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Old 12-25-2013, 11:30 AM   #1
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Hey everyone. New here.

Hi there. I'm a young student who is ready to start taking some financial actions in my retirement. I know being the age of 22 and in school might sound a little weird being ready to start saving for retirement but I have watch and heard so many people struggle in finances wishing they would have started earlier.

My current financial situation is this.
I have 0 debt.
I live for free in a house at school because I filled the house with renters and as reimbursement I get to live for free. My parents pay for my food and utilities and school. My only expense is gas which my car gets 50 mpg so thats not bad, and what ever things I wish to buy. I feel like I'm primed to start a well financially secured future as long as not to many unexpected catastrophes happen. I have about 2500 cash in savings, +\- 1000 in a high risk startup company stock. And am about to get a second job and will be making about 200 a week hopefully.


I've researched a fair amount of financial information but of course I have no real world experience. I'm here for advice, ideas and help.

Thanks!
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Old 12-25-2013, 11:40 AM   #2
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As you will hear a lot on this forum, "I wish I had started saving sooner ! ". You are getting started on the right track. Keep up the good work !
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Old 12-25-2013, 02:07 PM   #3
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I also give you a lot of credit and think you are well on your way, if for no other reason, you are already considering your future. There are two things that were important to me. The most important thing, which I think you already understand, is it is not how much money you make, it is how much money you save. Try to determine how much money you will need 'in retirement' and set your saving goal to hit that number, in terms of a conservative return on your investment. The second thing is that retirement was not a way to stop working. It was the way that allowed me to choose how to use my time. So, if life/work are going as you like, enjoy. If/when you want to go in another direction, put yourself in a position that making that happen will be painless.
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Old 12-25-2013, 02:27 PM   #4
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The most important thing, which I think you already understand, is it is not how much money you make, it is how much money you save.
Don't discount the importance of a good income. It's much easier to save if you make $90k/yr than if you make $30K/yr. At my peak I was earning $48K/yr gross and saving approx. $30K combined pre/post tax. There are people on this site who save more in a year than i've ever earned in a year. I can count on one hand the number of people i've seen on this site who are more frugal than me. However, since my income has averaged just $28,000/yr over my adult life, I can also count on one hand(probably) the number of people my age on this site with less money saved than me. Both income AND saving rate are important. The more you earn, the more you can save.
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Old 12-25-2013, 05:28 PM   #5
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. The second thing is that retirement was not a way to stop working. It was the way that allowed me to choose how to use my time. .
Yes, that's a large thing I have been thinking about. To be honest I don't ever want to straight retire and sit on the couch and watch tv. I think work is good for you. And I find it fun earning money.
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Old 12-25-2013, 05:30 PM   #6
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The power of compounding really takes hold with added time. By starting early you'll potentially see one more "doubling" cycle versus your peers who start saving in earnest later.

I agree with an earlier post that the power of a good paying job is a big help, allowing you to save even more.

I saw your other thread about dividend reinvestment and I'll take some time to comment on that subject too.

Welcome to the forum - lots to learn here.
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Old 12-25-2013, 05:35 PM   #7
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I think work is good for you.
That's an admirable attitude at age 22. At age 52, maybe not so much...
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Originally Posted by Damienqwerty View Post
And I find it fun earning money.
Once again, that's an admirable attitude at 22. I suspect at some point in the future you'll find there are ways to earn money that are far more enjoyable than working.
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Old 12-25-2013, 05:44 PM   #8
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Thanks guy. Also could any of y'all let me in on what FIRE means?
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Old 12-25-2013, 05:46 PM   #9
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Here's what you're looking for: * Acronyms and Slang Frequently Used on the Forum *
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Old 12-27-2013, 09:54 AM   #10
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... My only expense is gas ...
Don't forget beer money!
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Old 12-27-2013, 12:24 PM   #11
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ER'ed at 49... If I could go back to my 22 year old "self" I would pass along this advice based on my experience.. Not sure I would of actually taken the advice from a 49 year old person because I thought I knew more at age 22 then I know now ...

1) "Time" is your most valuable asset. Can not make it or buy it...
2) Start saving 10% of your salary when you start your first full time job.
- Fund a emergency fund first (6mo) then move to a 401K or IRA
- Increase your savings by 1/2 your annual raise. ex: if you got a 3% raise bump saving to 11.5%.
- When you hit 20% saving rate evaluate if you need to save more to hit your retirement goals.
3) Never buy a "new" car. Buy a low mileage used car every 7 years.
- Car loans are okay at early age, but goal should be able to pay cash for cars by age 35
4) Avoid all "get rich" fast schemes and stocks. Time is on your side so slow & discipline saving & investing will win in the end.
- Make sure you stay diversified. Do not have all your eggs in one basket (company stock). I got burned bad on this one ...
- Try to use low fee index or ETF funds. Avoid financial planner/broker fees....
5) Only buy a house that is no more then 3X your annual salary.
- Try to make an extra principle payment each month to pay off the house early.
6) Track your yearly expenses (Quicken) so you know exactly where you money goes and can make adjustments.
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Old 12-27-2013, 09:54 PM   #12
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Thanks for all the info guys! Keep them coming. I'm trying to soak up as much information as I can from people with experience.

Anyone else care to share what they would tell there 22 year old self?
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Old 12-28-2013, 07:58 AM   #13
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How To Get Rich

1) Make a lot of money
a. Get well educated AND learn a trade/job skills/a profession that pays well. It is much easier to have a high net worth when you have a high income
b. Don’t stop learning when you leave formal schooling
c. Work hard
d. Be willing to take reasonable risks
e. Consider being an owner rather than an employee

2) Don’t spend a lot of money
a. Start saving early. Remember that every dollar you save in your twenties and thirties is 8 times as valuable as one saved in your fifties
b. Don’t be all hat and no cattle
c. Rent your lifestyle (Don’t buy a boat, a time-share, a second house, a plane etc) Keep your fixed expenses low so when hard times come you can cut your lifestyle back rapidly
d. Realize that buying a house or cars that are too expensive for you will likely keep you from getting rich. The big things matter most
e. Be prudently frugal and selectively extravagant. Be sure that you are spending your money on the things you value most
f. If you can’t afford to pay cash for it, you can’t afford it. The only exception is a house (because it will generally appreciate at just over the rate of inflation), where the rule is if you can’t afford to put 20% down and use a 15 year fixed mortgage you can’t afford it
g. Marry well, marry once, marry someone who shares the same thoughts, or with whom you can work out an acceptable compromise beforehand, on “The Big Four” (Money, Religion, Kids, and Sex) and STAY MARRIED
h. Credit cards aren’t for credit; if you have paid interest at a higher rate than 3% or paid a late or over-the-limit fee more than once you shouldn’t use a credit card

3) Make your money work as hard as you do
a. Read at least one good basic personal finance book, one good investing book, and one good behavioral finance book. Consider Personal Finance for Dummies, The Boglehead’s Guide to Investing, and Why Smart People Make Big Money Mistakes and How to Avoid Them.
b. Get the market return; use fixed asset-allocation, index mutual fund investing as your default strategy
c. Minimize taxes. Know the basics of the tax code, max out tax-advantaged savings accounts, and use them to your advantage
d. Keep investing expenses low
e. Understand basic financial calculations and lingo. Understand compound interest, the time value of money, financial risk, and the expected rate of return of various financial assets. Know how to use the excel functions-FV, XIRR, PMT, PPMT etc
f. Simplify your financial life. Put bills on automatic payment and investments on automatic withdrawal. Minimize the number of accounts you hold and the number of investments you have as much as possible
g. Understand why your savings rate matters a lot when you’re young and very little as your approach retirement. Understand why your investment return matters little when you’re young, more as you approach retirement, and a great deal during your first decade after retirement. Understand the concept of a safe withdrawal rate
h. See the end from the beginning. If you fail to plan you plan to fail. Have a written investment plan you can refer to when contemplating portfolio changes.

4) Don’t lose your money
a. Insure well against catastrophe-Life, Disability, Health, Liability, Property but self-insure whenever possible using a safe, liquid emergency fund (High benefits/limits but high deductibles/ waiting periods). Self-insure against medical expenses by maintaining a healthy lifestyle. After you retire, consider a single premium immediate annuity to insure against outliving your money and long-term care insurance to insure against having an extended period of dependence at the end of your life. Don’t mix insurance and investments. Cash-value (non-term) life insurance and variable annuities are generally products meant to be sold, not bought.
b. Get rich once, get rich slowly. Good investing is boring investing
c. Hire professionals to teach you, not just to “do it for you.” This includes accountants, estate attorneys, real estate professionals, and investment advisors. Be sure to bounce the advice you’ve received off someone with no conflict of interest in the transaction, realizing that no one cares about your financial success nearly as much as you do. If you are reasonably well-educated and interested, you can teach yourself to do your own taxes, sell your own house, and invest your own money
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4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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Old 12-28-2013, 08:37 AM   #14
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3) Never buy a "new" car. Buy a low mileage used car every 7 years.
- Car loans are okay at early age, but goal should be able to pay cash for cars by age 35
5) Only buy a house that is no more then 3X your annual salary.
- Try to make an extra principle payment each month to pay off the house early.
Great advice from bradaz2488. I'm going to add to the above two items...

I would argue with the increasing quality of cars these days, a 10 year (or more) time horizon is a very attainable goal. Every year that you can put off another purchase is another year to save for the next car, which gets you to that "paying cash" suggestion much faster.

On the house, I'm also going to suggest an even more conservative approach with a target of 2 or 2.5 times salary. Depends on where you live but in our area, a bigger house means much higher property taxes. Either way, more square footage means higher utility bills and more maintenance. Another idea that I wish I considered when I was young was to make your first house a duplex to have a renter cover most of your mortgage payment. Then when you're tired of that gig, you find another renter, keep the property and buy another for yourself. This is how my brother started years ago and it turned out to provide a great start for him.

Finally, on paying off the mortgage early, not sure I agree with that, assuming interest rates remain low. At a young age, it's okay to have a longer mortgage and making minimum payments allows you to save more for other financial goals like buying a new home and retirement. As we all know, time is your best friend when it comes to saving.

My 2 cents.
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Old 12-28-2013, 09:28 AM   #15
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Originally Posted by Damienqwerty View Post
Thanks for all the info guys! Keep them coming. I'm trying to soak up as much information as I can from people with experience.

Anyone else care to share what they would tell there 22 year old self?
This all depends on your personality type....but "when I was your age" I lived incredibly simple and banked buku bucks, living at my parents' home and having a relatively financially rewarding job. I spent extremely small amounts, and my portfolio grew at a very healthy rate from all of my contributions. Granted, my parents did spend about 60% of the time out of town, so it was like having my own place most of the time. However, given today's still insanely low mortgage rates (on a historical perspective), it would make sense to buy a house if you found one you liked and could see yourself living there/possibly staying after you get married. It wasn't really that long ago when people were going gaga over 6% 30 year mortgage rates! And that's almost double what they are now!

Some people would rather say "live it up while you're young", but my personality type (kind of similar to a few others in the forum) is that I actually get joy and happiness from seeing a growing portfolio, and the security of knowing I don't have to worry about living paycheck to paycheck, and that I will soon reach the point of being able to do a huge number of things. Sort of along the Dave Ramsey tag line of "if today you will live like no one else, then in the future you can live like no one else". And because of the power of compounding and some decent investment decisions, my earlier sacrifices are paying off in spades.

Also (and an even bigger reason) is that I'm still looking to find that special someone to share the rest of my life with, and I find traveling and adventure to be so much more fun and memorable when you have someone to share the experience with, so I've been trying to delay all of those fun vacations and trips for when I'm married (but have told myself that I'll cut loose and go crazy when I turn 40 if I'm not married yet and start doing some traveling).

I realize that tomorrow is not guaranteed to anyone, but given that the odds are in my favor of having at least a few more decades of living, I'm willing to take that risk and forego tons of fun in my youth, and no financial assets to show for it when I turn 40. It's a risk you have to decide, just as some retire with a 4.5% or higher withdrawal rate for a 35 year retirement, hoping they won't have to dramatically scale back expenditures later on. I'd rather play the opposite side of the bet.

Also, I'd suggest just sticking with low cost index funds, and not end up with a stock-a-holic portfolio like mine (a messy amalgamation of 400+ positions of equities and ETFs/a few mutual funds). If I had only found Bogleheads/ER forums sooner, I might have learned a few lessons and made it easier to work up my investment philosophy, rather than have ingrained my drive for a dividend-producing portfolio with some international growth.
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Old 12-28-2013, 09:40 AM   #16
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Great advice from bradaz2488. I'm going to add to the above two items...

I would argue with the increasing quality of cars these days, a 10 year (or more) time horizon is a very attainable goal. Every year that you can put off another purchase is another year to save for the next car, which gets you to that "paying cash" suggestion much faster.

On the house, I'm also going to suggest an even more conservative approach with a target of 2 or 2.5 times salary. Depends on where you live but in our area, a bigger house means much higher property taxes. Either way, more square footage means higher utility bills and more maintenance. Another idea that I wish I considered when I was young was to make your first house a duplex to have a renter cover most of your mortgage payment. Then when you're tired of that gig, you find another renter, keep the property and buy another for yourself. This is how my brother started years ago and it turned out to provide a great start for him.

Finally, on paying off the mortgage early, not sure I agree with that, assuming interest rates remain low. At a young age, it's okay to have a longer mortgage and making minimum payments allows you to save more for other financial goals like buying a new home and retirement. As we all know, time is your best friend when it comes to saving.

My 2 cents.

Hi panacea.. I do agree with you that cars are much more reliable now and can last 10 years before you start having to dump more $ in them then want it is worth. My 7 year turn over rate assume you would buy a car that is 2 to 4 years old with very low mileage. We have 3 vehicles: 1998 4runner (180K miles), 2002 Tundra (80K miles) and 2001 Boxster (72K miles). All are well over 10 years old. Thinking about replacing the 4runner soon, but the DW loves it... On the house mortgage side I think it comes down to how comfortable you are with debt. I have always been adverse to debt and like the feeling on not owning the banks anything. I agree you can make more on your money if your loan is >5%... I guess it comes down to a personal choice...
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Old 12-28-2013, 10:06 AM   #17
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Originally Posted by racy View Post
How To Get Rich

1) Make a lot of money
a. Get well educated AND learn a trade/job skills/a profession that pays well. It is much easier to have a high net worth when you have a high income
b. Donít stop learning when you leave formal schooling
c. Work hard
d. Be willing to take reasonable risks
e. Consider being an owner rather than an employee

2) Donít spend a lot of money
a. Start saving early. Remember that every dollar you save in your twenties and thirties is 8 times as valuable as one saved in your fifties
b. Donít be all hat and no cattle
c. Rent your lifestyle (Donít buy a boat, a time-share, a second house, a plane etc) Keep your fixed expenses low so when hard times come you can cut your lifestyle back rapidly
d. Realize that buying a house or cars that are too expensive for you will likely keep you from getting rich. The big things matter most
e. Be prudently frugal and selectively extravagant. Be sure that you are spending your money on the things you value most
f. If you canít afford to pay cash for it, you canít afford it. The only exception is a house (because it will generally appreciate at just over the rate of inflation), where the rule is if you canít afford to put 20% down and use a 15 year fixed mortgage you canít afford it
g. Marry well, marry once, marry someone who shares the same thoughts, or with whom you can work out an acceptable compromise beforehand, on ďThe Big FourĒ (Money, Religion, Kids, and Sex) and STAY MARRIED
h. Credit cards arenít for credit; if you have paid interest at a higher rate than 3% or paid a late or over-the-limit fee more than once you shouldnít use a credit card

3) Make your money work as hard as you do
a. Read at least one good basic personal finance book, one good investing book, and one good behavioral finance book. Consider Personal Finance for Dummies, The Bogleheadís Guide to Investing, and Why Smart People Make Big Money Mistakes and How to Avoid Them.
b. Get the market return; use fixed asset-allocation, index mutual fund investing as your default strategy
c. Minimize taxes. Know the basics of the tax code, max out tax-advantaged savings accounts, and use them to your advantage
d. Keep investing expenses low
e. Understand basic financial calculations and lingo. Understand compound interest, the time value of money, financial risk, and the expected rate of return of various financial assets. Know how to use the excel functions-FV, XIRR, PMT, PPMT etc
f. Simplify your financial life. Put bills on automatic payment and investments on automatic withdrawal. Minimize the number of accounts you hold and the number of investments you have as much as possible
g. Understand why your savings rate matters a lot when youíre young and very little as your approach retirement. Understand why your investment return matters little when youíre young, more as you approach retirement, and a great deal during your first decade after retirement. Understand the concept of a safe withdrawal rate
h. See the end from the beginning. If you fail to plan you plan to fail. Have a written investment plan you can refer to when contemplating portfolio changes.

4) Donít lose your money
a. Insure well against catastrophe-Life, Disability, Health, Liability, Property but self-insure whenever possible using a safe, liquid emergency fund (High benefits/limits but high deductibles/ waiting periods). Self-insure against medical expenses by maintaining a healthy lifestyle. After you retire, consider a single premium immediate annuity to insure against outliving your money and long-term care insurance to insure against having an extended period of dependence at the end of your life. Donít mix insurance and investments. Cash-value (non-term) life insurance and variable annuities are generally products meant to be sold, not bought.
b. Get rich once, get rich slowly. Good investing is boring investing
c. Hire professionals to teach you, not just to ďdo it for you.Ē This includes accountants, estate attorneys, real estate professionals, and investment advisors. Be sure to bounce the advice youíve received off someone with no conflict of interest in the transaction, realizing that no one cares about your financial success nearly as much as you do. If you are reasonably well-educated and interested, you can teach yourself to do your own taxes, sell your own house, and invest your own money
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1) Invest you must 2) Time is your friend 3) Impulse is your enemy
4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
Hi Racy... Excellent advice.. I wish you would have given this advice to me a 22 ..... All young people should read this over and over again... Then live it...
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Old 12-28-2013, 11:43 AM   #18
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Ha if I would try to get my peers to read this they would think I'm crazy and foolish. As far as car conversation goes. I just gave up my 1995 Honda which was in pretty good condition. For a 1994 Suzuki swift that's in terrible condition look wise but is pretty sound mechanically. Bought it for 800 problem put about 400 in for part, painting interior, new carpet. But it gets 50 mpg and my Honda got 12 mpg. Driving the Suzuki is like having a second job but not having to be there.

I'm loving the information/ advice. Keep it rolling. I have a lot to learn
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Old 12-28-2013, 11:49 AM   #19
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This thread is headed towards 'sticky' status !
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Old 12-28-2013, 05:17 PM   #20
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Some totally excellent advice has been given so far in this thread.
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