|
![[image loading]](http://uk2.net/blog/wp-content/uploads/mooooney.jpg)
I'm going to have to manage my money for the rest of my life. I am so friggin excited! The revelation came when I accepted a student loan, looked at my budget, and thought "gee I have enough $$ for a ps3/tv!" But before I decided to decide to purchase it when I can, I really asked around in various places and thought about it ( here)
It started with that, grew into google searches and ended up full on budget-altering and note-taking. Now I'm kind of penny pinching, I want to invest all my money. I'm going to open up an account at a discount brokerage (roth ira and short-term) and invest small sums in carefully selected companies each month regardless of market price. (I think this is called dollar cost averaging) I'm going to have all my dividends reinvested and let these non ira accounts sit for at least 2 years.
I've got some questions for any of you who know something about stuff like this. They might be real stupid, and if they are, correct me:
1. When I get out of school and have to pay back my student loans, is it more prudent to liquidate portions of my assets and pay it all back immediately or leave them be and pay it back more slowly with job $$/other sources? Or is this just really situation dependent?
2. Where can I go to have somebody look over account terms, fees, all the legal text and what should I look out for?
3. How do taxes work? Or are they so complicated that I should hire somebody?
4. What's generally a good amount to have in the bank just in case?
5. Is there anything I'm planning on that is drastically wrong?
6. Any other money management tips would be much appreciated.
feel free to ask me questions. This is an area of my life I want to have under an iron grip, know exactly where it is and generally where its going.
|
I read a book by Ramit Seti called I will Teach you to be rich, and it's advice is to never invest until you're fully out of debt. Actually, do yourself a favor, buy his book. It's delightful to read, both in value which is incredible, and in entertainment. He speaks to college students specifically. Do it, it's the best $10 you'll spend.
|
Are you sure you are going to have enough money to invest in stocks while you are living on student loans? Doesn't make much sense to me to be considering how to invest your money when you are living in debt.
|
Also, always have 2.5x your monthly expenses in the bank. (I wish I could do this. I'm working on it!)
|
it'd be a really good idea to pay back student loans as quick as possible, interest is the god damn devil
taxes can be very case dependent, i know my family always has a friend who is an accountant do ours cause i wouldnt want to miss out on free monies the government has to give me.
personally ive never had less than 2k in the bank, but i think a good safe amount would be 500? maybe less if you figure emergency money can be tighter, it might be a good idea to make the amount what a months rent is actually. In case you're a silly music major who buys an iphone or something
i guess a good sort of money managing thing is, say you want to spend so much in a month obv rent is out of the way first, but then do all your shopping or as much of it as you can (for food) at the start of the month, or right when you get your pay check. Because all else fails if you have food and rent covered you arent fucked
|
I'm in the same situation as you, now, so I'm no authority here... as for your #1, though, if you're talking about investments you're trying to collect interest on, you're almost certainly better off using that money to repay your loan now rather than try to collect interest - I really doubt you could make more than your loan would accrue. An exception would be some kind of benefit your employer pays you 1:1 on, like a 401k or health expense account.
However, you should try to keep a couple months' living expenses liquid (at least liquid enough that you can get it before your checking account runs out) in case of losing your job/medical emergency/your car explodes/whatever. You'd be better off paying your loan more slowly than open yourself up to an emergency situation where you'd have to borrow money at a high interest rate.
Also, having paid taxes many times, it's not hard at all. At least, if you have no dependents or business-related expenses to write off. Just make sure you have the right number of exemptions on your W-4 (Most likely "2" for you - one for yourself, one for being single with 1 job). Based on the number of exemptions you put down, a certain amount of each paycheck you get is automatically withheld (You'll notice on your pay stubs). The more exemptions you claim, the less money is withheld from each week's pay. However, at the end of the tax year, you owe the same amount in taxes regardless of whatever you put on the W-4.
For example, say you make $400 a week. If you put "0" on your W-4 you might have $200 withheld from each paycheck ($10,400 total withheld at the end of the year). If you put "2" on your W-4, you might have $100 withheld from each paycheck ($5,200 total withheld at the end of the year). When you sit down to do your taxes at the end of the year, you find out that you owe $5,300 total in taxes. If you had put "0", that means you get a $5,100 refund check and if you had put "2", that means you need to pay another $100. You pay the same amount regardless, but in the case you had put "0", the government held onto that $5100 for a whole year. (note: these $ values are totally unrealistic, it's just an example)
Some people like to take fewer exemptions so that they use taxes as sort of a savings account and get a big refund check at the end of the year. I think that's stupid - you'd be better off having the right amount withheld and putting that money towards paying your loans or investing ASAP. If you're the sort of person that would worry about blowing all your money as soon as you get it, you can direct deposit some of your money into a separate savings account so you don't accidentally spend what you're trying to save.
|
On June 27 2010 15:15 Eiserne wrote:
I read a book by Ramit Seti called I will Teach you to be rich, and it's advice is to never invest until you're fully out of debt. Actually, do yourself a favor, buy his book. It's delightful to read, both in value which is incredible, and in entertainment. He speaks to college students specifically. Do it, it's the best $10 you'll spend.
yes that is good advice.
most student loans tend to be in the 7-9% range in annual interest rate. If by keeping your money in your investments you can do better than (9%)x(total_student_loan_number), then sure, but most cases, you'd want to pay back your student loans first.
|
On June 27 2010 15:19 Divinek wrote:
it'd be a really good idea to pay back student loans as quick as possible, interest is the god damn devil
taxes can be very case dependent, i know my family always has a friend who is an accountant do ours cause i wouldnt want to miss out on free monies the government has to give me.
personally ive never had less than 2k in the bank, but i think a good safe amount would be 500? maybe less if you figure emergency money can be tighter, it might be a good idea to make the amount what a months rent is actually. In case you're a silly music major who buys an iphone or something
i guess a good sort of money managing thing is, say you want to spend so much in a month obv rent is out of the way first, but then do all your shopping or as much of it as you can (for food) at the start of the month, or right when you get your pay check. Because all else fails if you have food and rent covered you arent fucked
From what I understand, income from stocks that goes directly back into buying more stocks isn't taxed. it's only taxed when you start using that income on other things besides tax.
i think a good financial or tax advisor would charge like, 100 an hour. if you can afford it, it's great, because knowing all the little loopholes would save you wayyy more money than the 100 it took for you to talk to him
but if not, still just go on forums and ask around for the tax advice. you'll get the overall important ideas.
|
1. When I get out of school and have to pay back my student loans, is it more prudent to liquidate portions of my assets and pay it all back immediately or leave them be and pay it back more slowly with job $$/other sources? Or is this just really situation dependent?
many student loans are 0 interest while you are in school, one you are no longer in school they tend to ramp up interest rates quite a bit. this means for instance if you loaned out 10000 with 12% interest after schooling (usually smaller total loan, but a larger interest rate than the typical student loan) and got through your school in four years, at the end of that four years, you owe 10000. if you pay 150 a month, at the end of the year you are looking at about 9300 dollars of debt. even though you paid 1800 you only paid off about 700. so larger than that monthly payments are good for living off of a steady income post school, but obviously because of the high interest rate the quicker you pay off a loan the better.
+ Show Spoiler +2. Where can I go to have somebody look over account terms, fees, all the legal text and what should I look out for?
Public accountants do this, tax law and finance law can help also, if you go to a school with a law school, you can try to find a Teachers Assistant or a Law student in grad school to help explain it, usually they wouldn't mind, the law students especially if you buy them lunch or something.
3. How do taxes work? Or are they so complicated that I should hire somebody?
It's pretty complicated, you pay based on your total income: a set amount + a percentage of everything above that amount. the more you make the higher the base amount and percentage, and then you also can subtract certain expenses, and there are multiple tax breaks for various activities. Hiring someone will take care of it, however buying (even if you do not use it, it's a tax write off) Turbotax software or something, and running it gives you an idea of everything that goes into it and if you can understand it, or get a law student friend to help you, you can do your taxes right there. The IRS has a website, as do pretty much every government agency and you can read more there.
+ Show Spoiler +4. What's generally a good amount to have in the bank just in case?
This is entirely dependant on your situation with housing, typical expenses, total debt ect. typically as you age. most money should go into CDs + Show Spoiler +(a CD is when you loan a credit union or bank your money and they garauntee a certain percentage extra after a certain period of time)
5. Is there anything I'm planning on that is drastically wrong?
Discount Brokerages can get you in some trouble if they aren't licensed, so always do background information on the company you are handing your money over, and don't be afraid to check records on government websites. they are there to help you. At your age, investments should be for the long term, and not a shorter term (2 years) if you plan on needing the money two years from now (presumably to pay off loans or such) you should look into safer more managable investment than the marketplace. goto a credit union and get an 18 month CD, interest rates are not too high, but most companies offer special deals at 18 month CDs, including being able to upgrade your rate if interest rates go up (netting you more money from that point on) and being able to deposit money into the CD once. Remember with CDs you pay a fee for early withdrawl, and if you don't withdraw the money when the CD is up, they usually automatically roll over into a new CD.
6. Any other money management tips would be much appreciated.
Pretty much read what i said above, and a diversified portfolio as a general economic rule, will "double" in value every 7 years. meaning if you invest perfectly every 7 years your money will double. clearly no one can invest perfectly though.
|
to add to my answer to 6. if your employer offers to match your savings for retirement, do it! Do IT! DO IT! it's free money for you, just for saving it for later. If you start putting money into retirement funds once you can afford to save money away (don't live outside your means) you'll notice how much money you have 30 years down the road and be so happy you did. and then when you retire you will likely not have to worry about a damn thing financially.
|
![[image loading]](http://i48.tinypic.com/5dl751.jpg)
When I saw "Money Ma" I was thinking of something completely different
|
should buy an iphone imho
|
Yup another blogger before you insists that your brand spanking new iphone4g is absolutely essential.
|
On June 27 2010 15:07 KurtistheTurtle wrote:
3. How do taxes work? Or are they so complicated that I should hire somebody?
Generally, as far as investment goes, the IRS only taxes you on your dividends/interest or your realized gains (or losses, as case may be). Another way to think about it is they only tax you any time there is a cash transaction. Your company pays out dividends? Thats cash in your pocket--taxable. You decide to sell a stock at a gain? Thats cash from your sale in your pocket--taxable. However, do note that if you do not sell your stock, even if it is worth 100 times what you bought it at, it's not taxable. The moment you sell it, you get cash and it's taxable.
Also keep in mind that your GAINS are taxed, not how much cash you get out of it. That means if you bought it at $100, and sold it at $120, you are taxed on your $20 gain portion. Likewise, if you sold it at $80, you can take a loss of the $20 on your tax return (this is capped at $3,000/year). For long term gains (investments held > 1 year), the tax rate is either 0% or 15%. For short term gains (<1 year), your tax is your ordinary income tax rate. For dividends/interest, the tax rate is either 0% or 15%. The reason why there is 0% or 15% is based on what your overall income is (so including things like your salary, business income, etc). If you make about $34k or less, it's 0%; if you make $34k or more, it's 15%.
However, with that being said, any investments you put into a non-roth retirement account is effectively tax deferred. That means, any gains, losses, or dividends you would ordinarily pay taxes on is not taken immediately by the IRS. So you could in theory trade your account every single day of the year and make a ton of money, and it won't be taxed. The caveat, of course, is that because it is a retirement account, you can't take it out until you're 60 (there is a 10% penalty, in addition to your ordinary taxes if you take it out early).
If you put it into a Roth account, you effectively pay your taxes beforehand and will not be taxed on any earnings you make in the account. Even when you take out your distributions at 60, you won't be taxed. The penalty for withdrawing early is also 10%, but only applies to any money that you've held in the Roth for less than 5 years. That is, if you put 5k into your Roth now, you can take it out in 5 years without the 10% penalty.
PM me if you want any further information from the tax side or even financial management side. There's a ton of info out there and it's difficult to filter it out.
Disclosure: I'm a CPA.
|
Oh, and relating to investments, you have to first think about why you want to invest. This affects what timeline you are looking at, how much risk you want to take, and your overall investment strategy. Is this savings for your retirement? Are you looking to get rich quick? Is this for your first down payment on a house? Lots of very different scenarios with lots of different investment strategies. Find a purpose first before putting your money in.
|
On June 27 2010 16:34 Caller wrote:
should buy an iphone imho
hahaha
|
IIRC Donald Trump had some strategy or system he advises people with debt who want to get into investing use. I don't know it myself but it was in one of his books and I overheard my friend talking about it - maybe you can look that up, I'm sure it involves partitioning your regular income or something. Either way I'd listen to gchan.
|
This is weird , you went from wanting to splash all your money on some PS3 and a new TV to now wanting to invest in stocks.Is that money burning a hole in your pocket or something.
.Just spend the money frugally on living expenses.
|
On June 27 2010 21:33 iPlaY.NettleS wrote:
This is weird , you went from wanting to splash all your money on some PS3 and a new TV to now wanting to invest in stocks.Is that money burning a hole in your pocket or something.
.Just spend the money frugally on living expenses.
It isn't weird at all, some people just have different thought processes that drive their priorities. Happens to me all the time, I will work overtime or have money left over from expenses and say to myself "I have extra money, I can go ahead and blow this on some fun stuff for a change.". Then I actually think of something I would like to have and check into the best way to go about purchasing said thing. By the time I'm done I look at what I will be spending and think about the impact of that money on long term goals and that's the end of that.
@Kurtis in regards to1: I think your decision should come down to how ambitious you feel. The more drive you have the more you will probably want to take risks. Risks are better taken early on when you don't have as much to lose, and have more time to recover. There's a big difference between a 25 year old having to start back up from scratch as opposed to a 35 year old with a family.
|
Thanks for the advice. I checked out Sethi's website, wow, like a fountain of common sense. I'm buying his book tonight. I'm going to start trying to make $$ online (selling stuff & ad revenue) and pay back one of my student loans before I get out of college. I'm tightening up my budget even more and I'm going to at least pay down my interest until I get out of college.
gchan, I copied & pasted your response into a wordpad file. I'm probably going to use every year for the rest of my life unless i memorize it lol
|
|
|
|
|
|
EPT
