Looking for financial wisdom

Parent Cafe
1

<p>Hey all, I’m turning 18 next week and subsequently heading off to college. As it stands now I’ll most likely be $20,000 in the hole for student loans after graduation (Mechanical Engineering), however I’m not counting co-op earnings or any possible income.</p>

<p>I want to make as much progress on that debt as possible as well as set myself up for the future. I know it is hard to plan even two months ahead but any headway is good, IMO.</p>

<p>I can see myself taking the TEFL route for a year after graduation and saving up some money while living abroad but I’m not very financially literate especially in terms of being able to transfer money cross country/tax differences/etc.</p>

<p>Since I do not have any steady income at the moment but a few hundred to my name that I want to get working for me, would it be best to go all into a savings account? I would guess that starting next summer (possibly this fall with a part-time on campus job) I would be seeing some substantial income (compared to $0) and would that be a better time to start pouring into a roth IRA?</p>

<p>There are so many paths to take and while I don’t want to go down the wrong one I don’t want to stand still, either.</p>

<p>Thanks in advance for 1. reading this whole thing and 2. any replies!</p>

2

<p>It’s good that you’re thinking about investing for retirement already, but it sounds like you’ve got a lot of other things to do first. But to answer one of your questions: If all you have is a few hundred dollars, you have to keep it liquid (i.e., immediately available) in case you need it, so keep it in a savings account, one that bears interest if possible. No matter what you do, you’ll surely need a little money for airfare, a security deposit on an apartment, etc. I might suggest asking about investments again once you’ve got a job, know what your (preferably minimal) living expenses are, and, if you go abroad, how much to have available in case you have to get back home in a jiffy for some reason.</p>

<p>But again, good job thinking about investing already. Good luck.</p>

3

<p>It would be a good idea to borrow a few books on investing from the library, to familiarize yourself with the concepts. There have been a few threads on investments before on CC Parent Cafe that have some good titles. I agree with the above post. It’s good that you will only graduate with about $20,000 in total debt, which should be significantly less than your 1st year’s ME salary.</p>

4

<p>Check out financial guru Dave Ramsey’s nationally syndicated radio show and/or books (several are in libraries and all are on Amazon). He makes things very easy to understand and his financial advice --which covers the entire spectrum of issues, from mortgages to paying for college tuition-- is very prudential. A person who listens to him and applies his advice/knowledge can become financially smart. </p>

<p>Just my two cents.</p>

5

<p>Although you’re not ‘counting on’ income, don’t discount it either. You can try to get a p/t campus job (especially after the first semester) and a summer job and after your first couple of years you may be able to get some paid internships. This can all add up to a lot of money - maybe enough to pretty much offset that $20K.</p>

<p>There are other advantages to having a campus job and the internships you should almost consider a necessity for your future job prospects.</p>

<p>The few hundred dollars you have now can go into a savings account. It’s not enough money to make any practical difference in where you invest it anyway and you need it to be fairly liquid (i.e. accessible). When you start earning more money through your campus jobs/internships I think you’re better off considering paying down any loans you have rather than investing elsewhere - especially in a longer term account like a Roth IRA. Save that for when you get a steady job after you graduate. In the meantime you need to be more concerned about supporting yourself while in school including regular spending money, decreasing the loans you need to take or paying them off, and upon getting a job after graduation (at some point), being able to buy a car and get an apartment to live.</p>

6

<p>I spent about a year reading financial advice a while back. Distilled, here it is: save 15% of your income and invest it carefully in a market you know well (real estate, rare coins, stocks, bonds, whatever) over your lifetime. Pay cash whenever possible. Buy less than you want.</p>

7

<p>I think that advice is just distilled enough to be dangerous, specifically this part:</p>

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<p>I would amend it to read as follows:</p>

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<p>I say this because, no matter how well you think you know, say, rare coins, putting your entire 15% into them is a dumb idea. Too much diversity ensures you won’t get rich, but too little diversity leaves you open to becoming very poor very quickly. A young person should build a nest-egg with something relatively safe compared to its growth potential, such as an index fund, and once they have a safety net of about a year’s living expenses in that, then they can safely take on more risk.</p>

<p>Any disagreement?</p>

8

<p>Michelle Singletary is a personal finance expert who has written a number of easy-to-read books. She also has a regular column in the Washington Post, and a radio program that may run in your area. Another handy easy-to-read book is “Personal Finance for Dummies”. I picked up an older edition a couple of years ago for about three bucks at a used book store. Fad financial advice changes with the latest fads, but basic advice doesn’t.</p>

9

<p>Mantori.suzuki: the argument for sticking to one market over your lifetime is that it gives you an opportunity to become an expert. Plus, markets come and markets go. Real estate, for example. If, over your lifetime, you save 15% of your income, and pay cash as much as possible, you should have quite a lot socked away.</p>

10

<p>Will you be eligible for financial aid while you’re in college?</p>

<p>If so, be aware that assets in your name at the time your financial aid forms are filled out will be assessed at a much higher rate than those held in your parents’ names (with the exception of money held in a 529 account). Therefore it makes the most sense for you to give your summer earnings, etc to your parents, who can then use the money to pay for tuition, R&B, or sent to you to help w/ incidental expenses, OR to minimize the amount of loans you need to take out (if you have SUBSIDIZED loans, you can keep those, but money set aside with your parents can be used to pay them off ASAP).</p>

11

<p>As someone who has worked in the financial industry for a long time, putting all your money into any one thing is not wise. Professional money managers don’t do that, they hedge money across markets and especially in things like hedge funds, they are trading using sophisticated algorithms across financial markets to achieve their goals. There are all kinds of financial systems out there people promote, the ones saying you can get rich trading commodities, buying gold, etc…and most of them make money selling the systems.</p>

<p>Single unit investing, like real estate, is great if they are booming, but what happens when the bubble bursts? People who put a lot of money into real estate before the crash recently got burned big time, many of them saw their wealth wiped out, collecting rare coins is great, but the problem is collectibles go through waves and then crash, you get the drift. Attaining expertise as one poster said is great, but the problem is even experts lose their shirt in single markets like this, trading firms full of experts go bankrupt and so forth because no market is entirely predictable, whether it is real estate, bonds, stocks, commodities, you name it. </p>

<p>I agree with others, it is great you are thinking of investing and I agree that once you are working, having regular savings is great, and 15% would be a nice number, if achievable, but if not, any number. With savings, try to put some of it into long term investing (401k’s, especially where employers match it, are worth maxing out, since they are before taxes which makes it cheaper versus after tax savings, IRA’s, etc) and some of it into more liquid investments, like money markets, mutual funds and such, so if an emergency happens you have cash to handle it (they usually tell you to try and have 6 months worth of income saved, in case of job loss). </p>

<p>In terms of where to invest it, there is nothing wrong with investing your own money, but quite honestly I think you would do better having some you do yourself, and put the rest into mutual funds and the like. Why? Especially in the equities markets trading as an individual investor is difficult on a large scale, most of the activity in the markets is large scale trading based on sophisticated modelling that can cause a lot of issues for the individual investor, and quite frankly, it is very easy to lose a lot really fast. Funds offer a way to get into whole markets, there are funds that invest in commodities, there are funds that invest internationally, in risky start up companies, in small, medium and large cap investments, bonds, and it would be wise IMO to be diverse with those, too. Some funds make their money by appreciation of share value, others do so by returning dividends (which you can re-invest into more shares). A good strategy is when younger, lead your investments towards more risky but high yield investments (like, for example, a tech fund that invests in small companies) and the rest into more mature, large cap funds (so for example, 70% high yield/high risk, 30% lower yield/less risk). For funds you are keeping for an emergency, might be better to put that into a muni bond fund or money market fund, won’t make a lot of interest, but they are generally liquid (can be cashed in rapidly) and are safe. As you get older, the ratio would change towards more in lower yield/lower risk investments and less in high risk ones. </p>

<p>I agree with others, there are some pretty good books out there on investing, it would be wise to read up and see what they are talking about, but I recommend staying away from the books that promise ‘wealth at 30’, ‘getting rich the ez way’ and so forth, and read books by investing experts like Peter Lynch and so forth. </p>

<p>The key is letting it build up over time so that you aren’t in the position where down the road you have to take risks to try and make up for lost time. The fact that you are thinking about this at 18 is a really good thing, I think learning over the next several years will help you get into it when you are actually working and earning money:)</p>