After student loans, I'm finally starting to save a little bit each month.
I was wondering, where do you all put your money? Banks? Stocks? Gold/Silver? 401k/IRAs? Magic Cards?
Right now, my savings are being stored in a bank in a savings account, but the interest is extremely low.
Currently putting about 27% of my pretax income into both a Roth IRA and a 401k.
I do not recommend doing this.
Ideally, you want to have six months worth of salary in a savings account before you consider investing. Afterwords, depending on company match, etc. you could consider a 401k. A Roth IRA is post-tax, so depending on your budget it may not be the best option, but it does have its advantages. However, you should consider this money UNTOUCHABLE. There are serious financial penalties for extracting prior to retirement. Also note that these fluctuate with the stock market. Which is kind of in the red right now - which is good and bad. Good, in that you have better buying power, bad because your money that's already in it evaporated. That being said, riding out stock market hills and valleys will get a historically good net return on investment.
So: Save up six months salary in a savings account (emergency package). Then see what sort of retirement plan options will best net you that sweet, sweet free money (tm)
I'm a finance professional, but not a financial planning professional. This is just a hobby of mine, usual caveats.
Most people focus on how to get the largest return on their investments. That's generally the wrong question. The better question is "how can I save more money?" The more you save, the lower your required standard of living, the less money you need to keep that standard of living through retirement, the lower investment return you need, and the lower your chance of missing your financial targets. If you happen to get a great return, then great - you can donate all of the excess legacy to charities or family.
You may be past this point if you've finished school, but at some point you would want to consider what career provides highest level of compensation, quality of life, and enjoyment. College grads have 2x lifetime earnings of high school grads, but there are careers that pay 4x or much, much more.
Slightly different perspective on order:
I would line up credit to serve as my emergency savings. A credit card can be fine in the event of unexpected bad financial news.
I would then look to collect free money from my employers 401(k) match. 100% return, risk-free!
I would then build a paycheck or two worth of savings (not the full 6 months yet) just to reduce the time I spend looking at my account and so I can sleep well at night. This is probably in your FDIC-insured checking account.
I would then look very hard at any debt I'm carrying. If I'm paying 18% on a credit card, then I would pay that down first. Paying off 18% interest is like getting an 18% risk-free return. Freeing up more of your credit limit can also provide you with a larger cushion.
Other consumer debt (like auto loans - note: cars can be a REALLY expensive proposition) gets liquidated next. Note that this category doesn't include student loans.
Then I'd start looking at building the 6 months of emergency savings. You could put that into an FDIC-insured money market account (or an online Bank - these tend to have slightly higher returns) - since I already had credit cards available if there was an immediate need, we did Roth IRAs next. Note that you can withdraw the principal that you put into your Roth IRA without penalty (takes some time to do so, though). Also note that your ability to contribute to one phases out as your household income increases.
I assume that your next financial goal would be to save for a house downpayment; you'd probably also want that in an FDIC-insured MMA or online savings account. You don't really want the volatility in principal that you'd get from stocks/bonds over the few years that you'd be saving.
Student loans are tax-advantaged if your income is low enough to benefit from the tax advantage, those tend to be further down the priority list to eliminate. [We paid off all debt but student loans before taking on a mortgage. We use credit cards - better fraud protection than debit cards, since the Bank's money is gone, not our savings - but pay them off every month.]
Then get serious about retirement savings in a tax-advantaged account. Think 10%/year (minimum), but 20%+ is often necessary when you do the math, depending on how optimistic you are about Social Security and medical costs. When you map out your financial future, plan to pay off your home before retirement so you have lower required retirement income, and more flexibility.
For investment savings - I'm a firm believer in buy and hold for the long-term, so I have a mix of low-cost index funds. Most folks would do just fine with a target-date fund. Before doing anything more complicated than a target-date retirement fund, I would suggest running through the reading list suggested here. (His blog posts are interesting as well. He is also a buy/hold aficionado.) I'm not a believer in precious metals - there are clearly a variety of perspectives here, but the long run expected return is the level of inflation (i.e., 0% above inflation) and for a supposedly low-risk investment, they are tremendously volatile.
When you start accumulating a LOT of savings, then you probably need to consider tax diversification. i.e., mix of pre- and post-tax savings and where you decide to put those, and how you protect those from estate taxes when you die. If you want to retire earlier than 59.5, you're going to eventually need some post-tax savings (or have a 401k from your last employer to draw from - the point is that things get complicated, so you'll eventually want to consult a professional).
Check out the Bogleheads forum for investing and personal financial advice. (Also firm believers of buy/hold.)
Oh, I put money into Magic cards only after securing my financial future - i.e., it's the discretionary, single digit, "play" portion of our net worth. If you have some way to take a capital investment in MTG cards and consistently make more money from it, then fine (i.e., as an active investment, like buying and parsing collections), but as a passive investment strategy, there are TOO MANY participants and I believe all of the "easy" money has already been made.
I'm a finance professional, but not a financial planning professional. This is just a hobby of mine, usual caveats.
Most people focus on how to get the largest return on their investments. That's generally the wrong question. The better question is "how can I save more money?" The more you save, the lower your required standard of living, the less money you need to keep that standard of living through retirement, the lower investment return you need, and the lower your chance of missing your financial targets. If you happen to get a great return, then great - you can donate all of the excess legacy to charities or family.
You may be past this point if you've finished school, but at some point you would want to consider what career provides highest level of compensation, quality of life, and enjoyment. College grads have 2x lifetime earnings of high school grads, but there are careers that pay 4x or much, much more.
Slightly different perspective on order:
I would line up credit to serve as my emergency savings. A credit card can be fine in the event of unexpected bad financial news.
I would then look to collect free money from my employers 401(k) match. 100% return, risk-free!
I would then build a paycheck or two worth of savings (not the full 6 months yet) just to reduce the time I spend looking at my account and so I can sleep well at night. This is probably in your FDIC-insured checking account.
I would then look very hard at any debt I'm carrying. If I'm paying 18% on a credit card, then I would pay that down first. Paying off 18% interest is like getting an 18% risk-free return. Freeing up more of your credit limit can also provide you with a larger cushion.
Other consumer debt (like auto loans - note: cars can be a REALLY expensive proposition) gets liquidated next. Note that this category doesn't include student loans.
Then I'd start looking at building the 6 months of emergency savings. You could put that into an FDIC-insured money market account (or an online Bank - these tend to have slightly higher returns) - since I already had credit cards available if there was an immediate need, we did Roth IRAs next. Note that you can withdraw the principal that you put into your Roth IRA without penalty (takes some time to do so, though). Also note that your ability to contribute to one phases out as your household income increases.
I assume that your next financial goal would be to save for a house downpayment; you'd probably also want that in an FDIC-insured MMA or online savings account. You don't really want the volatility in principal that you'd get from stocks/bonds over the few years that you'd be saving.
Student loans are tax-advantaged if your income is low enough to benefit from the tax advantage, those tend to be further down the priority list to eliminate. [We paid off all debt but student loans before taking on a mortgage. We use credit cards - better fraud protection than debit cards, since the Bank's money is gone, not our savings - but pay them off every month.]
Then get serious about retirement savings in a tax-advantaged account. Think 10%/year (minimum), but 20%+ is often necessary when you do the math, depending on how optimistic you are about Social Security and medical costs. When you map out your financial future, plan to pay off your home before retirement so you have lower required retirement income, and more flexibility.
For investment savings - I'm a firm believer in buy and hold for the long-term, so I have a mix of low-cost index funds. Most folks would do just fine with a target-date fund. Before doing anything more complicated than a target-date retirement fund, I would suggest running through the reading list suggested here. (His blog posts are interesting as well. He is also a buy/hold aficionado.) I'm not a believer in precious metals - there are clearly a variety of perspectives here, but the long run expected return is the level of inflation (i.e., 0% above inflation) and for a supposedly low-risk investment, they are tremendously volatile.
When you start accumulating a LOT of savings, then you probably need to consider tax diversification. i.e., mix of pre- and post-tax savings and where you decide to put those, and how you protect those from estate taxes when you die. If you want to retire earlier than 59.5, you're going to eventually need some post-tax savings (or have a 401k from your last employer to draw from - the point is that things get complicated, so you'll eventually want to consult a professional).
Check out the Bogleheads forum for investing and personal financial advice. (Also firm believers of buy/hold.)
Oh, I put money into Magic cards only after securing my financial future - i.e., it's the discretionary, single digit, "play" portion of our net worth. If you have some way to take a capital investment in MTG cards and consistently make more money from it, then fine (i.e., as an active investment, like buying and parsing collections), but as a passive investment strategy, there are TOO MANY participants and I believe all of the "easy" money has already been made.
I never did get a chance to comment on this. But that you for a wonderful and exhaustive entry. I have since joined bogleheads. Knowledge wise, they are definitely a cut above everyone else. They're a bit risk adverse though since many are near retirement. Nevertheless they have very good insights.
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I was wondering, where do you all put your money? Banks? Stocks? Gold/Silver? 401k/IRAs? Magic Cards?
Right now, my savings are being stored in a bank in a savings account, but the interest is extremely low.
I do not recommend doing this.
Ideally, you want to have six months worth of salary in a savings account before you consider investing. Afterwords, depending on company match, etc. you could consider a 401k. A Roth IRA is post-tax, so depending on your budget it may not be the best option, but it does have its advantages. However, you should consider this money UNTOUCHABLE. There are serious financial penalties for extracting prior to retirement. Also note that these fluctuate with the stock market. Which is kind of in the red right now - which is good and bad. Good, in that you have better buying power, bad because your money that's already in it evaporated. That being said, riding out stock market hills and valleys will get a historically good net return on investment.
So: Save up six months salary in a savings account (emergency package). Then see what sort of retirement plan options will best net you that sweet, sweet free money (tm)
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Most people focus on how to get the largest return on their investments. That's generally the wrong question. The better question is "how can I save more money?" The more you save, the lower your required standard of living, the less money you need to keep that standard of living through retirement, the lower investment return you need, and the lower your chance of missing your financial targets. If you happen to get a great return, then great - you can donate all of the excess legacy to charities or family.
You may be past this point if you've finished school, but at some point you would want to consider what career provides highest level of compensation, quality of life, and enjoyment. College grads have 2x lifetime earnings of high school grads, but there are careers that pay 4x or much, much more.
Slightly different perspective on order:
Student loans are tax-advantaged if your income is low enough to benefit from the tax advantage, those tend to be further down the priority list to eliminate. [We paid off all debt but student loans before taking on a mortgage. We use credit cards - better fraud protection than debit cards, since the Bank's money is gone, not our savings - but pay them off every month.]
Then get serious about retirement savings in a tax-advantaged account. Think 10%/year (minimum), but 20%+ is often necessary when you do the math, depending on how optimistic you are about Social Security and medical costs. When you map out your financial future, plan to pay off your home before retirement so you have lower required retirement income, and more flexibility.
For investment savings - I'm a firm believer in buy and hold for the long-term, so I have a mix of low-cost index funds. Most folks would do just fine with a target-date fund. Before doing anything more complicated than a target-date retirement fund, I would suggest running through the reading list suggested here. (His blog posts are interesting as well. He is also a buy/hold aficionado.) I'm not a believer in precious metals - there are clearly a variety of perspectives here, but the long run expected return is the level of inflation (i.e., 0% above inflation) and for a supposedly low-risk investment, they are tremendously volatile.
When you start accumulating a LOT of savings, then you probably need to consider tax diversification. i.e., mix of pre- and post-tax savings and where you decide to put those, and how you protect those from estate taxes when you die. If you want to retire earlier than 59.5, you're going to eventually need some post-tax savings (or have a 401k from your last employer to draw from - the point is that things get complicated, so you'll eventually want to consult a professional).
Check out the Bogleheads forum for investing and personal financial advice. (Also firm believers of buy/hold.)
Oh, I put money into Magic cards only after securing my financial future - i.e., it's the discretionary, single digit, "play" portion of our net worth. If you have some way to take a capital investment in MTG cards and consistently make more money from it, then fine (i.e., as an active investment, like buying and parsing collections), but as a passive investment strategy, there are TOO MANY participants and I believe all of the "easy" money has already been made.
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I never did get a chance to comment on this. But that you for a wonderful and exhaustive entry. I have since joined bogleheads. Knowledge wise, they are definitely a cut above everyone else. They're a bit risk adverse though since many are near retirement. Nevertheless they have very good insights.