newbie seeking financial advice

[s]

My take home is 5K per month and I have a B.S+M.S in Computer Science
coupled with 2 years of work experience(including pro-rated parttime).
I realize most people at my age(26) are in the high six figures, but
as I work for the local goverment it is less.

I am presently saving most of my savings in a savings account/CD'S
which are giving me about 5% as I want to purchase a home which in my
area(Tallahasse, FL, U.S) are about 150-200K. Presently, I am single
and my total savings are about 40K. My total expenses are about 700
per month(including everything and I don't have a vehicle) which I
realize is quite high as I have heard college students in my area
typically survive on 300-400 per month in my area by sharing an
apartment and I am staying alone to avoid noisy roomates. 5% is pretty
low considering 4% inflation and taxes.

I have one IRA account with just 2K and am participating in my
agency's deferred compensation plan and have chosen the investment
plan(instead of pension plan). I understand that people of my age will
not be most likely not receiving any social security(40 years from
now) so need to depend on only on their savings/investments for
retirement.

It seems from the below links that most people today start their own
business part/full time and generate side revenue and some are even
teenagers.

http://www.businessweek.com/globalbiz/content/jun2007/gb20070601_758636.htm
http://www.youngentrepreneur.com/blog/
http://studentcenter.ja.org/aspx/PlanBusiness/stories.aspx

Some folks have advised me to work part time designing blogs, sell
items on e-bay, work as a part time real estate agent, trade in stocks
aggressively, buy/sell homes on interest only loans(particularly the
way market is at present), drive buses/taxis on weekends or work for
another agency part time on evenings/weekends. They mentioned two full
time jobs or full time job plus full time college or one full time and
part time job is pretty common for people at my age with no family
responsibilities. Some have advised me to take part time MBA classes
which could help in eventual promotion at my work place which I am
considering. Few have told me to invest in international funds which
are doing well at this time.

I am just puzzled how so many people from other countries achieve
things like becoming governor of California, starting
companies(founder of Intel) and many more bright migrants while I am
struggling to even save for retirement.

I am trying to learn as much as I can about investment vehicles and
talking to many bankers as possible while avoiding their investment
services until I understand how it can assist me in the future.

It appears quite a lot of people achieve it in our country from
http://www.mymoneyblog.com/archives/2007/02/do-you-make-a-six-figure-salary-share-your-story.html
but most have more qualifications/skills than me.

The links I mentioned are one of the many myriad such links and in the
actual world there are lot more people who do well considering New
York City alone has 45 billionaires(in addition to lot of people who
still don't reach that level).

Can moving to a different place like New York City or California boost
income after taxes, expenses etc of living in that area and working
for the coprorate sector?

Some have told me being an independent consultant you can charge 100$
per hour assuming you can market and sell yoursel properly. For a 1
year contract(working 1950 hours per year) with 100$ per hour someone
could bring 195K after Federal, state, self-employment tax, medicare,
health/business insurance/vacation/annual leave,training leave etc.
could still net about 100K which is better than my present take home
of 60K per year but I would lose job security and have to be mobile
which people have suggested me most people at my age without a family
typically do to boost their income. Some have told me it is advisable
to work for goverment in late thirties or forties and presently earn
as much as possible by investing aggressively, working as a contractor
starting a part time business/franchinse/real estate etc.

As I am a newbie I would appreciate the advice of experienced folks in
this team on how to reduce outgo, increase income and invest properly
for eventual retirement.

Thanks a lot.

 

[Tad Borek]

My take home is 5K per month
I realize most people at my age(26) are in the high six figures, but
as I work for the local goverment it is less.

I am presently saving most of my savings in a savings account/CD'S
which are giving me about 5% as I want to purchase a home which in my
area(Tallahasse, FL, U.S) are about 150-200K. Presently, I am single
and my total savings are about 40K. My total expenses are about 700
per month(including everything and I don't have a vehicle) which I
realize is quite high

OK I have to stop reading right here. It sounds like you would benefit
from just learning a bit about income and wealth in the US, so you see
how well-off you are and how high your savings rate is!

It's not even remotely true that most 26 year olds make high six
figures. Obama and Hillary sparred about this point in the debate
recently, but here is an interesting figure: according to a GAO report
from a couple years ago about the Social Security program, only 6% of
individuals earned more than the Social Security tax cap (which is
currently $97,500). So about 94% of people with earned income (salary,
wages) make under $97,500 - this is individuals, not household income,
which is a different figure. And most people who crack that $97,500
figure aren't 26, because peak earnings years come some 15-20 years later.

So if your take-home is $60k, your income is well ahead of most other 26
year olds. You would have to look up local data but it would not
surprise me if you are above the 90th percentile in earnings, especially
in a low-cost area like Tallahassee.

You said it's hard to save for retirement, but you seem to be having no
problem doing that -- you already have $40k. Here's a figure that might
surprise you...that's getting close to the average amount a near-retiree
(age 55-64) has saved up in their IRAs and similar accounts. The figure
depends on the report cited, but it's somewhere in the neighborhood of
$55k. So not only are you way ahead of 26 year olds, your savings would
be above-average for someone 26 years older than you.

And $700/mo, $8400/year, is a very low level of spending. Think how easy
it would be to sustain that lifestyle.

So the first thing I'd suggest is a change of perspective...you're
earning more, spending less, and saving more than most people your age -
by a wide margin.

-Tad

 

[BreadWithSpam]

OK I have to stop reading right here. It sounds like you would benefit
from just learning a bit about income and wealth in the US, so you see
how well-off you are and how high your savings rate is!

It's not even remotely true that most 26 year olds make high six
figures.

In fairness, I assumed he'd miswritten "high 5-figures", which is
sounds pretty reasonable for folks who "have a B.S+M.S in Computer
Science coupled with 2 years of work experience". Of course, he
claims $5k take-home == $60k take-home which implies, well, those
same high 5-figures for himself, probably around $70-$75k.

And $700/mo, $8400/year, is a very low level of spending. Think how
easy it would be to sustain that lifestyle.

I don't think I believe that number either, unless he's
talking about just rent, not "cost of living".

If that's correct, then he's accumulating savings at a
rate of over $50k additional per year and you have to
wonder why he posted so many links and ideas about
making *more* to save.

His numbers just don't make sense.

To the original poster, if you could address these issues
and, perhaps, post a more pointed question or set of
questions, I'm sure you'll get more helpful answers.

 

[jIM]

My take home is 5K per month and I have a B.S+M.S in Computer Science
coupled with 2 years of work experience(including pro-rated parttime).
I realize most people at my age(26) are in the high six figures, but
as I work for the local goverment it is less.

**snip**

As I am a newbie I would appreciate the advice of experienced folks in
this team on how to reduce outgo, increase income and invest properly
for eventual retirement.

Invest properly- set aside a given amount each month. Some people
suggest 10%, some 15%, some 20%, some as much as possible. Bottom
line is you need to set something aside. You are doing this already.
Good job. What % do you contribute to your employer's plan? Do you
get healthcare benefit in retirement?

increase income- assuming you make around 74k gross per year, 5k take
home per month is a high income. I compare what you take home
relative to what I make, and outside of fact I send 11% to my 401k, I
see some similarities to my Engineering degree. Increasing income
will come with time. Another way to increase income is to cut
spending. Live on less than you earn, and you will find many
financial issues become simpler. Avoiding debt is a good way to save
more money.

Once you are setting aside something each paycheck, and spending less
than you earn, you are well on your way.
Next step would be to learn about IRAs, taxes and investment choices.

 

[Elle]

I see that you have two financial goals: (1) buying a house;
and (2) saving for retirement. A few questions:

1. Do you have health insurance?
2. Do you plan to marry and have kids someday?
3. At what age do you want to retire?
4. Do you have any debt (e.g. student loans; credit card
loans)?

The answers to these questions can better help frame what
your goals are, including whether you need to find more
income (via a different job or taking on more work). Then
much more concrete advice can be given here.

 

[John A. Weeks III]

My take home is 5K per month and I have a B.S+M.S in Computer Science
coupled with 2 years of work experience(including pro-rated parttime).
I realize most people at my age(26) are in the high six figures, but
as I work for the local goverment it is less.

The government job is your problem. It affects your attitude, and
it sucks the life blood out of you. Do anything you can to get out
into the real world and get paid what you are worth.

With the hard times that we have had in the upper midwest since 9/11,
I ended up having to take a state job. It only took 2 years and I
was nearly clinically depressed. It took me 6 months to recover once
I got out. But since then, every day has been better than the past,
and all kinds of new, interesting, exciting, and weird things have
happened in my life since leaving the state. You just don't realize
how far down into the quicksand you are when you have a government
job, especially if you are part of a union.

I am presently saving most of my savings in a savings account/CD'S
which are giving me about 5% as I want to purchase a home which in my
area(Tallahasse, FL, U.S) are about 150-200K. Presently, I am single
and my total savings are about 40K. My total expenses are about 700
per month(including everything and I don't have a vehicle) which I
realize is quite high as I have heard college students in my area
typically survive on 300-400 per month in my area by sharing an
apartment and I am staying alone to avoid noisy roomates. 5% is pretty
low considering 4% inflation and taxes.

Your expenses are fine. You are an adult now, you don't need roommates
anymore, and you should be starting a life of your own.

Some folks have advised me to work part time designing blogs, sell
items on e-bay, work as a part time real estate agent, trade in stocks
aggressively, buy/sell homes on interest only loans(particularly the
way market is at present), drive buses/taxis on weekends or work for
another agency part time on evenings/weekends. They mentioned two full
time jobs or full time job plus full time college or one full time and
part time job is pretty common for people at my age with no family
responsibilities. Some have advised me to take part time MBA classes
which could help in eventual promotion at my work place which I am
considering. Few have told me to invest in international funds which
are doing well at this time.

Here is the golden rule of financial planning -- never take advice of
any kind from someone who is broker than you are. If any of that
advice came from a multi-millionaire, then consider following it.
But if it came from someone who is up to their eyeballs in debt,
well, you don't want to go there.

I am just puzzled how so many people from other countries achieve
things like becoming governor of California, starting
companies(founder of Intel) and many more bright migrants while I am
struggling to even save for retirement.

I'd suggest reading a book called "The Millionaire Next Door". You
are making a mistake in comparing yourself to these "rock stars".
The thing is that they represent such a small fraction of society as
a whole, less then 1/4 of 1%, but they get so much press that the
media makes you think you are not normal. Same way with fashion
models--if you watch the media, you would think that all women are
supposed to look like Christie Brinkley. But as it turns out, she
just got the lucky genes that maybe 1 in 10-million get.

It appears quite a lot of people achieve it in our country from
http://www.mymoneyblog.com/archives/2007/02/do-you-make-a-six-figure-salary-sh
are-your-story.html
but most have more qualifications/skills than me.

Not at all. Bill Gates didn't even finish college, and I don't recall
that Steve Jobs has a degree. Woz went back to school to get his degree
after he left Apple Computer as a cajillionaire.

The way to explain these people is with my penny-flipping example.
Lets say you line up 10,000 people, and ask each one to flip a penny.
If they get tails, they are out. If they get heads, they flip again.
If they get tails, they are out. If they get heads, they flip again.
At some point, there will be one person left. Can you then say that
this person is the best penny flipper in the world? No. It was just
the luck of the flip of the coin. If you get tails, does that mean
you are dumb or a bad person? No.

Same thing goes with Bill Gates. He flipped the penny, and it came
up heads enough times in a row. The key is to (1) keep flipping that
penny whenever you can, and (2) try to engineer yourself so you are
flipping that penny in the right places.

Can moving to a different place like New York City or California boost
income after taxes, expenses etc of living in that area and working
for the coprorate sector?

Yes, some cities are better than others. But also factor in the cost
of living. As a young person, you can always take a flier and try out
a new city. Later on, you can move back to whereever you want to.

Some have told me being an independent consultant you can charge 100$
per hour assuming you can market and sell yoursel properly. For a 1
year contract(working 1950 hours per year) with 100$ per hour someone
could bring 195K after Federal, state, self-employment tax, medicare,
health/business insurance/vacation/annual leave,training leave etc.
could still net about 100K which is better than my present take home

Yes, and you could also find yourself sitting on the bench for 6 to
9 months earning zero, or sitting 2 years like a lot of the computer
folks I know of who were without a project when 9/11 happened. It is
a risk-reward trade off. Yes, the rewards are higher, but the risk is
higher. If you cannot control the risk, you may end up on the short
end when it comes to rewards.

Best advice I have for you -- get out of the government job ASAP and
get started in the real world. See if the cloud starts to clear up
after 6 months or so away from the government. Then we can talk more.

-john-

 

[camgere]

My take home is 5K per month and I have a B.S+M.S in Computer Science
coupled with 2 years of work experience(including pro-rated parttime).

Congratulations, you've got a lot of good things going for you. You
have skills, energy and can accumulate capital for investment.

If you are a reader, here are some books:

The Millionaire Next Door by Thomas J. Stanley and William D. Danko.
Cashflow Quadrant by Robert T. Kiyosaki. If you believe truth can be
explained to a 10 year old: The Richest Man in Babylon by George S.
Clason. If you need some comedy relief: Systemantics by John Gall
(when you get to be an older employee it may make you cry.)

Two of the ways to wealth are long term investment or owning a
business. Most employees invest in the stock market. Personally, I'm
invested in buy and hold real estate, but that takes time and effort.
Real Estate can be highly leveraged. Most people running a successful
business failed a couple of times. There is a whole world of
accounting, human resources, sales and distribution to learn about,
above and beyond the actual product. So try to contain the damage on
your earlier attempts. Employees and borrowing are forms of
leverage. It is very hard to design systems where employees don't put
their own self interest ahead of the company self interest. How many
companies have nicer offices for senior officials than lowly
employees? Just look at which employees can influence their own
benefits. There are still a few people who have a cultural background
of doing the employer's work on the employer's time. You will quickly
find that putting together a team is essential, it doesn't' make sense
to do it all yourself.

One the favorite metaphors is that your don't want to cook hamburgers,
you want to design a system for cooking hamburgers. A cook might be
able to make $25 an hour. A hamburger chain owner can earn thousands
an hour. Most successful large systems started as successful small
systems that grew. Small systems is where your personal talents are
all important. But to move past that you need to be an owner, not a
worker.

Good Luck! (translated: be prepared when opportunity comes knocking)

 

[s]

Thanks for your reply.

Invest properly- set aside a given amount each month. Some people
suggest 10%, some 15%, some 20%, some as much as possible. Bottom
line is you need to set something aside.

Yes, but I am setting it in savings/CD's which give about 5% and after
4% inflation and taxes it is lot less.

What % do you contribute to your employer's plan?

I am doing some 5% which is a deferred comp. plan.

Do you
get healthcare benefit in retirement?

No, I don't think I will get health insurance in retirement, but I
need to verify as I am weak in such things.

increase income- assuming you make around 74k gross per year, 5k take
home per month is a high income. I compare what you take home
relative to what I make, and outside of fact I send 11% to my 401k, I
see some similarities to my Engineering degree. Increasing income
will come with time. Another way to increase income is to cut
spending. Live on less than you earn, and you will find many
financial issues become simpler. Avoiding debt is a good way to save
more money.

Thanks. I will do that.

Once you are setting aside something each paycheck, and spending less
than you earn, you are well on your way.
Next step would be to learn about IRAs, taxes and investment choices.

Could you please suggest some good books/articles/blogs on them?
I am trying to read as much as I can , but still am confused. Some say
international funds are good, but bankers differ which leave me
confused.

Thanks for your advice and time.

 

[s]

Thanks for your reply.

Here is the golden rule of financial planning -- never take advice of
any kind from someone who is broker than you are. If any of that
advice came from a multi-millionaire, then consider following it.
But if it came from someone who is up to their eyeballs in debt,
well, you don't want to go there.

Thanks. I will remember that.

I'd suggest reading a book called "The Millionaire Next Door". You
are making a mistake in comparing yourself to these "rock stars".
The thing is that they represent such a small fraction of society as
a whole, less then 1/4 of 1%, but they get so much press that the
media makes you think you are not normal. Same way with fashion
models--if you watch the media, you would think that all women are
supposed to look like Christie Brinkley. But as it turns out, she
just got the lucky genes that maybe 1 in 10-million get.

Thanks.
I will try to get hold of the book as quickly as possible.

Yes, and you could also find yourself sitting on the bench for 6 to
9 months earning zero, or sitting 2 years like a lot of the computer
folks I know of who were without a project when 9/11 happened. It is
a risk-reward trade off. Yes, the rewards are higher, but the risk is
higher. If you cannot control the risk, you may end up on the short
end when it comes to rewards.

But, do typically these people do well? If they are earning 100K take
home for 10 years and left without a job during tough times for 2
years they still have earned about 1million whereas a salaried
employee earning 70K take home for 12 years will still earn about
840K. I have heard that generally consultants do well else they would
not be a consultant, but working for private industry or govt. job.

Best advice I have for you -- get out of the government job ASAP and
get started in the real world. See if the cloud starts to clear up
after 6 months or so away from the government. Then we can talk more.

Thanks for your advice and time. I will start looking and preparing
for the corporate sector interviews.

 

[FinancialEssentialsLLC]

First, let me congratulate you on your financial situation. You are
WAY AHEAD of your peers, regardless of what you may have read.
Basically, your instincts about finances seem to be right-on, and I
glad that you are skeptical about all of the advice you have gotten
because, quite frankly, some of it is quite dangerous and will set you
up for financial ruin.

That being said, Elle is correct. You must create a financial plan,
and your first step should be to clearly define your goals, both long-
term and short-term. Once you do that, you should have a good picture
of how much money you will need, and when you will need it.

Elle is right again, your next step is about protecting yourself and
paying off debt. You must have health insurance, however, if you are
single, you probably don't need life insurance (you need to understand
the difference between wealth protection products and wealth creation
products, so you don't get sold stuff you don't need.)

If you have debt, that should be paid off before you start investing.

When you are investing, remember that saving for a house is going to
require different strategies than saving for you retirement.

Two things to remember when investing:
1 - Diversification. This is the most important concept. You need
to really understand how to diversify before you even think about
investing; and
2 - If you need your money within 5 years, it should not be invested
in the stock market or any other risky venture.

From what you have written, you don't need extra jobs or to panic that

you aren't saving enough, you just need to understand how to protect
yourself and invest for your future.

 

[s]

Thanks for your reply.

I see that you have two financial goals: (1) buying a house;
and (2) saving for retirement. A few questions:

1. Do you have health insurance?

Yes, my agency provides me with health insurance though I have to pay
about 50 per month as a premium.

2. Do you plan to marry and have kids someday?

Yes, in few years.

3. At what age do you want to retire?

Not certain now, but if possible at 55, but considering my income it
seems far fetched as today lot of people seem to work in late sixties
or even in seventies also.

4. Do you have any debt (e.g. student loans; credit card
loans)?

I don't have any loans, but my main disadvantage is I started earning
quite late whereas most people start as teenagers.
I have to support family and brother in a few years.

The answers to these questions can better help frame what
your goals are, including whether you need to find more
income (via a different job or taking on more work). Then
much more concrete advice can be given here.

Thanks for your advice and time.

 

[s]

Thanks for the reply.

OK I have to stop reading right here. It sounds like you would benefit
from just learning a bit about income and wealth in the US, so you see
how well-off you are and how high your savings rate is!

Well, I thought that most people who start their own businesses or
enter other fields(law/medicine/management) do lot better than me as
evidenced by
http://www.businessweek.com/globalbiz/content/jun2007/gb20070601_7586...
http://www.youngentrepreneur.com/blog/
http://studentcenter.ja.org/aspx/PlanBusiness/stories.aspx

and http://www.mymoneyblog.com/archives/2007/02/do-you-make-a-six-figure-salary-share-your-story.html

It's not even remotely true that most 26 year olds make high six
figures.

Not most 26 year olds and not high 6 figures, but it seems they break
six figures from
http://www.mymoneyblog.com/archives/2007/02/do-you-make-a-six-figure-salary-share-your-story.html

and someone in business started since 16-17 even more. One of them
there mentions crossing the 7 figures at 24. Agreed, very rare indeed,
but we need to realize most people who are small business owners can
reach that.
A real estate agent earns about 15K per house sold which just requires
a 3 month license after high school(if I was told correctly by someone
pursuing that option). someone starting at 17 after high school and 9
years of experience can probably reach starting six figures if not
more.

Obama and Hillary sparred about this point in the debate
recently, but here is an interesting figure: according to a GAO report
from a couple years ago about the Social Security program, only 6% of
individuals earned more than the Social Security tax cap (which is
currently $97,500). So about 94% of people with earned income (salary,
wages) make under $97,500 - this is individuals, not household income,
which is a different figure. And most people who crack that $97,500
figure aren't 26, because peak earnings years come some 15-20 years later.

Yes, but averages vary as some are very well off and some are not so
well off.

So if your take-home is $60k, your income is well ahead of most other 26
year olds. You would have to look up local data but it would not
surprise me if you are above the 90th percentile in earnings, especially
in a low-cost area like Tallahassee.

Yes, but houses here are pretty expensive and I neglected some major
things in my post like I will have to support my elder parents and a
brother who wants to attend medical college in another 3 years or so.
They live in another area where my brother goes to college. I
apologize for the lack of information in the first post. I am not
supporting them at present so managed to save some amount.

You said it's hard to save for retirement, but you seem to be having no
problem doing that -- you already have $40k. Here's a figure that might
surprise you...that's getting close to the average amount a near-retiree
(age 55-64) has saved up in their IRAs and similar accounts. The figure
depends on the report cited, but it's somewhere in the neighborhood of
$55k. So not only are you way ahead of 26 year olds, your savings would
be above-average for someone 26 years older than you.

Perhaps, but added expenses like new family(spouse/children etc.) and
supporting parents/brother might make it difficult in the future.

And $700/mo, $8400/year, is a very low level of spending. Think how easy
it would be to sustain that lifestyle.

Yes, at present, but when I need to support my parents/brother and
have a family it would be lot more than that.

Thanks for your advice and time.

 

[s]

Thanks for the reply.

In fairness, I assumed he'd miswritten "high 5-figures", which is
sounds pretty reasonable for folks who "have a B.S+M.S in Computer
Science coupled with 2 years of work experience". Of course, he
claims $5k take-home == $60k take-home which implies, well, those
same high 5-figures for himself, probably around $70-$75k.

Well, I meant most people who are in family/self started businesses
hit that level and in some areas like New York City and California etc
like http://www.businessweek.com/globalbiz/content/jun2007/gb20070601_7586...
http://www.youngentrepreneur.com/blog/
http://studentcenter.ja.org/aspx/PlanBusiness/stories.aspx

I don't think I believe that number either, unless he's
talking about just rent, not "cost of living".

No need to be skeptical. You can get here in Tallahasse a 1 bedroom
apartment for 310/per month http://home.comcast.net/~lakelodge/
and I am paying 400 per month for rent with no utilities. Add 70 for
utilities and 80 for phone/cable net and 75 for groceries(assuming you
hardly ever eat outside) and 42 for bus fare per month which still
leaves a room for 35$ for any other expenses. As I mentioned I don't
have a vehicle so no car payments/fuel charges or insurance charges
and I also don't have any renter's insurance(as I don't have anything
too valuable at my home besides my computer). As I indicated there are
college students who might live in half of that assuming they share an
apartment(not as convenient as living alone) which might split the
cost of rent, utilities, phone bringing it to 275 + 75 for food and
since they pay tuition they get free bus rides. A college student can
teach you ways to cut down on expenses. Obviously, it depends on your
comfort level also.

Yes in a fancy area for a new apartment rent alone could be 700-900,
but not in a average area for an old house where I live.

If that's correct, then he's accumulating savings at a
rate of over $50k additional per year and you have to
wonder why he posted so many links and ideas about
making *more* to save.

Sorry, I missed some key factors like people I need to support(parents
and brother in a few years) and raise a family which would clearly
increase my expenditures dramatically.

To the original poster, if you could address these issues
and, perhaps, post a more pointed question or set of
questions, I'm sure you'll get more helpful answers.

I am not clear at this point as all I have been doing for finances and
retirement planning is talking to bankers, reading on
web etc, but still hesitant to invest in stock market/mutual funds,
but realize one needs to do that.

My questions would be is it advisable to take a second job(part time
or full time)? Is it worth doing it after taxes?
Is it proper to work as an consultant till you get married and
increase your revenue?
How about going for an additional degree like M.B.A which opens up
more doors(atleast that is what campuses mention)
Any useful books would be appreciated. My knowledge level of finance
is virtually zero for investing. I realize reading Warren Buffet's
site, Peter Lynch's books and Charles Schwab articles might help, but
there are lot more and pointers to such books would be welcomed.
Is it wise to be a real estate agent/blogger/part time worker at some
place etc to increase income?
I talked to a retirement specialist from Suntrust and he told you need
to be aggressive(invest more in stocks/bonds) as you have about 40
years for retirement. He was eager to open an brokerage account for
me, but I don't know much so I did not open at that point. The
question is how does someone like me wade through the sea of books/
documents/articles/blogs/bankers to determine what is proper?

Also, I thought most folks hit the six figures at my age as per
http://www.mymoneyblog.com/archives/2007/02/do-you-make-a-six-figure-salary-share-your-story.html
if not more which is mainly salaried people and small business are lot
better some of which become WalMart/Target/Microsoft/Dell etc.

I know it is just one web blog's link, but the fact that New York City
alone has 45 billionaires means six figures is not that
high(obviously, it depends on perspective) in our country and today's
age.

Thanks for your advice and time.

 

[Elle]

From your responses, it seems to me the biggest priority you
have in the near future is figuring out how to support your
"elder parents and a brother who wants to attend medical
college in another 3 years or so." This is a "short term"
and possibly large financial need, so this is why they are
the first priority. You also want to buy a house and save
for retirement. These goals are also important.

First, the parents: How old? Are they U.S. citizens and
eligible for Medicare or, if impoverished, Medicaid? Will
they live in your house with you? Do your parents have any
debt? What do you estimate the annual cost of supporting
them will be? You should start a spreadsheet of their
expected living expenses, subject to revision at any time,
now.

Second, the brother: How old? Can he get medical school
loans? Has he begun to research these loans? What do you
estimate the cost of supporting him will be? Will he live
with you? Start a spreadsheet of his expected living
expenses too.

You have 40k in savings in CDs, and you are participating
somewhat in your deferred compensation plan. The only other
thing I might recommend is contributing $4k for this year
(2007) to a Roth IRA immediately. Just put it in a money
market fund within the Roth. Otherwise, I recommend
continuing as you are for now. It's a safe course for the
short run.

You have much planning to do, but with your educational
background, I am optimistic you will have a good direction
soon. Much, if not all, of what other folks are saying is
also going to be useful. But I think you need to have a
handle on the big picture of your financial goals first.

Lastly for now, stop putting yourself down about how much
money you are making. You are wrong on some of your points
about how you are doing. For example, people who started as
teenagers overwhelmingly do not have anywhere near the
income you have now, at age 26. Statistics show that
generally, college grads make much more money over their
lifetimes than non-college grads. Moreso for Masters degree
holders.

Generally, one should not look back at what "could have
been," except maybe as a quick lesson of how to do it
better. One has to work with what one has now. You are
asking excellent questions and are very open to looking on
your own for answers as well. Keep doing so.

Thanks for your thanks. Seems to me people do take kindly to
courtesy around here, and it promotes optimal exchanges of
information. (Not that I am perfect.)

 

[jIM]

Yes, but I am setting it in savings/CD's which give about 5% and after
4% inflation and taxes it is lot less.


I am doing some 5% which is a deferred comp. plan.

No, I don't think I will get health insurance in retirement, but I
need to verify as I am weak in such things.

Could you please suggest some good books/articles/blogs on them?
I am trying to read as much as I can , but still am confused. Some say
international funds are good, but bankers differ which leave me
confused.

A few comments-

A sound retirement plan should probably be built on saving more than
5% of income. A reasonable goal might be to have 25X income saved (4%
starting withdraw rate).

Money will grow faster (PROBABLY) in equities. Equities could be
expected to return 8-10% long term, well above the 3-5% long term
return of CDs or cash based investments.

Many government jobs provide a pension and health coverage in
retirement, if you get these things the 25X income and 4% withdraw
rate assumptions change considerably in your favor.

I would read web sites like T Rowe Price, Vanguard, Smart Money and
Morningstar. Look at retirement calculators in particular.

Elle had good points about short term vs long term goals. I would add
that you need to pay attention to long term goals now, so in 5 or 10
years these goals don't look so daunting. I would also be careful of
committing to take care of family for only short term, as my
experience with doing that is once they move in, they never leave- or
stay much longer than planned anyway. Yes I have kicked a family
member (FIL) out of our house... so tread on this issue with
discretion.

I would always ask for a second opinion if someone tries to sell you
something.

 

[s]

Thanks for your reply.

First, the parents: How old? Are they U.S. citizens and
eligible for Medicare or, if impoverished, Medicaid? Will
they live in your house with you? Do your parents have any
debt? What do you estimate the annual cost of supporting
them will be? You should start a spreadsheet of their
expected living expenses, subject to revision at any time,
now.

My dad is 57 and mom 56. They are U.S citizens and eligible for
Medicare
and have their own house, but I prefer they sell it and live with me.
They are not
sure at this point, but I feel if I live closer to them I can aid them
better
in case of a medical emergency or issue. They don't have debt, but not
a lot of savings also. They want to travel after my dad retires(my mom
does not work)
to different parts of world. I realize some amount must be set aside
for medical
expenses of elder parents as medicare cannot be fully relied on.

Second, the brother: How old? Can he get medical school
loans? Has he begun to research these loans? What do you
estimate the cost of supporting him will be? Will he live
with you? Start a spreadsheet of his expected living
expenses too.

He is 19 at present and he can get loans. But, I am encouraging him
to get as much as financial scholarships he can get through different
sources. If he gets lot of scholarships I will have to spend less else
about 30K per year which varies between campus/area he goes to college
and
many other factors.

You have 40k in savings in CDs, and you are participating
somewhat in your deferred compensation plan. The only other
thing I might recommend is contributing $4k for this year
(2007) to a Roth IRA immediately. Just put it in a money
market fund within the Roth. Otherwise, I recommend
continuing as you are for now. It's a safe course for the
short run.

Thanks. I will do that.

You have much planning to do, but with your educational
background, I am optimistic you will have a good direction
soon. Much, if not all, of what other folks are saying is
also going to be useful. But I think you need to have a
handle on the big picture of your financial goals first.

Lastly for now, stop putting yourself down about how much
money you are making. You are wrong on some of your points
about how you are doing. For example, people who started as
teenagers overwhelmingly do not have anywhere near the
income you have now, at age 26. Statistics show that
generally, college grads make much more money over their
lifetimes than non-college grads. Moreso for Masters degree
holders.

Generally, one should not look back at what "could have
been," except maybe as a quick lesson of how to do it
better. One has to work with what one has now. You are
asking excellent questions and are very open to looking on
your own for answers as well. Keep doing so.

Thanks for your advice and time.


======================================= MODERATOR'S COMMENT:
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[rick++]

You have three issues:
1) Are you saving enough enough and investing well enough?
You are certainly saving enough. You are not investing wise
enough. CDs barely keep up with inflation. Stock market does
does much better, but you must commit to investing for at least
ten years to get pass bad economic years.
2) You worry about choosing a good high-paying career. Well you have
a good one now from what you say. Maybe you are reading too many
stories about superstars in Silicon Valley, and very few are that
lucky.
Silicon Valley costs more than twice Tennessee, so their money isnt
going as far. Do something you like to do rather than what other
people tell to to do. That will help you in during bad economic times
when motivation counts. When you have one, five, ten years or so
of living expenses in the bank you have the freedon to try new things
and move to new locations.
3) Its sounds like you may be spending too little money in your life.
If you dont have your own living place and own car that limits
finding a spouse or networking with potential partners.

 

[Cheryl]

The ROTH IRA is one of the best accounts you can have for your
retirement savings. You don't get any deductions for your
contributions, but your money grows tax free. But remember, these are
tax-advantaged plans, and you must play by the IRS' rules, which can
be quite complicated insofar as contribution limits, etc. You need to
make sure you are familiar with all of the rules because penalties can
be quite steep. You can get more information on ROTH IRAs at
http://www.irs.gov/publications/p590/ch02.html#d0e9163

Depending on where you open your ROTH, you can invest in almost any
kind of investment including CDs, stocks, bonds, mutual funds, and
sometimes you can even hold real estate in these accounts (but I
caution against it).

As to a comment that someone wrote that you should be saving 25% of
your income, that would be nice, and may be possible now because your
expenses are so low, but usually a more realistic goal (especially
once you get married and have a family, etc.) is 10%. 10% should be
the minimum amount you save from every paycheck.

I would also like to reply to a comment written that stated that you
can make between 8-10% in the stock market. Although the stock
market, in general, has the best long-term averages, remember it is
also very risky, and you can also lose 8-10% or more!!! You never
start your investment plan with buying stocks. Think of your
investment plan as a pyramid, you will want the bottom to be solid,
with investments like CDs and/or government bonds, then you diversify
into mutual funds, and then stocks. Don't put the cart before the
horse.

For investing newbies, you will want start learning about Index Funds
(which are mutual funds that follow the market indexes and should
charge very low fees), and then Exchange Traded Funds (or ETFs), which
are a stock version of Index Funds.

 

[Elle]

s,

I echo all concerns here from others regarding the wisdom of
supporting one's adult relatives. Like others, I recommend
the book, _The Millionaire Next Door_. It's an easy read. It
does have some good discussion on real life experiences with
people supporting relatives (other than spouse and small
children). Otherwise, you sound like you have considered,
and will continue to consider, this carefully. For now I
will continue to assume you have your reasons for wishing to
take on your relatives' financial challenges. Some comments
follow.

-- I happen to think Medicare is, generally speaking, enough
health insurance for those who have it. I base this on
experience with elderly relatives and media reports.
Medicare is not perfect, but it's said to be pretty darn
good. As you probably know, the bigger problem is your
parents do not become eligible for it until they are 65. I
personally think government intervention in health care
costs will be profound starting easily within two years. But
alas, I do not expect it to be helpful to the nation's or
one's personal medical costs for at least five years. So
insuring your parents until they are 65 should be a priority
for your financial planning.

-- After laying out a spreadsheet combining your expected
costs for your parents, your brother, and you. These should
include housing, food, shelter, health care, and education.

-- Since you have people depending on you, I think you
should seriously consider life insurance.

-- For now, and just my opinion, but I can certainly buy as
a retirement "nest egg" goal saving something like 25x your
current income (as Jim and others here often propose). This
is a very crude guideline. But it's also one that is a
reasonable starting point.

-- If your rough calculations indicate you can support your
parents, brother, and yourself with your current income and
save for retirement, and have money left over, and if you
want to buy a house right now, then I'd suggest you buy a
house suitable to your needs (including your parents'
needs?) and financial situation right now. Mortgage interest
rates are at record lows. Try to put down enough (20%) to
avoid PMI. Start a new thread here or at real estate
newsgroups about how to plan the purchase of a house.

-- You probably know this is not an exact science. But you
are on the right track to the big picture. You can inquire
further about specific aspects of your plan in individual
threads here and elsewhere. E.g. at some point you should
ask whether investing in your deferred comp plan or having,
say, a Traditional IRA is a better deal; what kind of life
insurance would be most appropriate; how to allocate your
investments for retirement; whether you could make more
money in another job. Try to compartmentalize where you can,
so it does not seem so daunting.

-- If you feel overwhelmed at all the info being thrown at
you and need something "fun" and interactive, mess around
some weekend with the free online, retirement asset
allocation tools linked at
http://home.earthlink.net/~elle_navorski/id8.html. These
will help you choose for investing for your retirement. More
importantly, they will introduce you to the idea of
diversification.

Disclaimer: I am not in the financial services business and
never have been. I have been investing in stocks, bonds,
CDs, and my own houses (to live in, not profit from) for
some two+ decades.

 

[pallav]

For investing newbies, you will want start learning about Index Funds
(which are mutual funds that follow the market indexes and should
charge very low fees), and then Exchange Traded Funds (or ETFs), which
are a stock version of Index Funds.

I have found these two sites provide useful information in learning
about them. It might
come useful for others:

http://www.seekingalpha.com/page/etf-investment-guide?source=sector

http://investingessentials.blogspot.com/

hope it helps.