Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Advice to my non-financial son
Old 12-25-2016, 04:28 PM   #1
Recycles dryer sheets
Taxman59's Avatar
 
Join Date: Sep 2014
Posts: 484
Advice to my non-financial son

My son has been working about a year, and he is saving about 30% of his gross wages. This is on top of his 401K contribution (he isn't offering that info, but would share it if I asked, it is at least 4% as he knows to put in what it will take to get the match). He has built up a savings account equal to about 4 months of expenses, and his checking has another month or so. Given that he is being frugal, I expect that he will be at the 6 months of expenses in savings within the first quarter of the new year. I suggested that when he gets there, he take about 2 months expenses and put it in a 1 year CD to get better interest, and when he gets another 2 months, savings, do the same, building a ladder of CDs while keeping 3-5 months in cash. When he gets about a year's worth of expenses saved in a CD ladder, start a monthly mutual fund contribution (or two depending on the monthly $ he saves and the fund minimums).

Am I steering him wrong? Should I have him be more aggressive (like I was) or stick with the "slow and steady" plan?
__________________

__________________
Taxman59 is online now   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 12-25-2016, 06:10 PM   #2
Thinks s/he gets paid by the post
 
Join Date: Jan 2013
Posts: 1,044
Never too young to start an IRA, even if he can only set aside a couple of hundred a month.
__________________

__________________
Another Reader is online now   Reply With Quote
Old 12-25-2016, 06:28 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
travelover's Avatar
 
Join Date: Mar 2007
Posts: 9,874
Once he has an emergency fund, I'd invest in a stock index fund in an IRA.
__________________
Yes, I have achieved work / life balance.
travelover is offline   Reply With Quote
Old 12-25-2016, 06:31 PM   #4
Recycles dryer sheets
 
Join Date: Sep 2012
Posts: 406
After 401K match, I would encourage him to put money in Roth IRA as he may be at lower tax bracket now. My daughter is in 3rd year of college and has 16K in her Roth IRA - 2K gain on 14K she earned and put away!
__________________
Retired at age 52 on 12/1/2016
AA:60/40 WR:3% until 2022 then 4% is the plan
retire2020 is offline   Reply With Quote
Old 12-25-2016, 06:35 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 13,260
Quote:
Originally Posted by travelover View Post
Once he has an emergency fund, I'd invest in a stock index fund in an IRA.
Quote:
Originally Posted by retire2020 View Post
After 401K match, I would encourage him to put money in Roth IRA as he may be at lower tax bracket now. My daughter is in 3rd year of college and has 16K in her Roth IRA - 2K gain on 14K she earned and put away!
I am with these two... invest in a stock fund inside a ROTH... unless he is in a high tax bracket...


The savings will come... do not try and get a years worth of emergency cash set aside with zero going into stocks... it is always good to start putting money into both so the habit continues...
__________________
Texas Proud is online now   Reply With Quote
Old 12-25-2016, 07:08 PM   #6
Recycles dryer sheets
 
Join Date: Aug 2016
Location: Northern Virginia
Posts: 297
I believe in an emergency fund, but I would consider putting any cash representing more than a month or so of expenses in the market. His funds will grow a lot faster.

On the Roth, the tax rate schedule for a single person rises so rapidly, a Roth for a young person is not a no-brainer in my opinion, depending on income. But early in a career is a good time to consider it.

Sounds like he has a good head on his shoulders. I would encourage him to read financial publications and websites-to advance thr great habits he already has.
__________________
Montecfo is offline   Reply With Quote
Old 12-25-2016, 10:41 PM   #7
Thinks s/he gets paid by the post
 
Join Date: Feb 2013
Location: Toronto
Posts: 1,414
They're talking about "The Millionaire Next Door" in another thread and there is a link to a pdf of it. Maybe send him a copy of it.
__________________
6miths is offline   Reply With Quote
Old 12-26-2016, 03:28 AM   #8
Full time employment: Posting here.
 
Join Date: Dec 2010
Location: Midwest
Posts: 893
I like the early years of MMM (Mr. Money Mustache) which are available on the website. If he starts at blog #1 and works his way through, he will find gold.

IMHO, MMM has gotten a little full of himself the last year or so. But the older stuff is good, especially for younger people who might be turned off by Millionaire next door (one of my faves!).

Rich Dad/Poor Dad is also a good read.
__________________
brucethebroker is offline   Reply With Quote
Old 12-26-2016, 03:49 AM   #9
Recycles dryer sheets
FrankiesGirl's Avatar
 
Join Date: Feb 2015
Posts: 67
For someone at the beginning of their career, I would not go into CDs or bonds. He's got decades of investing in front of him and CDs and bonds are really too conservative for a young investor. There needs to be a good lesson in here somewhere about learning the difference between risk and volatility.

I would recommend giving him this link (or get the book) of Jim Collins' stock series. Stock Series

And I'd also direct you to his post describing what he would suggest for his own daughter just starting out. It is easy and practically bulletproof as far as I'm concerned.
How I failed my daughter and a simple path to wealth
__________________
FIRE as of spring 2015!
FrankiesGirl is online now   Reply With Quote
Old 12-26-2016, 05:11 AM   #10
Thinks s/he gets paid by the post
DrRoy's Avatar
 
Join Date: Dec 2015
Location: Michigan
Posts: 1,714
Quote:
They're talking about "The Millionaire Next Door" in another thread and there is a link to a pdf of it. Maybe send him a copy of it.
I also recommend "Your Money and Your Brain" by Jason Zweig.
__________________
"The mountains are calling, and I must go." John Muir
DrRoy is offline   Reply With Quote
Old 12-26-2016, 06:32 AM   #11
Full time employment: Posting here.
 
Join Date: Jul 2011
Posts: 721
Assuming the money isn't needed for something else like a car or down payment on a house, I would immediately shift as much as $5,500 from savings to a Roth so he doesn't miss the 2016 contribution ($11,000 for both 2016 and 2017 if he waits until January 2). That can be his emergency fund. Only earnings need to remain invested to avoid a penalty... contributions can be withdrawn anytime. He can leave it in something safer for now but later (if there's no emergency) he can invest money intended for retirement more aggressively.
__________________
panacea is offline   Reply With Quote
Old 12-26-2016, 06:34 AM   #12
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,410
Yes, I think you are being too conservative. Equities worked well for his old man... why not for him? 😁

Many online savings accounts offer better interest and liquidity than CDs so that may be a better option than a CD ladder for his emergency fund.

For savings after the emergency fund is filled, at his young age, equities is the way to go.... in a Roth IRA if he is still in a low tax bracket, otherwise in a taxable account.

Also, buy him a subscription to Money and Kiplinger's Personal Finance magazine and he'll learn by reading those monthly.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Old 12-26-2016, 07:51 AM   #13
Thinks s/he gets paid by the post
 
Join Date: Apr 2011
Posts: 1,555
The kid's doing great IMO & see no reason for you to denigrate him as "non-financial". Stay out of his way unless asked. Independence is good.
__________________
gerntz is online now   Reply With Quote
Old 12-26-2016, 08:12 AM   #14
Thinks s/he gets paid by the post
target2019's Avatar
 
Join Date: Dec 2008
Posts: 3,705
What makes this individual "non financial"? Sounds light years ahead of the average.
__________________
target2019 is offline   Reply With Quote
Old 12-26-2016, 08:40 AM   #15
Moderator Emeritus
Bestwifeever's Avatar
 
Join Date: Sep 2007
Posts: 16,372
A non-financial person probably won't enjoy managing a six-CD ladder, will he? Is the interest for a year's expenses going to be materially better than just a savings account?
__________________
“Would you like an adventure now, or would you like to have your tea first?” J.M. Barrie, Peter Pan
Bestwifeever is offline   Reply With Quote
Old 12-26-2016, 10:12 AM   #16
Thinks s/he gets paid by the post
RetireAge50's Avatar
 
Join Date: Aug 2013
Posts: 1,119
More aggressive like you. Roth IRA in 100% stocks.

For me personally I have never had a CD or an emergency fund.
__________________
RetireAge50 is online now   Reply With Quote
Old 12-26-2016, 11:14 AM   #17
Thinks s/he gets paid by the post
 
Join Date: Jan 2008
Posts: 1,495
Berntein's "If You Can-How Millennials Can Get Rich Slowly". Probably the best and most accessible pieces written for a young person starting out (and you don't even have to pay for it):

https://www.etf.com/docs/IfYouCan.pdf
__________________
Options is offline   Reply With Quote
Old 12-26-2016, 11:35 AM   #18
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 1,708
Technically/Legally a Roth IRA could serve as an emergency fund in that there is no tax nor penalty due for a withdrawal of contributions at any time for any reason.

That being said it may be a good idea to maintain a separate after-tax emergency fund to keep a wall of separation between the "retirement money" and everything else.

Of course this is a bit of a Behavioral Finance mind trick since money in fungible.

-gauss
__________________
gauss is offline   Reply With Quote
Old 12-26-2016, 11:38 AM   #19
Thinks s/he gets paid by the post
 
Join Date: Feb 2013
Location: Toronto
Posts: 1,414
Quote:
Originally Posted by RetireAge50 View Post
More aggressive like you. Roth IRA in 100% stocks.

For me personally I have never had a CD or an emergency fund.
Well I agree with the sentiment and took a similar direction when I was younger, one of the major downsides of this approach is that sometimes young investors are so traumatized during their first big market downturn that they abandon and never return to the market. As well, having some cash and bonds gives you something to rebalance into stocks when the market does go south.

Agree with recommendations of 'If You Can' and 'Your Money and Your Brain'. Another good intro book is 'The Millionaire Teacher'.
__________________
6miths is offline   Reply With Quote
Old 12-26-2016, 12:23 PM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,410
Quote:
Originally Posted by gauss View Post
Technically/Legally a Roth IRA could serve as an emergency fund in that there is no tax nor penalty due for a withdrawal of contributions at any time for any reason. ...
True.... and that is fine as a backup after some online savings and perhaps even credit cards (or the bank of Dad)... the thing that I don't like about it is that there are limitations on getting money into a Roth so I don't like the idea of taking it out and destroying the future tax-free status of that money if other better alternatives exist.
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Financial Advice for a New Son frayne FIRE and Money 2 11-09-2015 06:56 AM
Any advice for my son? MissMolly Other topics 39 09-07-2013 06:47 PM
Oil Spill -- Non-Political & Non-Legal Issues TromboneAl Other topics 52 07-29-2010 05:52 PM
Gifts of money to a non-resident-non-citizen? Urchina Other topics 10 02-22-2009 12:41 PM
Advice for teen son's antics... bright eyed Other topics 42 01-31-2009 09:52 AM

 

 
All times are GMT -6. The time now is 02:36 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.