The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: cmsauser on July 10, 2014, 12:09:54 PM
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I am about getting ready to graduate college within the year with an accounting degree. I have supported myself throughout college. I will be getting married after I graduate. My question begins with, where to start? Is it better to just save as much as possible for a few years and then begin investing it? Not sure how to beging the long-term financial planning. My fiance (who is majoring in mechanical engineering) and I are both debt/loan free.
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- Max out your 401ks or equivalent. That's $17500 each, $35k total. A 401k lets you contribute pre-tax money. You can access this money after a certain age, or with a bit of trickery, a lot sooner.
- Max out your IRAs or roth IRAs unless you're earning over 180k combined. That's 5500 each, $11k total. If you are, then there are ways around that. An IRA lets you contribute pre-tax, roth IRA post-tax, but both of them don't tax growth. IRA doesn't tax money in but taxes money out; roth taxes money in but doesn't tax money out. You can this money after a certain age, or with a bit of trickery, a lot sooner.
- Max out your HSAs, that's $6550 total. HSAs are for medical expenses if you have a high-deductible health insurance plan, which is great for young people. You can use it for medical expenses; you can use your own cash for medical expenses but keep the cash in the HSA to let it grow; you can withdraw cash after a certain age for any reason you want. HSA has no taxes: pre-tax contribution, tax-free growth, tax-free disbursement.
Each of those go into low-cost index funds, such as vanguard VTSMX/VTSAX (same thing, the latter requires $10k and then your expenses are lower), or an equivalent ETF like VTI.
401k tends to be annoying and restrictive, so you might not get vanguard offerings, but you should have at least one low-cost fund from vanguard, schwab, fidelity, etc. For an IRA, you get to choose your own. HSA is somewhat similar to a 401k in being a bit more restrictive, usually.
Ok, so those are the nice government-created and tax-advantaged savings plans.
If you're an accountant and she's a mechanical engineer, chances are that if you're wise, you'll be able to max out all of the above and still have cash left over. The simplest solution is to make a taxable account at, say, vanguard, and put everything into VTSMX/VTSAX or VTI again.
You might be thinking a few things:
- Why are all my eggs in one basket?
An index fund like VTSAX invests in a bunch of stocks. VTSAX is especially good because it's broad-market; it has some 3000+ stocks; it's also very cheap. So your eggs are in basically the entire stock market.
- Why vanguard?
Because they're simple, easy, and invented the index fund. They don't try to steer you towards expensive plans. The index fund is not owned by a bank, it is owned *by the investors*, which means that the folks managing the fund have only one boss - you - and not two bosses, so their needs are aligned with yours. More expensive funds need to pay chunks to investors and chunks to the bank that owns it.
- Bonds?
You're young. Fuck bonds. You don't really need the stability that bonds offer.
- Diversification?
Yes, as you get more savvy, you may want to diversify: some money into real estate funds (or actual real estate), some money into small-cap index funds, some money into international index funds, some money into developing markets index funds... when you decide to do this, you won't be asking questions, you'll know what you're doing.
- Required reading?
I'm so glad you asked.
http://jlcollinsnh.com/stock-series/
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Great advice so far from gimp and liberty.
Something to add is do not inflate your lifestyle just because you are making more money or because your friends are doing it. Resist the fancy cars, weekends to Vegas, fancy dinners on Wednesdays, expensive clothes/hand bags/watches. This will help your savings/investment rate.
If you have a good handle on credit cards use that as your emergency fund.