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22 year old engineer
Old 09-05-2012, 07:27 PM   #1
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22 year old engineer

I'm 21 years old (22 in a couple weeks), and I just graduated in May with a degree in Electrical Engineering and was lucky to have a job for a major defense contractor that I started in June. I decided i needed to educate myself on personal finance and managing my money, which led me to many forums such as the Bogleheads forums and this one. Thanks for being a huge resource so far!

Luckily my parents helped me pay for part of my education at a small private school with a good engineering program, so I'm not buried too deep in student loans. I am also living at home and giving my parents $400/month (food, utilities, rent, etc). Here's my financial situation so far:

Cash: $5100 (split between two savings accounts and a checking account)
Investments: 401k: $2400 in Vanguard Target Retirement 2055 (Currently contributing 15% of my pay, employing matches in full up to 6% of my salary)

Roth IRA: $1000 in Vanguard Target Retirement 2060 (just opened the account with Vanguard last week, and will start to make monthly contributions)

Student Loans: Private Loan - $4500 @ 2.25%
Federal Loan - $12,000 @ 6.8%

Car Loan - $19,000 @ 0%

I am using the debt snowball method to aggressively pay off the student loans while I'm living at home, all bonuses and tax returns I receive will go towards these.
As for the car, I needed one, and while I know it's not recommended to buy new I got a good deal on a 2012 Ford Fusion that I plan to drive into the ground.

While I pay off my student loans I'm reading books such as "Bogleheads Guide to Investing" and using internet resources to have a better idea of how I want to invest my money. The Target Retirement Funds are fine for me now, as it seems the amount I invest is more important than my AA for now. I hope to have a positive net worth by the spring and finish off my student loans by the end of next year.

My goal is not to retire early, but rather to have financial freedom early in life. I love my job and love what I do, but if things go south I want to have the freedom to do what I want. Sorry for the long winded post, but I want to thank you all for the wealth of information provided here!
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Old 09-05-2012, 08:13 PM   #2
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Welcome, young_eng!

Sounds like you're already setting the course for FI (financial independence)...then you can choose to RE(retire early) if and when you choose to...or not.

As you've seen, there's a ton of great info here. And you're in good company, as we have a lot of engineers and other technical-types on this board.

Hope to hear more from you in the future.

omni
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Old 09-05-2012, 08:15 PM   #3
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Welcome to the forum, young eng. I'm one myself, but mechanical. Just want to congratulate you on getting a good start in life with the savings. I wasn't able to do that when I was your age. Got married and living paycheck to paycheck. It took a few years to get started in my retirement program and then I was ready when the time came. The company 401k looks good for you. Keep that savings thought going. Sorry, I won't be able to help you with any investment ideas but I think you are off and running with the target date portfolios. Your idea about establishing a good financial basis in lieu of an early retirement is great. Then when the time comes, if your ready, hop in. Good luck on yoour future.
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Old 09-05-2012, 08:18 PM   #4
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Welcome. And congratulations on getting such a good start. Time can be a powerful ally.
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Old 09-05-2012, 09:15 PM   #5
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Sounds like you're doing everything I would. I'd prioritize the Roth contributions (Roth 401k available?) as long as you are in the current 15% tax bracket and whatever its equivalent in the future is. I like the 15% savings rate, and you are doing better than that already. Just don't let it fall below that. Think about saving for a house down payment. Think about an emergency fund, which can be your Roth IRA.

The general concensus on this board is to decide on percentage allocations to bonds, US equities, foreign equities (and subcategories within those as you want) and then rebalance to maintain those target percentages. Your target funds are a fine start and dead simple. Using index mutual funds is the baseline, and you have that too. You can branch out into ETF's, actively managed funds and individual stocks when you feel like it. Your approach should depend on how much time you are willing to spend, and how much you feel you need to be involved.
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Old 09-06-2012, 07:27 AM   #6
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Welcome. Anyone paying this much attention to savings and FI right out of college is an order of magnitude ahead of most. I would wish you good luck but I doubt you will need it.
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Old 09-06-2012, 07:50 AM   #7
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Welcome Sparky, lots of good information here.
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Old 09-06-2012, 08:16 AM   #8
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I would pay off the higher interest debt first. (Looks like that is your federal loan.)Contribute only up to the match in your 401k. Getting rid of the debt is more important.
You have already paid the interest on the car loan. Nothing is free, they rolled it into the cost. So pay that loan at the normal rate for now concentrating on the student loans first.

You could have got a cheaper car. 19K is more that I have ever spent on a car. But not too bad I guess considering what some people spend.
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Old 09-06-2012, 08:22 AM   #9
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Hello young_eng,

As you already know, there are lots of kindred spirits here (particularly engineers). My situation was very similar to yours. If there's one bit of advise I'd like to give it's - "stay the course." I think somebody famous said that.

For example, just in my short investing time-frame I've experienced Black Monday in 1987, a relatively mild (compared to today) housing setback in the early 90's where DW and I lost money on our first house, the dot-com bust, the languishing stock market of the early 2000's, and now the current "crisis." Throughout all of that DW and I continued to invest. Many of the people around us got in and out of the market, bought expensive cars on a regular basis, bought way more house than they needed or could afford and look where we stand today - some of us are retired and some of us are not.

As you said, early retirement may not be for you and it's difficult to imagine it at this point in your life. Stay the course financially and you'll have options.

Two books that made a big impact on DW and me: The Richest Man in Babylon by George Clason, and Your Money or Your Life by Joe Dominguez and Vicki Robin.

Best Wishes.
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Old 09-06-2012, 09:04 AM   #10
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congrats! and welcome! another engineer here (petroleum).

You are doing very well. Personally, I couldn't sleep at night with my student loan debt and was able to wipe out $42k by the time I was 25 (~3 years later). I turn 30 next year, and I am surprised to find myself with a networth over $500k (some was marrying well, but a lot was saving!). So, stay the course, save your pennies, do the things you truly enjoy and watch the money grow!
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Old 09-06-2012, 10:33 AM   #11
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Welcome.
You're ahead of where I was when I graduated with my BSEE in the 80's. I wish I'd done what you are doing.

Another suggestion for you. Build up an emergency fund. Yes, engineers have good job opportunities compared to some other fields... but there are cycles and trends... and job losses hit engineers also. I would contribute up to the match in the 401k, and put the remaining 9% in an emergency fund. Do this *until* you've built up your emergency fund. Then switch it back to the 401k investment. Even though you're living at home - I assume you won't be forever... so you'll need an emergency fund that anticipates expenses you'll have when you move out.

The debt snowball is how I paid off my credit/consumer debt (cc's and car loan). It is an awesome feeling to be debt free. I remember the day well when I paid off my debt (excluding mortgage). (My next step is the mortgage... w/in 2 years).
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Old 09-06-2012, 03:41 PM   #12
Confused about dryer sheets
 
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Thanks for the warm welcome! Good to see some more engineers out there!

@Lazarus,
You make a good point, I think I'm going to drop my 401k contributions to the match and aggressively go after those student loans. I can probably have them paid off by next fall, all while still making contributions to my Roth.
As far as the car goes, not a great financial decision I know, but I'm glad it only cost me 19,000 to cure the new car fever that many people have. From here on out I plan on buying low mileage used vehicles, I'll chalk this one up to a 19,000 learning experience.

I appreciate all the kind words and look forward to continuing to learn from all of you! I'll make sure to keep everyone updated on my progress!
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Old 09-06-2012, 11:00 PM   #13
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Welcome. Another engineer here (BSME KSU '92).
Sounds like you are doing great but I agree with the suggestions of getting debt free. Also drive that car in the ground then fix it up and drive it deeper!
I just did the ER thing last June so I am new to this lifestyle but love it so far. As you can see, it is not only possible but PROBABLE with the type of planning and goals that you already seem to be putting into place.
Welcome!
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Old 09-07-2012, 05:55 AM   #14
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I wish I had your kind of start! It took me until about age 30 to get on the right path. You have the right frame of mind, which is the most important thing. You're going to find yourself in good shape in short order as you tackle that debt and financially independent before you know it... and well before most of your peers. Have fun!
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Old 09-07-2012, 10:33 AM   #15
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Always put away some fraction of your income before you do pay anyone else. This is the essence of living below your means. Make it a lifelong habit. Automatic deductions from your paycheck is a great way to do this. Time will be a great advantage to you.

Paying off your debts is good but there is nothing wrong with having some debt as long as it is for the right things and the debt load is a small part of your expenses.

You are very young and you are entering a very different world than most of us grew up in. Be flexible, prudent, and a little flexible. Spend some and save some.
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Old 09-07-2012, 10:58 AM   #16
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30 year old Computer Engineer here...

welcome, you're off to a great start. I'd recommend focusing energy on LBYM. Right out of school you don't have any bad habits and you already know how to live on little (college life). Don't get sucked into spending 100% of what you make. Set aside a large enough now and learn to always do so. Paying down those loans is a good plan... make sure when you are finished, those auto payments you were paying them down with get relocated straight to savings or retirement and you'll never miss them
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Old 09-07-2012, 10:59 AM   #17
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Quote:
Originally Posted by young_eng View Post
As far as the car goes, not a great financial decision I know, but I'm glad it only cost me 19,000 to cure the new car fever that many people have. From here on out I plan on buying low mileage used vehicles, I'll chalk this one up to a 19,000 learning experience.
When shopping with my son for a car in 2010 (new BSEE grad) we found that a new car was very close in price to any low-mileage used car we could find. It probably depends on which car you are looking at, but your $19k may be well spent.
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Old 09-07-2012, 11:04 AM   #18
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also... student loan interest rates are usually small. I'd call that 'good debt'... because the interest rate is something like 2%. No reason to pay that down early because you're paying it back below inflation (the money you use to pay it down 5-10 years from now is cheaper than the money you pay it down with now). On top of that, you'd very likely make two to three times that much investing the money over paying down such a small rate now.

Another perfect example is the car we just bought... we had the money to pay cash but instead took the loan at 0.9%. I'd rather let the money sit in investments (5-7% return a year average hopefully) and pay someone pennies in interest. Learning when and where to use credit on good debt can be valuable (house, car, etc...)... leverage can be a good word too when used responsibly.
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Old 09-07-2012, 01:18 PM   #19
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I guess more on car financing - I usually buy new in the $25-30K range. I put 1/2 down and finance the rest for 4 years. I just paid off my Prius last month. My $450/month finance payment will now go to into savings for the next car. We usually keep cars for about 10 years. I'm sure there are variations on this but this is what I mean about a little debt being OK and being prudent.
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Old 09-08-2012, 02:21 PM   #20
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Quote:
Originally Posted by young_eng
I'm 21 years old (22 in a couple weeks), and I just graduated in May with a degree in Electrical Engineering and was lucky to have a job for a major defense contractor that I started in June. I decided i needed to educate myself on personal finance and managing my money, which led me to many forums such as the Bogleheads forums and this one. Thanks for being a huge resource so far!

Luckily my parents helped me pay for part of my education at a small private school with a good engineering program, so I'm not buried too deep in student loans. I am also living at home and giving my parents $400/month (food, utilities, rent, etc). Here's my financial situation so far:

Cash: $5100 (split between two savings accounts and a checking account)
Investments: 401k: $2400 in Vanguard Target Retirement 2055 (Currently contributing 15% of my pay, employing matches in full up to 6% of my salary)

Roth IRA: $1000 in Vanguard Target Retirement 2060 (just opened the account with Vanguard last week, and will start to make monthly contributions)

Student Loans: Private Loan - $4500 @ 2.25%
Federal Loan - $12,000 @ 6.8%

Car Loan - $19,000 @ 0%

I am using the debt snowball method to aggressively pay off the student loans while I'm living at home, all bonuses and tax returns I receive will go towards these.
As for the car, I needed one, and while I know it's not recommended to buy new I got a good deal on a 2012 Ford Fusion that I plan to drive into the ground.

While I pay off my student loans I'm reading books such as "Bogleheads Guide to Investing" and using internet resources to have a better idea of how I want to invest my money. The Target Retirement Funds are fine for me now, as it seems the amount I invest is more important than my AA for now. I hope to have a positive net worth by the spring and finish off my student loans by the end of next year.

My goal is not to retire early, but rather to have financial freedom early in life. I love my job and love what I do, but if things go south I want to have the freedom to do what I want. Sorry for the long winded post, but I want to thank you all for the wealth of information provided here!
Welcome seems like a solid plan.
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