3/18 I will soon be graduating after many years of grad school, with
a job with a reasonable salary lined up. What strategy do you all
in the "real world" take to save money? I'm planning on taking my
monthly income, pay out rent/utilities, put a certain amount or
percentage in my savings, and then keep the rest in my checking
to play with. Is this reasonable? I know advice like this needs
to be individualized but I just want to make sure I'm not way off.
Thanks.
\_ Short GOOG!
\_ Pay off any high interest debt first, then start maxing
out your 401k now. Retirement seems like a long ways
away now, but believe me, you will be happy in 10 years
that you started saving for it now. Build up a three month
emergency fund and put it in a short term CD or savings. Then
figure out what you want next. Is it a home? If so, start
saving a down payment and put it in something relatively safe,
like a CD. When you have enough saved up, start thinking
something with a little more return, like short term Munis.
If you are looking more for an early retirement, open a brokerage
account and start investing in the stock market. There are plenty
of market junkies on soda who can give you advice on stock
picks. -ausman
\_ Good advice, but I am not sure I agree with 'maxing out your
401k'. Yes, invest in your 401k. I don't think putting
$15K/year into it is all that wise, though, unless you
are making well over six figures. A 25 year old making $70K out
of school should probably not be putting 20% of his gross into
retirement with possible student loans and (as you say)
saving for a house. I would put 'maxing your 401k' farther
down the list of priorities. Put as much into your 401k as
you need to in order to get all of your company's match, but
I wouldn't start with more than that.
\_ Owning a house is maybe a better retirement investment than
you may think. Once you own your house your rent/mortgage
is gone and all you have is upkeep, tax, and utilities.
Once my house is paid off, my biggest single need for income
is gone and I can live with much less income.
\_ How do property taxes compare with rent?
\_ Depends, of course. For me, property tax is
about 12% of the mortgage.
\_ Annually? Remaining mortgage or simply value of
your home? I pay $1k per month in rent; what value
house could I own that would cost me about the same
in property taxes?
\_ It's percentage of entire mortgage payment.
interest and principal.
Annually or monthly, what difference does it make?
I gave you a percentage. You could own approx.
$1.2M of house and pay $1k/month here (not CA).
\_ In CA, property tax rises are capped (Prop 13),
so the amount you pay in property tax is
dependent on how long you've owned the house.
It's also dependent on where you live. But
$1K/month is way, way more than most people
pay in property tax. -tom
\_ Good to know. Thank you both.
\_ In CA, property tax is about 1% of the
purchase price (annually) and is capped
at 2% per year raises after that.
\_ Homes aren't really that great an investment, the last
decade or so notwithstanding. You would actually do
better to rent and put the savings in the stock market,
if all you want to do is make money. -ausman
\_ Only if you ignore the concept of leverage and the
tax advantages of real estate. Of course, leverage
is a two-edged sword and it can beat you up
something fierce in a down market.
\_ No, even including the tax advantages. Over the
long run, real estate goes up about 1% more than
inflation. Pretending that real estate is a risk
free investment is stupid. You can leverage your
investment in the stock market too, if you don't
care about risk. -ausman
\_ Tax advantages like $500K tax free, not
interest deductions. I never said real estate
is not risky as an investment. However, go
try to borrow $500K to invest in the stock
market with $0 down and see if a bank will
make that loan. However, in real estate it is
done all of the time.
\_ http://www.csua.org/u/i9r (Rueters)
"Countrywide Financial Corp., the largest U.S.
mortgage lender, on Friday told its brokers to
stop offering borrowers the option of
no-money-down home loans, according to a
document obtained by Reuters."
No one will be doing this for much longer.
\_ Second that paying off high interest debt (i.e., credit cards &
student loans that aren't deferable). If your loans are
deferable, get ready for them by putting the money that would
have paid towards paying them off in a CD so that you get the
interest anyway. 401Ks are great, but consider a Roth IRA or
other such that would allow you to contribute pre-tax and use
for a house without penalties. Also, check and recheck your
income tax wthholding; now that you're likely to owe taxes, it's
a good idea to know what you're going to owe next April 15.
Whether you feel like loaning the US Gov the amount in advance
(i.e., max out your withholding) or owing on the date is up to
you. Good luck. --erikred
\_ I am kind of assuming that this person lives in the Bay Area,
where it can be ten years or more before they can afford
a home, so waiting to start saving until the first house
is bought would be a mistake. Also, I think you should grab
as much of the tax deduction from contribution to your
retirement as you can possibly afford. I am not actually
expecting this person to max out their 401k, but if they
did, that would really give them a leg up. A Roth IRA can
have slight tax advantages, but it depends on all sorts of
complexities like what your expected tax rate will be in
retirement and the difference from a 401k is really slight,
so I didn't want to get into that. -ausman
\_ I also recommend max'ing out your 401K. Also, put 4/5K into a
Roth IRA every year. You may also wish to consider max'ing out
any ESPP program you are eligible to participate in. Most ESPP
programs give yout 15% below the lowest closing price of the
opening/closing day price of the stock, so you make an easy 15%
percent - tax by dumping the day of the purchase. |
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