Advice for a noob

[QuikStang03Mach]

Hi all,
Well I am 23 and a year into my "career". I share the same dream as everyone else and want to retire early. It seems that most people my age do not plan for the future, yet alone retirement until its too late. In 23 years I have realized that experience is the best teacher and wanted to know your opinions on things I can do. Every financial guru on the televison speaks of planning for retirement young - well here I am.
I already have a mutual fund, traditional IRA, roth IRA and at my next employer will take advantage of the 403b match, also recently purchased ford stock)). IRAs are both through ING. I have built up a nice little nest egg while working full time and living with the parents for the past year. Hate to say it, but im really in no hurry to leave the nest. I have a good thing going. Mainly I have been in and out of CDs (next matures in Dec and is at 4.7%) and have been socking it away in an HSBC online savings.
Market is "down" now and I am thinking of putting some money into the roth because of it. I am babbling on now--- really just looking for some ideas.
Thanks

 

[honobob]

Hi QS09M
You're in a high value real estate area. Any plans to utilize the power of leverage to grow net worth?

 

[QuikStang03Mach]

Hi QS09M
You're in a high value real estate area. Any plans to utilize the power of leverage to grow net worth?

Within the next few months I will be actively looking to purchase a property. By then my CD will mature and will hopfully have a few more bucks in the piggy bank. Ultimatly I want to purchase a single family home but put enough of a down payment that the mortagage is very low and rent it out, having the tenants pay it down for me.
I also need to make a home purchase give me the deductables to itemize my taxes.

 

[DblDoc]

I applaud your early start. I highly recommend you do some reading before investing - especially in individual stocks or real estate. For investing info I would recommend reading from this list.

Investment Books

DD

 

[mb]

I second DD's advice.

 

[Coach]

Hi, and congratulations on getting a good start.

Minimizing expenses is a great way to maximize savings, so if your current living situation suits both you and your parents, I would not rush to move out.

Automate saving as much as possible with payroll deduction and automatic transfers.

Dedicate a part of every raise you get to savings.

Make sure you stay diversified in your investments.

Read up on deducting interest on a home mortgage. It's really directed at owner occupied housing.

Coach

 

[popowich]

am babbling on now--- really just looking for some ideas.

Here are my mistakes from my 20's. You but be saving a tremendous amount by living at home. Do your parents make you pay any rent? I'd be maxing out the Roth IRA for sure. If you are getting 4.7% on the CD's you must have a decent amount of money in those, and it sounds like you can use part of the one from this December to fund the Roth IRA.

-Raymond

 

[QuikStang03Mach]

Here are my mistakes from my 20's. You but be saving a tremendous amount by living at home. Do your parents make you pay any rent? I'd be maxing out the Roth IRA for sure. If you are getting 4.7% on the CD's you must have a decent amount of money in those, and it sounds like you can use part of the one from this December to fund the Roth IRA.

-Raymond

Just read your thread, thanks. Im not paying rent per se- just chip in every now and then for odds and ends. The 4.7% CD is from last decemeber, I bought it right before interest rates took a dive. I think what im going to to do is 2500 in the traditional, 2500 in the roth (pretty sure this year is a 5k max in IRAs).
I really appreciate everyones advice.

 

[plex]

You really don't need to be splitting 2.5k between the IRA and the Roth unless you have absolutely no idea whether your income will be higher during your withdrawl stage. If you believe you will be using more income later in life (which you probably will since you are living with your parents right now) a Roth is better. Also, taxes are pretty low right now, which is another favorable reason to be just using a Roth. As your income and taxes go up, a traditional IRA is more useful.

 

[LOL!]

Are you motivated enough to invest half your salary? If you make $40K, you gotta save/invest $20K a year. If you make $100K, you gotta save/invest $50K a year. That's before paying taxes. If you can do that, then I can guarantee it won't matter what you invest in ... you will still be able to retire early.

 

[Frugality_of_Apathy]

I wouldn't get a house just for the tax break. It's only the interest you get to deduct and property tax is only taken off the federal taxes. You get a standard deduction of $5350 whether you owns a house or not and when you itemize your deductions you cannot take the standard deduction anymore. And remember the tax deduction doesn't mean you pay that much less in taxes, it just assumes you made that much less during the year. If you put 20% down on a $150,000 house the "tax savings" are only going to give you an extra $200 a month at the most where property taxes can be $200 a month, meaning on the actual loan you haven't saved any money. In addition. if you rent out the house and do not live there the whole tax situation changes. I believe you can then only use a reduced tax deduction on the money that comes in from the tenants and not on your general income.

You should ignore personal taxes entirely when looking to buy a house and treat it like any other investment.

 

[SLC Tortfeasor]

Ditto to the previous comments. Here's one suggestion I'd add that hasn't been touched on yet:

It's great to be focused on saving for retirement right now. But don't let yourself get too focused. At times, I have been too focused, and I know there are others who've posted on this site who have had the same problem. When all you can think of is saving for retirement, that can lead you to pay less attention to the work that you need to do in the here and now. While saving for retirement is an important goal, your primary focus should probably be on advancing in your career, and doing work that you enjoy.

As long as you always live below your means, all you really need to do is make a smart house purchase when the time comes, and put your other investments on autopilot, using dollar cost averaging and life cycle/target retirement funds. It sounds like you're like me, and you want to feel actively engaged in managing investments and maybe playing the market. My advice is to play the market with a separate stash of just a few thousand bucks. Leave your primary retirement account in basic mutual funds, and let the experts do the work for you.

Also, bravo for working out a free rent situation with mom and dad. Milk that as long as you can. But don't be afraid to move out at the drop of a hat if and when you meet the hottie of your dreams. You don't want to miss out on a potential life partner because you're still living in your childhood bedroom!

 

[Bestwifeever]

I agree 100 percent with SLC--get your financial planning done and then forget about retirement and live in the present--don't look ahead to getting old before your time. You have wonderful years ahead of you to enjoy.

 

[Abreutime]

Also, bravo for working out a free rent situation with mom and dad. Milk that as long as you can. But don't be afraid to move out at the drop of a hat if and when you meet the hottie of your dreams. You don't want to miss out on a potential life partner because you're still living in your childhood bedroom!

It's great that you get along well with your parents, but this poster speaks the truth! Part of moving out entails building your own social network completely separate from your parents. Great job so far!

 

[thaidyed]

Is there really any reason someone in this situation would want to have both a Traditional and a Roth IRA?

 

[Videonut85]

It's nice to finally "meet" a group of people who share the ideas I have. As QuikStang said at the very beginning, there are so many people my age who do not even consider retirement. Congrats on starting young QuikStang!

It sounds like you're like me, and you want to feel actively engaged in managing investments and maybe playing the market. My advice is to play the market with a separate stash of just a few thousand bucks. Leave your primary retirement account in basic mutual funds, and let the experts do the work for you.

I also feel this way, good idea SLC. I'm always playing with numbers and wondering what money I could be shifting around to make a little more. Maybe playing the market with a little side money will give me something to do.

Is there really any reason someone in this situation would want to have both a Traditional and a Roth IRA?

I would think if he is unsure whether he will continue living in the area he is in for the rest of his life, or move to a lower income area where the value of a dollar goes further, then this would not be a bad idea. Otherwise, I'm not sure why you would split the two.

 

[thefed]

well, i was in the same boat when i came here,22 or 23 yrs old happy i stumbled on such a relevant site.


my advice is

1)automate automate automate.i have money pulled to a simple ira, roth ira, ing savings, amtrust savings AUTOMATICALLY every week.

2)index funds...or target retirement types...dont try to market time just keep socking it away

3)crunch the numbers. run FIRECALC and see what you get...what you need....etc

4)have fun while youre young...you never know when youre going to be run over by a bus!

 

[haha]

Also, bravo for working out a free rent situation with mom and dad. Milk that as long as you can.

What mature advice! Parents just adore being treated as cows giving up free milk. Put 'em on a milking machine so your fingers don't get tired!

Ha