Financial Advice for a 22 year old

[eddieb]

Hello all,
I am a 22 year old with aspirations of early retirement. I started working at the age of 19 after I left college due to a family emergency at the time. i'm currently attending school part time and working full time. I've recently started contributing to my 401k. my company matches my contributions up to 6%, therefore i'm contributing 6%. I also invest in stocks through sharebuilder. I chose sharebuilder primarily because of their automatic investing, which helps me build my position on securities on a monthly basis.

In terms of expenses, i have credit card debt of $3,500 and car payment of $18,000. A year and half ago I made the dumb decision of buying a fast sports car, which now is the biggest expense that i have. i'm currently living at home and paying $200 in rent.
oh by the way i make $ 40,000 a year.
I know that I have time on my side given my age, but I do need to change my habits if I hope to retire early. Any advice on things that I can do or change would be greatly appreciated, thank you

 

[packrat44]

Welcome,

1. Pay of your CC. Then pay complete bill each month.
2. Pay off the car.
3. Live on a cash basis. Other than a house, if you can't pay in full, you can't afford it.
4. LBYM
5. Save/invest 15%+ of gross income. When you are single and living at home at a very modest cost, take advantage and boost the savings/investing. Besides your 401(k) a ROTH is great at your age.

At your age, $40K/yr is very good. Put it to some good use and let time help achieve ER.

 

[eddieb]

Thanks Packrat44,
I really appreciate the advice. I think my biggest problem is me. All the suggestions that you've made are not foreign to me at all. There are times when i regress to poor financial habits and I need to figure out what is causing this and act appropriately. Thanks again.

 

[dessert]

Hi Eddieb,
In my opinion, anyone who is 22 years old that is thinking about ER will probably do just fine. Stick to the basics, LBYM, do the 401K thing, and learn as much as you can about investing.
You don't have to live on bread and water either because you have to enjoy yourself while you are getting to FI. You'll probably do just fine. Now keep reading.....

 

[eddieb]

Thanks Dessert,
I'm constantly reading and learning about investing and personal finance in general. i've bought a number of books that i've read in the past year. I recently bought and read "The Riches Man In Babylon" by George Clason. I have to admit that out of all the books I've read on finance, I consider this to be the best. I like the fact that it used ancient parables to convey messages. I'll definitely continue seeking out knowledge, thanks again

 

[bssc]

Hi and welcome

I was I was thinking about ER at 22. I would make sure you have a lot in stocks, especially in your 401(k) since the market will come back for any declines. Go for low cost index funds, if possible. Look in the FIRE and Money section for some more book titles. Avoid Kiyosaki.

Good luck.

 

[eddieb]

Thanks bssc

 

[RunningBum]

You're off to a great start by not only thinking about it, but also taking good action. Good luck on controlling credit card expenses. That one really is important.

I don't know much about sharebuilder other than what I read in a 60 second glance. What % do you figure you are paying in fees and commission? While it seems nice to be able to buy fractional shares when you can only invest smaller amounts, I wonder if the fees are relatively high. Depending on the answer, I might consider instead an automatic investment plan in a mutual fund or two. An index fund will be extremely low in expenses, around 0.10%. It's not as glamourous as watching the individual stocks you pick soar, but watching the bottom fall out of an undiversified portfolio really, really sucks.

 

[eddieb]

RunningBum,
i'm currently using their Standard program, which charges a fee of $12 a month. With this program you can buy any number of shares of up to six different stocks at no additional charge, and $2 per stock over six. I honestly don't know what the averag commission is that brokers charge. Currently I have six stocks and two funds.

 

[Texas Proud]

Hey Eddieb...

Like others have said.. congrats on your early thinking of early retirement.. (but, I got you beat as I started thinking about it when I was 16 who knew that I would be able to make my goal of 55 which is still a few years away)... but, back to you...

You have received very good advice and if you follow it, you will be fine... but you made one statement that I will comment... do not worry about spending some of your money on enjoying yourself... yes, a fast sports car is something that many young men love... so don't beat yourself up as it seems you bought one you can afford...

But to this theme.... make sure you LIVE NOW... don't put RE at such a major goal you miss a good life while getting there.. if you put 15% or so away every year, compounding will take care of the rest.. and if you get a bonus, put half or so away and enjoy the rest..

A question... is there good job opportunities in your field without a degree?? It might pay off if you continued your education and was able to move up the ladder a bit.. you still have a long time for the payoff.

 

[Thrifty1]

Eddie,

My advice is...

1. Every time you are considering a "want" versus "need" purchase remember that for every $100 you spend today, you are robbing yourself of $1,000 in your early retirement fund -- assuming 10% return for 25 years ($100 * 1.10^25 = $1,083).

2. Spend as little as possible on depreciating assets (cars, computers, fancy clothes, etc.).

3. Don't be afraid to negotiate when buying things -- almost everything is negotiable and the savings goes right into your early retirement fund. And don't buy extended warranties. I have saved thousands of dollars by saying no to every extended warranty (cars, computers, cameras, TV's, etc.).

4. Specific to your situation -- pay off the credit card debt and never again charge more than you can pay off each month.

Good Luck and great job for thinking about this at your age.

 

[RunningBum]

RunningBum,
i'm currently using their Standard program, which charges a fee of $12 a month. With this program you can buy any number of shares of up to six different stocks at no additional charge, and $2 per stock over six. I honestly don't know what the averag commission is that brokers charge. Currently I have six stocks and two funds.

That $12 fee is very high unless you're putting a lot into it. If you're only putting in $100, that's 12%! You have to beat the average yearly market return just to break even. I would think you'd have to be investing $500/month to make it attractive, and that's still 2.4%. To buy a mutual fund directly there is no commission, just the low maintenance fee. On $100, you might pay 10 cents, for comparison.

A discount brokerage would cost you around $8/10/12 a trade, and you wouldn't be able to buy partial shares. No monthly fee.

If you're doing lots of trades, maybe this is for you. I don't know if there are other such plans for day traders and the like. But you did say the primary reason was the automatic investing, and I would think a mutual fund would fit that better.

In my opinion this (frequent trading) isn't a sound way to build wealth, but I used to ride that rollercoaster too.

 

[RetireeRobert]

One of the keys to ER is to start saving/investing as young as you can. That is maybe 49% of the game. "Time" can be your best friend, and you have put "time" on your side.

The other part is being consistent and keeping up the saving/investing through thick and thin. That is another 49% of the game.

At 22 you have already started. So, just keep it up and dreams will come true.

The other measley 2% of the game is luck. So, luck has very little to do with it.

Congratulations. Check back with us in 25 years and tell us how well you have done.

 

[eddieb]

Hey Eddieb...


A question... is there good job opportunities in your field without a degree?? It might pay off if you continued your education and was able to move up the ladder a bit.. you still have a long time for the payoff.

Texas Proud,
I started working in the banking industry when Was 19 as a teller. Currently I am managing a branch of a Savings bank in my hometown. I do know that odds of success are higher with a degree and I eventually hope to finish up. My experience has been that employers are looking to hire "in house". They hire employees that know the systems, and pay them a bit less than they would for an outside individual with a degree. I believe that I am a beneficiary of such practices, and i look at it as a win win. I have to forfeit the extra pay due to a lack of degree, but I still make a good amount given my age. I also do realize that without a degree I can only climb the ladder but so far, so hopefully with an early start on savings and investing, i'll be ok in the long term

 

[eddieb]

Eddie,

My advice is...

1. Every time you are considering a "want" versus "need" purchase remember that for every $100 you spend today, you are robbing yourself of $1,000 in your early retirement fund -- assuming 10% return for 25 years ($100 * 1.10^25 = $1,083).

2. Spend as little as possible on depreciating assets (cars, computers, fancy clothes, etc.).

3. Don't be afraid to negotiate when buying things -- almost everything is negotiable and the savings goes right into your early retirement fund. And don't buy extended warranties. I have saved thousands of dollars by saying no to every extended warranty (cars, computers, cameras, TV's, etc.).

4. Specific to your situation -- pay off the credit card debt and never again charge more than you can pay off each month.

Good Luck and great job for thinking about this at your age.

Thrifty1,
Thanks for the advice and positive re-enforcement

 

[Achiever51]

EddieB --
I started out pretty much like you did. I dropped out of college at 19 and went to work at a bank, making pretty good $$. I stayed there several years and moved up a bit -- but then I saw that there definitely was a ceilling to my career path. While I was getting decent raises, I realized that my better educated (i.e., degreed) coworkers were getting larger ones and better promotional opportunities and the gap would only get bigger with time.

So, at 23, I went back to school at night while still working full time and finally graduated at the age of 31. In retrospect, it was the best career decision I could have made. While in school, one of my professors helped me get a job at one of the Fortune 10 companies -- once I had my degree, I started to move up the corporate ladder pretty quickly and when I retired (early)...it was as VP of one of the company subsidiaries.

Congrats on where you are now...and good luck with your future plans. Sounds like you're on the right track.

 

[eddieb]

That $12 fee is very high unless you're putting a lot into it. If you're only putting in $100, that's 12%! You have to beat the average yearly market return just to break even. I would think you'd have to be investing $500/month to make it attractive, and that's still 2.4%. To buy a mutual fund directly there is no commission, just the low maintenance fee. On $100, you might pay 10 cents, for comparison.

A discount brokerage would cost you around $8/10/12 a trade, and you wouldn't be able to buy partial shares. No monthly fee.

If you're doing lots of trades, maybe this is for you. I don't know if there are other such plans for day traders and the like. But you did say the primary reason was the automatic investing, and I would think a mutual fund would fit that better.

In my opinion this (frequent trading) isn't a sound way to build wealth, but I used to ride that rollercoaster too.

RunningBum,
Thanks again for the insight. I'm currently investing $300 a month, and looking to bring that up to $500. I do not trade often at all, I basically just add to my positions each month. I do plan on leaving Sharebuilder at the end of the year and joining OptionsXpress. I still would like to keep adding on to my shares monthly and Sharebuilder is the only way i know of. After owning a certain amount of each stock, i'll tranfer my account to OptionsXpress. They charge 14.95 per quarter or $60 a year. No minimum requirements

 

[eddieb]

One of the keys to ER is to start saving/investing as young as you can. That is maybe 49% of the game. "Time" can be your best friend, and you have put "time" on your side.

The other part is being consistent and keeping up the saving/investing through thick and thin. That is another 49% of the game.

At 22 you have already started. So, just keep it up and dreams will come true.

The other measley 2% of the game is luck. So, luck has very little to do with it.

Congratulations. Check back with us in 25 years and tell us how well you have done.

Thanks RetireeRobert,
I hope retirement is treating you well

 

[FinanceDude]

Welcome,

1. Pay of your CC. Then pay complete bill each month.
2. Pay off the car.
3. Live on a cash basis. Other than a house, if you can't pay in full, you can't afford it.
4. LBYM
5. Save/invest 15%+ of gross income. When you are single and living at home at a very modest cost, take advantage and boost the savings/investing. Besides your 401(k) a ROTH is great at your age.

At your age, $40K/yr is very good. Put it to some good use and let time help achieve ER.

I would add that if you can stand it, live at home as long as you can........$200 a month is NOTHING for rent......and you'll have a lot of extra money to get a house or condo or whatever in the future.

$40,000 a year without a degree is good money for 22 years old. If you can finish school without student loan debt, that will help a lot........

 

[TromboneAl]

Sell car, buy economical used car!

 

[eddieb]

Sell car, buy economical used car!

Honestly TromboneAL, that has been in my mind lately. I know if i sell i'll save a lot more, I can't really think of a good idea not to sell it besides the fact that its very nice and i look good in it

 

[camefromnothing]

Welcome,

1. Pay of your CC. Then pay complete bill each month.
2. Pay off the car.
3. Live on a cash basis. Other than a house, if you can't pay in full, you can't afford it.
4. LBYM
5. Save/invest 15%+ of gross income. When you are single and living at home at a very modest cost, take advantage and boost the savings/investing. Besides your 401(k) a ROTH is great at your age.

At your age, $40K/yr is very good. Put it to some good use and let time help achieve ER.

Eddieb - I agree with all of the above. I was 31 (1984) when we started saving for ER by maxing out 401k/403b/IRA. Per our SS statement, my wife and I made a combined income of $40k that year. We now have close to 2m despite some bad investment decisions along the way. I bailed out of corporate BS at 51 (3years ago) and my wife is considering to join me in the near future.

 

[travelover]

My advice - don't sweat the car. Enjoy it, for now, check that box. You are still young and it is part of growing up.

Pay off the credit cards and keep them paid off. Save, as others have posted, in low fee stock funds. You'll do fine.

Awareness at your age is 99% of the battle.

 

[RunningBum]

I agree, unless we are talking about something like a high-end Ferrari that has a ridiculous price tag and heavy insurance. It's probably best to keep the car and pay it off as you can,and enjoy it!

 

[eddieb]

Thanks for all your advice,
The car I have is a new 2006 Mazda RX-8. Its a very nice car with great handling. Although it was a poor financial decision, I guess it's part of growth process, as some of you have mentioned. thanks again