21 Year Old Recent College Graduate!!

[MrTux]

Hello all!!!

I am a 21 year old recent college graduate looking to optimize my earnings to reach financial independence by the age range of 45-50. I am aiming for 45 however I have come to realize that 50 is a more realistic age.

Assets: Roth IRA ($1300), Savings Account ($3000), (no house, I do have a car however it is not mine)
Income: $40,000/yr
Expenses: $870/mo. (Internet, food, gas, a portion of my student loans, cell phone, car insurance)
No Spouse or children (although I am planning on it)
Location: Eastern Shore USA, about 50 miles outside of Washington D.C.

Debt: $77,000 school loans. $17,000 of this is included in the $970/mo.
The remaining school debt is currently in deferment.

- Thanks in advance for info!

 

[CuppaJoe]

Welcome to the forum, MrTux.

Interesting question: how far can you get toward FI in 24-29 years while paying off student debts, finding your own housing & car, getting married and having children. I don't have an answer for you but maybe others here are doing something similar.

Looks like you are off to a good start with an IRA and emergency savings.

 

[MrTux]

My goal right now is to pay off my student loans as soon as possible while maxing out my Roth IRA contribution and saving as much as possible.

I have yet to start my 401k with my company but once I determine the best student loan consolidation company to go with, I will have a better idea of how much money I can contribute to the 401k plan.

My car is in very good condition and I plan on keeping it for at the very least another three years. I do not have any plans to put a down payment on a house until I am about 24-25 years old.

Any ideas with this in mind?

 

[caninelover]

I'm new to the forum too!

I would prioritize this way:
401k - contribute to the company match, if no company match skip it for now.
Roth IRA - max out.
Remainder - after tax savings account towards your e-fund (get it to 6 months expenses) and then towards house down payment.

That should keep you busy for a few years. Congrats on being a thoughtful saver at such a young age, and on your graduation!

 

[donheff]

Welcome Tux. If you are planning for ER at your age you should easily make it. Most people wait until their 40s to even start thinking about it.

 

[bank5]

Welcome MrTux and congratulations on graduating. If you can find a solid job with the government or a private company that has a very good and stable pension that would help with early retirement.

Here's a retirement calculate link that can give a very rough estimate of what it will take to retire at 45. I usually drop the ROI down to 6-8% and uncheck the social security box - Retirement Planner - MSN Money

My goal right now is to pay off my student loans as soon as possible while maxing out my Roth IRA contribution and saving as much as possible.

One thing to keep in mind: If you consolidate under 3% you're probably better off maxing out your Roth IRA and 401k before paying off the student loans.

 

[MrTux]

If you consolidate under 3% you're probably better off maxing out your Roth IRA and 401k before paying off the student loans.

I am aiming to consolidate for around 3%.

I would prioritize this way:
401k - contribute to the company match, if no company match skip it for now.
Roth IRA - max out.
Remainder - after tax savings account towards your e-fund (get it to 6 months expenses) and then towards house down payment.

Thanks for the info. As of right now I do not contribute to my company's 401k because I am new to the company and I have not reviewed all of the details about their 401k.


Thanks everyone for the reply's!!!

 

[WhoDaresWins]

Recent Grad

Congrats, Mr. Tux! You are way ahead of the pack. At your age I was still an undergraduate in college. My only thoughts were spending what few dollars I had on new clothes. I only started to think of retirement in my forties. You are also fortunate to get a job in the worst market since the 1930's. Some of the children of co-workers of mine are unemployed or working part time in retail. Parents are forking over big-time to keep them on COBRA.

 

[Amethyst]

Wow, a good paying job, and you've only just graduated. Congratulations, looks like those student loans must've been worth it...boy that deferred debt would drive me crazy, though. Like an itch I couldn't scratch. But that's just me.

If I had my 21-year-old self sitting in front of me, asking for advice...

1. What's the rush to buy a house in your mid-20's? Houses are expensive, demanding to own, and except for boom periods, houses don't appreciate as much as people seem to think. Scrimping to buy a house, while still in my 20's, was one of the few times I have caved to peer pressure (all around me seemed to be doing it) and I lived to regret it.

2. Speaking of peer pressure, it is all around us forever, to spend, spend, keep up, keep up. (Even after you retire, other "retired" people will try to make you envious of all the dough they are making by selling real estate, being private consultants, and all sorts of other things that amount to not actually being retired at all). Spend only on things that mean a lot to YOU and anyone you love. Squirrel away every dollar you can, as early as you can. Looks like you are already going in that direction - again, congrats. Someone will be very lucky to get you as a partner.

3. Learn about asset allocation and the different classes of investments. At your young age, you can afford to be a very aggressive investor, but don't just take people's word for that. It's still YOUR money and YOUR life, so read up and get smart on investing.

4. Related to No. 2, go to the public library and get one of those classic books that preach "paying yourself first," "never put away less than 10%," "Live below your means." Some of these books have been around since your parents were born. "The Richest Man in Babylon" was an inspiration to me in 1980, while "The Millionaire Next Door" hit me between the eyes in the 1990's and showed me how I was being led astray by the urge to own and consume.

5. Invest in your health. Without it, you can't enjoy FIRE when you get there.

Best of luck!

 

[Bestwifeever]

It sounds like you are living with your family and although you pay its expenses, the car is your parents?

My mom advice to you: You should be able to sock away the equivalent of rent and car payments until you are faced with paying for those. Save as much as you can right away so you make it a habit, whether it's into your savings account now and the 401(k) later--don't wait until you have decided what to do with the 401(k) choices and amounts.

You'll be sooooo far ahead of the game if you do/

 

[brewer12345]

Save your pennies, tux. Lock in the student loans and pay the minimum, take advantage of the 401k, and do not forget to have fun while you are young. Only real regrets I have in my mid 30s is that I never really cast caution to the wind and lived for me while I was still young enough. Otherwise, save your pennies and you will do fine.

 

[MrTux]

At your age I was still an undergraduate in college.

I just got my undergraduate degree however, in the future I would like to pursue my masters. I am taking a break from school for hopefully no longer than 1 year. During that year I am going to try and find a company that will pay for my masters or at least offer me more money annually that I can pay for my masters as I go through school without loans.

What's the rush to buy a house in your mid-20's?

No real rush to get a house however if I was forced to move out I would lean towards a house over an apartment for the sake of equity.

At your young age, you can afford to be a very aggressive investor

After reviewing information on asset allocation and taking into consideration my age I am leaning towards 80% stocks 20% bonds. (Essentially my age in stocks) Not to sure based on my current financial education if I will go with the low, mid, or high aggressive stocks.

 

[bank5]

No real rush to get a house however if I was forced to move out I would lean towards a house over an apartment for the sake of equity.

I used to think buying was a no-brainer if you are going to live in the house for more than 2 years. After the housing slump and reading things on this forum I've realized that it can often be a worse financial move especially with low appreciation rates.

This is a good comparison between buying a house and renting:
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html

After reviewing information on asset allocation and taking into consideration my age I am leaning towards 80% stocks 20% bonds. (Essentially my age in stocks) Not to sure based on my current financial education if I will go with the low, mid, or high aggressive stocks.

If you want to get more or less aggressive I would adjust your AA and not your stocks. Also, I would recommend to have stocks that are a blend of low, mid and high aggressive.

 

[Amethyst]

and do not forget to have fun while you are young. Only real regrets I have in my mid 30s is that I never really cast caution to the wind and lived for me while I was still young enough. .

it's funny, I am actually glad that I didn't take more chances when I was younger. Do wish I had understood investing better, though. I didn't even know what a mutual fund was!

 

[wiseguy1]

Great that youre looking into all this so early!