more so than Roth).

I'm doing the above (will be doing HSA when open enrollment opens at my work), and I'm 23. I prefer 100% investing in stocks because I'm young and overall they gain more than bonds. As long as you don't panic sell.