I have always been pretty good with my money. I never carry any credit card debt more than a month (and that usually happens these days only because I put something on my AMEX but don't have enough in my US bank account to cover the payment until I transfer money from my Canadian account). I try not to over-spend (although I am not perfect at stopping myself from making large payments =). Overall I am basically happy with how I manage my money.
But how I manage my money only works while I am a student. When I hit the real world I don't know how what I need to do. I know I should max out my 401(K) employer matching, but should I put even more into my 401(K), or should I divest my retirement investments to prevent the issue of my 401(K) tanking? And how much does one put into retirement: 10%, 20%? How about for housing: I have heard no more than a third of my income. But are all of these numbers net or gross income? And what is an IRA?
In other words, how does one handle the expenses that one starts dealing with when they leave university (mainly a mortgage and retirement)? Does anyone know of a good book on this subject matter? Or does one not exist and this is why you pay a financial consultant to help you with this stuff?
7 comments:
Brett, You could try Suzie Orman for advice on your money questons. Books and DVDs. She is very straight forward and clear. MOM
I mess around with IRA and 401K for the first two years before settling down on a certain plan and percentage. I read a few things online but found that the best way is still talking to older people in my work place since they've been through it before. When you are out, we can sit down and I'll share some experience with you :)
I've read the Suze Ormond book for the youth, and it covers a lot on credit scores and debt. I've not read, but heard the guy who wrote the Millionaire Next Door on tv, and basically gives some no brainer low risk advice that could be followed. I've read some of Kiyosaki's, but it is more of a motivational speech than real advice.
Also read somewhere, at bare minimum, you sould do enough 401(k) to get the match, and throw the rest into a Roth. I personally just max out my 457 (nonprofit/public employee version of 401(k)) for savings and tax benefits and my Roth IRA. That would be 19,500/yr. If I proceed on that plan till I'm 65, my calculator says (with avg 8% annual return) I can get a monthly distribution of about $9k. No idea what that will translate into when inflation is factored in, but it sounds like a lot of money. It also keeps me from buying "nice" but useless things (i.e. Tag Heuer Carrera Automatic Chronograph Tachymeter or Omega Speedmaster).
I don't think you should be worried about diversification at this age. A good 401(k) administrator will have plenty of funds, and most of them are so large, they have diversification built in just from the fact that they need to use their money somewhere. You should always do research via their copy of morningstar, or the research site of your own brokerage account. Some administrators also offer a basket of funds for built in diversification depending on risk level.
I'm guessing you'll end up at Egoogeley or one of its competitors. I'm guessing your take home pay after taxes will be around 5k to 7k/mo so saving the approx 1650/mo to max out the 401(k) and Roth is not out of the question. If you're on the low end of that scale, after deductions you'll still have about 3500 take home. Take about 2k out for living expenses (rent/phone/net/food/utils/insurance) and you still got 1500 to use or save.
@Mom:
Thanks for the suggestion.
@Bryan:
=) Thanks.
@Channing:
Thanks for the info. I figured maxing the 401(K) was good, but I always forget about the Roth IRA. And your salary guess is pretty accurate (based on what I got paid as an intern). I figure that maxing out both the 401(k) and Roth is pretty good, and since I plan on having some "fun" money for the stock market that can help fill in any extra retirement money I might need.
I also found this Money 101 site from CNNMoney that I think I will read. I also found a bunch of books on Amazon that I will read the reviews on and see which one I might consider reading.
Brett, IRA is a type of retirement plan that people may invest in regardless of their occupation and how many times they change their jobs( a plus). You can pay taxes as you put money in or pay taxes when you pull money out. 401K is always good, but when you choose to leave the employer and go else where sometimes there can speed bumps in the road getting things moved around. A diverse portfolio reduces risk. At your age you could invest with high risk accounts (medical pahrmacology field investments are good) then get more moderate as you get closer to your planned retirement. Remember if you retire before 65 some retirement plans don't start paying until that age. Hence the importance of investing in Mutual Funds and other market products. As far as mortgage and such, no more than a third of your income will not be possible in the places you will likely end up. Try and do what makes you comfortable. Thats all for now. Todd
http://investopedia.com/
i've been meaning to read this website forever...
For some contrarion thinking on the subject, try Rich Dad's Guide to Investing by Robert Kiyosaki.
Post a Comment