Author Topic: Invest or Save  (Read 3362 times)

Michael792

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Invest or Save
« on: June 26, 2014, 05:18:23 AM »
I'm in the Army currently. Just under three years left in my contract, at which point I plan on getting out and starting a business. It's got low overhead, so I don't need a massive amount of seed money. I actually need less than $100.

Right now, I can only save about $1,000 per month. It's not a lot, but it does build slowly. I want to invest as early as possible in life, but I'm really not certain if I'll need the money I save now to be the money I live off of when I get out of the Army. What are your recommendations? I've been thinking I could save it all for guaranteed fall back money in 3 yrs at 1.5% interest rate, or I could invest it in VTSAX for a potential of 7%+ in order to get a head start on retirement. (I will be getting married in the next year and a half, so there will be a small amount of money coming in in addition to my income, but that may not be true when I ETS from the military.)

little_owl

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Re: Invest or Save
« Reply #1 on: June 26, 2014, 05:25:41 AM »
I recommend having a comfortable emergency fund (you can define your own level of comfort, for me it is at least 6 months of expenses in cold, hard cash).

After that, please do invest!  Interest rates for cash accounts are total crap right now, so get in the market and buy yourself some dividends asap.

Good luck.

TheDaveLaLonde

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Re: Invest or Save
« Reply #2 on: June 26, 2014, 07:49:22 AM »
The fact that you're saving at least $1,000/Mo is already good. There are so many people who can't even make means to find money to save. I do recommend investing because in the long run, it's only going to help you. Just think of it as paying for a better future.

Cwadda

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Re: Invest or Save
« Reply #3 on: June 26, 2014, 08:46:30 AM »
I would say invest now. How much cash do you have on hand? If you're starting your own business, you're not going to have a 401(k), correct? If that's the case then you're going to want to take advantage of IRAs as much as possible.

arebelspy

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Re: Invest or Save
« Reply #4 on: June 26, 2014, 09:04:02 AM »
I'd say the fact that you'll need it in three years to start a business dictates that you need to save/invest it in something with low loss of principal (i.e. low risk), which comes with a corresponding low return.  Money market account, CD ladder, that sort of thing.

I wouldn't put it in any sort of equities with that short of a time frame.

If you're starting your own business, you're not going to have a 401(k), correct?

Their business can start a solo 401k.
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Michael792

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Re: Invest or Save
« Reply #5 on: June 27, 2014, 08:25:10 PM »
I could do my own 401(k) system, but I don't plan on having one myself. My investments will be through tangible assets and taxable accounts, and I'm not changing tack on that course.

As for investing, I agree with you, Arebelspy. I think I'll stick with my current savings account for the next few years, at least until I have enough for about six months of living, like little_owl suggested. After I get to that point, I'll switch over into taxable accounts as well. As for now, I'm going to pay off debt with the funds I currently have. The financial return on saving is less than the mental return on being debt free, even thought financially it makes more sense to save. (My debt is all zero-interest now. I paid off my only interest-bearing loan in December of last year.)

I want to invest, yes, but after hearing what y'all have to say and thinking more about my situation and what I want to accomplish, I don't think now is the best time. With the tiny amount I'm able to put into savings each month, it won't make much of a difference. I'll only set myself back a year and a half with this plan, before I start investing. Like I said, mental benefits from the pay off of debt are going to be better than the financial trade-off I see, especially since I'm looking at using this money in three years as opposed to a nice 10/15 year timeline. Thanks for y'all's input!

EricL

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Re: Invest or Save
« Reply #6 on: June 27, 2014, 10:33:56 PM »
Definitely keep saving.  If nothing else you can be your own low interest payday lending service for those opportunities and emergencies.  Just remember to pay yourself back.

As for starting a business, it's remarkable you found a way to do so for such a low investment.  In about a year to a year and a half take advantage of the Army Career and Alumni Program (ACAP).  They have courses on how to start your own business and how to secure loans for bank loans.  One thing that struck me is they have detailed advice on how to write a business plan to show a bank to get a loan.  Yes, you intend to finance your business yourself but stay with me.  If you can learn to write a business plan presentable to a bank you can clarify your strategy.  You can also present it to a number of banks and get free sanity checks on your plan.  Granted, bankers aren't the be all and end all of wisdom.  But they can provide unbiased views and point out shortcomings.  If they fall all over themselves trying to loan you money you probably have a winner.