Financial advice for a new grad?

[ice cream]

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Hi there,

I was hoping I could benefit from some of your previous experiences and advice.

I'm a new grad, I'm 25, and I've been working as a retail pharmacist for a couple of months now. My new salary is about $110,000/yr.

I would love to hear any financial advice you have to offer. I'm thinking of paying to see a financial advisor, but I'm a little scared they will take my money and not really help me very much.

Right now, I just started a 401k plan and I am contributing 15%. I know this helps to lower the taxes I have to pay, is there anything else I should be doing? I want to save to buy a house, eventually have kids, etc. I was thinking of also opening a Roth IRA (with my husband and my combined income I think we qualify). I'm scared to put money in stocks and wouldn't know where to begin right now. Should I be storing my money in a high interest savings account?

I know very little about finaces although I have been trying to read and learn about them lately. Like I said before I would truly appreciate any advice or personal experiences.

Thank you!

 

[Epic]

You're already on the right path putting away 15% into 401K.

I'm not a financial advisor..so I won't get into details. But cosider the following.

1. Put money away into Savings first. Set aside certain amount each paycheck and put it away instead of saving what's left over. You won't have anything left over. Commit yourself to putting away $500 per check into a "rainy day" or "down payment for a house" fund. That's $13,000 per year..

2. You don't need a fancy car.

3. Get a disability insurance on top of what's offered by your employer.

4. Get a life insurance 10X your annual salary. You're young, so term life will be failry cheap.

Even after all this, you'll have plenty of money to have fun..

 

[pharmaz88]

Regardless of any other advice given to you, you MUST remember these two things:


1. If you do choose to see a financial advisor, select one who is fee-based, NOT commission-based. (They must disclose this to you.) Sure, it may seem expensive to pay someone $150/hr for their time and advice, but it's much cheaper than being put into under-performing investment options just so some slimy 'advisor' can get a fat commission off of you.

2. If anyone tries to sell you an investment product that is wrapped into a variable annuity or life insurance, run away fast! These products charge you extra fees for useless features. ...and with compound interest, earning 1% or 2% less will wind up costing you tens to hundreds of thousands of dollars by the end of your investment career.

 

[sdn1977]

I agree with Epic on the insurance - there is a whole other thread on this & we all differ. My opinion is - you don't know what's ahead & your inability to buy insurance causes lots of sleepless nights. Ever since my SO had brain surgery, we have taken to heart to have 2-3 months liquid (not just a savings account or the mattress) income available at all times.....and for us - thats a whole lot of money considering we have to cover his employees salaries as well as our expenses. This has helped when we've had to unexpectedly buy new tires, new water heaters, fly the whole family across country to a funeral....

I also agree, get your savings or deferred income taken out (preferably by your employer or an automatic deposit) BEFORE you even get your paycheck. You will ALWAYS have a place to put it other than savings & if you don't see it, you won't put it anywhwere but there. There is also the "tired" factor of month after month sending that money into your savings or Roth or wherever. You'll skip a month, not notice, then skip again - no one will care but you & many, many years later.

Your taxes for this year will be higher than you think. Plan for it. Don't know why that is, but every new grad in every field finds that their first year.

Choose to do ONE thing - if a fancy car is it, then that's your one thing. If a fancy vacation is it, do that. If you want to pursue that hobby - photography, woodworking, anything that involves expensive equipment - that is your one thing. If finally tossing those college clothes & buying some nice, high quality suits/shoes for hubby & nice dresses/slacks/shoes for you - then that is your one thing. But, these ONE things add up. Budget for the big stuff & choose what is going to be the most important that year. Be sure to do at least one big thing before you have kids, 'cause you'll both take a back seat once they come & for a long time.

I'm no financial advisor, but I'd be cautious about them. There are more out there who will "use" your money than give you good advice, IMO. Talk to your folks & folks-in-law, older people in your area who are in your fields, people who you respect & feel have done a good job in life planning for advice on who to go to in your area. You will pay for their advice.

In the meantime, your 401K should have a variety of funds to choose from. If you choose to spread your money evenly - a stock fund, a bond fund, an international or high risk fund and money market fund - then you can see how it performs. They will all tank at one point or other, so expect some setbacks. But, they'll all make money as well. Right now, you can look at Treasury notes, bills & bonds. They are guaranteed & a few are tied to inflation...but again - it should be just a part of your whole plan.

Hava a talk about what you want for each other in the event of a disastrous event - a stroke, MVA, any medical condition which will eat up income. Know what each of you wants for the other. Be sure to get it down in writing, at least by the time you have kids (an advance directive) and when you have children & real estate, you need a will.

You've started off right - thinking about it & doing something. You'll look back & wish you had done more or different, but you're doing a good job right now.

Good luck & have fun!

 

[Epic]

I agree with Epic on the insurance - there is a whole other thread on this & we all differ. My opinion is - you don't know what's ahead & your inability to buy insurance causes lots of sleepless nights. Ever since my SO had brain surgery, we have taken to heart to have 2-3 months liquid (not just a savings account or the mattress) income available at all times.....and for us - thats a whole lot of money considering we have to cover his employees salaries as well as our expenses. This has helped when we've had to unexpectedly buy new tires, new water heaters, fly the whole family across country to a funeral....

I also agree, get your savings or deferred income taken out (preferably by your employer or an automatic deposit) BEFORE you even get your paycheck. You will ALWAYS have a place to put it other than savings & if you don't see it, you won't put it anywhwere but there. There is also the "tired" factor of month after month sending that money into your savings or Roth or wherever. You'll skip a month, not notice, then skip again - no one will care but you & many, many years later.

Your taxes for this year will be higher than you think. Plan for it. Don't know why that is, but every new grad in every field finds that their first year.

Choose to do ONE thing - if a fancy car is it, then that's your one thing. If a fancy vacation is it, do that. If you want to pursue that hobby - photography, woodworking, anything that involves expensive equipment - that is your one thing. If finally tossing those college clothes & buying some nice, high quality suits/shoes for hubby & nice dresses/slacks/shoes for you - then that is your one thing. But, these ONE things add up. Budget for the big stuff & choose what is going to be the most important that year. Be sure to do at least one big thing before you have kids, 'cause you'll both take a back seat once they come & for a long time.

I'm no financial advisor, but I'd be cautious about them. There are more out there who will "use" your money than give you good advice, IMO. Talk to your folks & folks-in-law, older people in your area who are in your fields, people who you respect & feel have done a good job in life planning for advice on who to go to in your area. You will pay for their advice.

In the meantime, your 401K should have a variety of funds to choose from. If you choose to spread your money evenly - a stock fund, a bond fund, an international or high risk fund and money market fund - then you can see how it performs. They will all tank at one point or other, so expect some setbacks. But, they'll all make money as well. Right now, you can look at Treasury notes, bills & bonds. They are guaranteed & a few are tied to inflation...but again - it should be just a part of your whole plan.

Hava a talk about what you want for each other in the event of a disastrous event - a stroke, MVA, any medical condition which will eat up income. Know what each of you wants for the other. Be sure to get it down in writing, at least by the time you have kids (an advance directive) and when you have children & real estate, you need a will.

You've started off right - thinking about it & doing something. You'll look back & wish you had done more or different, but you're doing a good job right now.

Good luck & have fun!

Dang woman...for someone who's not a financial advisor..you sure do have a lot to say..

 

[Tuck]

There are really quite a few options available to you without going to a financial advisor. If you are primarily going to save for retirement and not touch the money much, you can invest in target-date-retirement funds. They allocate risk and change your stock allocations as you get closer to retirement age. If you prefer to monitor your investments more closely money magaize typicall lists the top funds by year/3yr/5/10 etc so you can get an idea of some consitency. As a new investor stay away from individual stocks. The alternative to mutual funds are Exchange Traded Funds (ETFs). These typically have lower expense ratios than mutual funds and they do not have the trading limitations that mutual funds have. Charles Schwab has some nice features in terms of stock and fund screeners that can also help you pick what you would like to invest in.

 

[sdn1977]

Dang woman...for someone who's not a financial advisor..you sure do have a lot to say..

I was never the meek wife who didn't know what was going on with the household finances.

Fortunate for me, drsdn said he had a business to run & didn't want to have to worry about the home finances, so he's never given me any flack for how I spent the money.😍

Seriously though for the OP - these are not financial opinions, rather opinions on how to start your life together as real, responsible grown-ups.

We were probably too conservative financially when we were young, but we can't go back & honestly, I don't know if I'd do it differently (except buy more insurance young).

 

[CaliCPhT]

I think some excellent advice has already been given by previous posters. To add to that, my hubby and I subscibe to Kiplinger's Personal Finance. This is a good resource as well. As far as stocks are concerned, you're young, and to invest in the stock market is more for long term investments. You could buy a book like Investing for Dummies (or something similar). What to invest in? You have to think of what interests you and what you believe in. Your research is also important - that information can come from your book on investing. Then you'll be able to make an informed decision and go from there.

All in all, I think you're on the right track though! 👍

 

[ice cream]

Thanks for the advice. I'm not so much a "fancy car" person but I definitely have a weakness for traveling and plan to take a nice vacation in the near future. To be honest I'm the type that would plan a nice vacation for more than once a year, lol, so maybe I should try and hold myself back.

But anyway, I am really trying to educate myself but I am still very VERY ignorant when it comes to finances. Right now I am investing my 401k 100% into a mutual fund (I think) that is suppossed to be geared for people my age who are retiring around the same time I would be. It's suppossed to be more aggressive while I am young and get more conservative as I age and approach retirement. I picked this one because it's what one of my coworker pharmacist's recommended and uses. When I look at the huge variety of 401k options I am completely overwhelmed, but I know that it is key to start these things as early as possible so I am trying to jump in.

That's a good idea to direct deposit a portion of my paycheck into a savings account.

It's funny, as much as I'm making now it doesn't feel like as much as I thought I would back when I was a student and living on next to nothing.

 

[genesis09]

If you put money into some of the mutual fund companies like Fidelity or Vanguard, they'll guide you on what to do. You need to diversify your holdings from money market to stocks. Don't use a savings account, use a money market account. You can use them in the same matter, but in a savings account your interest is .5% and in a money market, it's 5%. You just need to keep more money in the money market account.

 

[rxlynn]

This is not exactly what you asked for, but a few other points I thought I'd throw out there because I know they have helped me and my husband.

1. Be sure to handle your credit wisely - don't ever pay interest to somebody you don't have to. This means pay all your credit cards off at the monthly statement, don't buy furniture until you can pay it all off in one month, etc.
2. Carefully consider how you are going to handle buying cars. We financed the first car we bought together after marriage in a 3 year loan from our credit union, and were fortunate that the ages of our two cars were separated by about 5 years. So, since then we have actively saved enough money in the intervening years that we have been able to buy the other cars we've purchased with cash - we've each ended up with a new car every 10 years (that means buying one every 5 years). Now, of course this also means that we aren't buying the Lexus that costs 40,000, but we aren't driving tiny cars and we aren't driving junkers.
3. Try not to overbuy house. I know that's hard to achieve in certain areas of the country, but it's the one thing we've done that has provided us so much financial flexibility. Right now we are living in the 2nd house we've owned. We were fortunate that we made a good bit of money on house #1, and we essentially rolled that into the down payment on house #2. We have never paid PMI insurance on this loan, and we have a 15 year loan on this house as opposed to a 30 year. However, this obviously wouldn't be possible if we had bought at the limit of what we qualified for in loan. The upshot is that we are saving thousands of dollars in interest, and if we stay in the house, we will have it completely paid off by the time our kids go to college.

 

[Epic]

And take a charity..make a donation of 10% of your income to it...

May I suggest you donate to my favorite charity... ME..

 

[Old Timer]

Step One: Define your goals. What do you want and how much will it cost to achieve the goals.

Step Two: Make a budget and stick with it. Include everything in your budget. Insurance, food, phone, rent, vacation, Christmas, etc. Anything left is savings. Base this on a 48 week cycle (paid weekly) or a 26 week cycle (paid bi-weekly) and you have 4 extra checks (weekly) or 2 extra checks (bi-weekly) that are almost entirely savings.

Step Three: Build your credit. Use credit cards wisely. Do not charge more than you can pay off as soon as the bill arrives. See #2 above. Do NOT close accounts you are not using. Do NOT get or use a Capital One credit card as your main credit card. The way they report your spending and available credit hampers the growth of your FICO score. Your main credit card should be the one with the highest available credit line.

Step Four: Prepare carefully. Do your taxes now and make sure you will not owe $3,000.00 next April. Adjust your withholding now if needed. At your income level you should be +/- $1,000.00.

Step Five: Make sure you have disability insurance, life insurance and renters insurance.

Investing: This should be done with your goals in mind. Stocks are the best investment. Since 1929, stocks have performed better in each 25 year period than any other investment. That being said, if you want to save and buy a house, DO NOT invest heavily in stocks. What happens if you want to buy a house in three years and the market tanks? You should stick with CD's and money market accounts because you will need the money in the sort term and stocks are a long term investment. Also remember when purchasing a house, you need closing costs, furniture, moving expenses, etc. And you will need a cushion once you won your house for expenses that will inevitable come up. Your financial goals will drive your investment strategy.

 

[MountainPharmD]

Live below your means, not 20% above like most Americans.

Save, save, save.

Have fun.

 

[Epic]

Alright..here is the secret to happiness in life.

Money, Time, and Youth.

You need all three to live the life to the fullest with freedom. What good is Money and Time if you're too old to enjoy it. What good is Money and Youth if you have no time to enjoy it. What good is time and youth with no money to enjoy.

And Money, Time, and Youth won't be realized working a job.. JOB = Just Over Broke...cuz without a JOB, you'll be broke.

How do you get Money, Time, and Youth??? Residual Income. The income that comes to you without you having to work...

Retirement is not dependent upon age..... it depends on your cash flow...if you can live on $5000 per month..and have an income source that gives you $5000 per month, then you can retire...

JOB..... an unspoken American Corporate/Education conspiracy... you know that old saying..go to school, get an education, and get a nice job and you'll be ok? Well.. not really. Having a job makes your employer richer. But what do I know...

😀