Planning for the future

[EnderFFX]

I am 28 years old, have a decent job and am finishing up my Masters degree in about 2 monthes. I make between 30-40k a year, however I see my pay significantly increasing in the next 3 years (partly because of my Masters, partly because this is a real job with good growth potential)

I currently have about 10k in my 401k and approximately 4k in my checking with no savings account. (yet) I am looking to set myself up financially for the future, and I'd like to start making my money work for me. (I'm not talking about retiring before i'm 40, but I'm talking about having my money show a bit of a profit.)

How should I do this? What should I research? I'd love to hear any suggestions.

[GeorgeF]

See if a Dale Carnegie course in your area is worth taking. Ask for references.

You need to maximize your salary. You should spend your none working time thinking about how you can move ahead at work. To that end I don't suggest you spend time studing investment strategies as you do not have enough money to make clever ideas work. I suggest you go to vanguard.com.

I suggest you rent as renting will limit the amount of time you spend on maintaining your real estate and will limit the amount of stuff you can buy. Remember your financial strategy is max your income. Until you have $100,000 (really you need $1 million to make the effort of stock investing pay) there are few invesment strategies that are worth pursuing.

Basically at the start of your life the formula is maximize your salary, optimize our costs. After this the most important factor is who you marry, which could be a great help or hinderence.

www.johntreed.com (http://www.johntreed.com) has a book on success that was interesting.

[Nemesis]

Well guess it depends on who you are... my plan is single family homes. Buy one live there a year, move out and rent it. Rinse,repeat 5 or 6 times. In 15-20 years they'll be paid off from renters easily. After that it's home free.

[EnderFFX]

[ QUOTE ]
See if a Dale Carnegie course in your area is worth taking. Ask for references.

You need to maximize your salary. You should spend your none working time thinking about how you can move ahead at work. To that end I don't suggest you spend time studing investment strategies as you do not have enough money to make clever ideas work. I suggest you go to vanguard.com.

I suggest you rent as renting will limit the amount of time you spend on maintaining your real estate and will limit the amount of stuff you can buy. Remember your financial strategy is max your income. Until you have $100,000 (really you need $1 million to make the effort of stock investing pay) there are few invesment strategies that are worth pursuing.

Basically at the start of your life the formula is maximize your salary, optimize our costs. After this the most important factor is who you marry, which could be a great help or hinderence.

www.johntreed.com (http://www.johntreed.com) has a book on success that was interesting.

[/ QUOTE ]

I agree with everything you say. I have been spending my time maximizing my income and have been working on making myself as valuable as possible. (i'm in the computer industry and i have a Masters in Comp Sci to go with my BS in EE)

However, I'm not looking to trade stocks, buying/selling mutual funds, etc. I'm looking for purchases in which I can put my money into with a decent return and a fair amount of risk. (obviously big return and no risk would be fine, but i'm willing to take some chances for a decent gain) I'm basically looking for places to store my extra income to earn a little on the side. Obviously a savings account would be a start, but I assume there are other items i can purchase (bonds, stocks, mutual funds) that make more money at a little bit more of a risk.

Thanks for the help so far.

[midas]

Ender

The following is the standard financial advice that can be found in any library or financial magazine. The objective is to build long-term net worth:

1. Put as much money (pretax) as you can possibly afford, into your 401K for 2 reasons - 1. the gov't pays for a portion of you contribution and 2. if your employer matches - its free money. Invest all contributions in a 100% equity mutual fund from a reputable fund manager.

2. Pay off all high-interest debts (credit cards/auto loans) as fast as possible. Try to avoid credit card balances - live within your means.

3. Most people will eventually buy a home. If you live in a fast growing metropolitan area - buy real estate as soon as possible for 2 reasons: 1. RE prices are always rising you need to jump on board the rising tide. 2. The leveraged return on investment is great, for example - buy a house for $200K and put down 40K, in 5 years house is worth $240 - 40K gain - you've doubled your money in 5 years - good return.

4. Once you've maxed out 401K contributions - have 5% of your paycheck automatically invested in a 100% equity mutual fund (Vanguard S&P 500 is a good option). You'll get used to your lower take home pay and adjust accordingly. As you get raises - raise the percentage. If you invest $5,000 per year over 30yrs and assume you get 10% annually - after 30 years you'll have $822,000.

[EnderFFX]

[ QUOTE ]
Ender

The following is the standard financial advice that can be found in any library or financial magazine. The objective is to build long-term net worth:

1. Put as much money (pretax) as you can possibly afford, into your 401K for 2 reasons - 1. the gov't pays for a portion of you contribution and 2. if your employer matches - its free money. Invest all contributions in a 100% equity mutual fund from a reputable fund manager.

2. Pay off all high-interest debts (credit cards/auto loans) as fast as possible. Try to avoid credit card balances - live within your means.

3. Most people will eventually buy a home. If you live in a fast growing metropolitan area - buy real estate as soon as possible for 2 reasons: 1. RE prices are always rising you need to jump on board the rising tide. 2. The leveraged return on investment is great, for example - buy a house for $200K and put down 40K, in 5 years house is worth $240 - 40K gain - you've doubled your money in 5 years - good return.

4. Once you've maxed out 401K contributions - have 5% of your paycheck automatically invested in a 100% equity mutual fund (Vanguard S&P 500 is a good option). You'll get used to your lower take home pay and adjust accordingly. As you get raises - raise the percentage. If you invest $5,000 per year over 30yrs and assume you get 10% annually - after 30 years you'll have $822,000.

[/ QUOTE ]

Thank you, I very much appreciate the advice, I am putting the max into my 401k at the moment. I am knocking down my credit card debt as fast as possible, with my student loans the only debt left to me.

As for the rest of the information, to be honest, I was clueless about. I am tech nerd, and not very knowledgeable in the area of finance. I'm just looking to set things up down the road and all of your advice makes a lot of sense.

It also gives me some clues as to where to go to learn even more.

Thanks a lot.

[GeorgeF]

I suggest you simplifiy your life and stick to vanguard.com mutual funds until you have some money. You might consider a subscription to bobbrinker.com or fundx.com.

If that is too simple my broker is freetrade.com. My last purchases where CMK(dividend+Discount) and NAV(turnaround). My largest positions are BRK, GIM and ZMH. I am considering JDD or ACG. If you want a gamble try TKC (long term bet on Iraqi peace) or ISL(very long term bet on tech and Israeli peace).

You can research CE funds on www.cefa.com (http://www.cefa.com), etfconnect.com, www.sec.gov. (http://www.sec.gov.)

BTW, any time you spend 'studying' investing is probably wasted until you have about $100,000.

[gvibes]

I second Vanguard. You can get a lot of very good advice at diehards.org (Morningstar's Vanguard discussion page).

[punkass]

Advice so far here is good. There is nothing remarkably wrong.

Real Estate (owning own home) is always a good investment. But as in all investments, even real estate isn't guaranteed. You are not guaranteed doubling your money in 5 years, as an example was given. But if you have the capital, and you know where you are going to live for awhile...it is a good idea. There are tax breaks if you live in the house and sell if you own the house for 2 years or more. And of course, the interest on your mortgage payments are tax deductible.

Maxing out 401k is always good.

Also consider maxing out a Roth IRA. You can put in $3000 a year in it. And they will raise that limit. The money you put in it won't be tax deductible, so all the money in your Roth IRA is funded with after tax dollars. But when you take distributions, all withdrawals are free of tax, even the gains.

And one of the perks of a Roth IRA...at any time, you can withdrawal any portion of your IRA without penalty or taxes, up to the amount that you put in it. All capital gains and dividends must stay in the account.

Of course, you should keep 3-5 months of emergency money in a very liquid account (money markey/savings).

Other than that, you seem good to go.
Always keep paying yourself first.

And in the end, don't worry. You seem smart enough to ask for advice, so chances are, you're ahead of the game. Don't be afraid to splurge once in a while... Go on vacation...eat a good dinner.