Okay, I'm going to be honest and say I have next to nothing to offer most people when it comes to financial advice. This isn't self-deprecation so much as a function of ignorance - I wouldn't feel comfortable making any suggestions outside of how to cut the cost of your drinks at Starbucks (which I'll gladly do, by the way, if you're interested).

Mostly I'd love to solicit the support of all you fine people out there in forum-world. Most of this financial information is coming hard and fast for me, and it's a lot to keep up with. The terminology alone is daunting, to say nothing of the vast world of money policy.

SO. This will be my Fiscal Fitness Journal, an accounting of my accounts, where I will take stock of my stocks (I'm done now, I promise). I'll probably have a lot of questions, and if at any point you find them so inane as to be laughable, I'll beg you to pretend you thought I was asking rhetorically and kindly overlook the faux-pas.

Here's the run-down so far. I'm 20 years old, in school, and in retail. I just started a Roth IRA today, as well as a separate money market account, even though I'm still not entirely sure what the money market account is. I know it's liquid, and it has a better interest rate than a plain old savings account, but that's about it.
I've managed to save about $5,000 in a little over a year of working at Starbucks. I pay for gas in my car and my own health insurance through my new job at a video store; my mom is awesome and pays for my car insurance. School is taken care of through scholarship, and aside from those things I really can't think of much else that taxes my income (aside from taxes). Occasionally I'll go a little crazy on eBay or overdo the entertainment spending in a given week on movies and lunching with friends, etc. It's a pretty uninspiring lifestyle, if not entirely conservative.

Here follows a list of general personal finance goals:

1. Get started! ...Yes!
2. Self-educate - I've made a list from the GRS recommended books post and I have a date with my local library
3. Develop a budget - right now I'm saving every receipt from all of my transactions for the next two months so I can get a broader perspective on my cash-flow
4. Start investing - this is where I'm really going to need some help
5. Attain a certain level of fiscal fluency

Hopefully this journal will help me in developing a clearer path to financial maturity. My big, over-arching desire right now is to understand what I'm doing.

I expect I'll mostly be updating on my budget status at first, next to discussing my questions and findings in my reading. Any and all help that is offered will be much appreciated, so stay tuned!

-Carly

Welcome, Carly. You're off to a great start just thinking about all of this at 20. I'm sure it won't take you long to figure out what you're doing.

Good job on starting early, compound interest will be on your side. It seems like you've already mastered the concept of living below your means (you've already saved up). As to your uninspiring lifestyle, I think you'll find that personal finance tends towards mild rather than wild.

As to your question about money market accounts: the balance in your money market account is placed in a money market fund. A money market fund is a specific type of mutual fund that invests in short-term (less than 1 yr) instruments (low-risk securities such as Treasury notes, certificates of deposits, etc.) The goal of the money market fund is to earn interest for investors while maintaining a net asset value of $1 per share.

Hey, thanks guys! My gratitude for the 'first-step' kudos is always a little disproportionate to the big picture, but, like most people, I tend to front-load on the anxiety and the early encouragement is always, alwaysappreciated. (Fontraid - thanks for the run-down on the money market account. Having a clearer picture of the account mechanics is an oddly comforting thing!)

I've been thinking about working myself into a competent state of mind by considering the details of my financial situation that already weigh in my favor. Um. Where to start? I think I'm a natural hoarder. That really doesn't sound flattering, but I've been reading through some of the success stories and other debt-related topics around the forum and the process has been enlightening.

I don't feel compelled to spend on a lot of things - I enjoy a good bargain when I find one, but I also relish the feeling of getting what I pay for, and not cutting corners on something I really want. I feel like I've naturally struck upon a decent balance; I'm hardly irrational or impetuous with my earnings, but neither am I pathologically cheap. I know how to say no, to walk away. Likewise, I've never suffered from buyer's remorse.
I really enjoy saving (hence the hoarding comment), and I'm really excited by the idea of investing, cultivating something significant from a more humble beginning. I like the idea of treating my finances like a garden, to put it simply. So these thoughts are encouraging.

But like I said, I have been browsing through a lot of the threads, and it's got me thinking about the philosophy surrounding money. I've been wondering, if one were so inclined as to contribute some thoughts, where would the best place on this site be for essays?


Anyway, moving on to tacks of a brassier nature, I have a QUESTION. This is a Question that requires Capitals as it is my first real Question regarding finances.

My new Roth IRA has $250 dollars in it. I suppose I should back up and say that I am in the process of consolidating my accounts into USAA, though I was previously with Bank of America. I think this might be worth mentioning as, by my understanding, USAA handles things a little differently than most banks. So, my new Roth IRA has $250 in cash so far, and that's it. I'd like to contribute the full $3,750 left to me in '07 before April 15th, which I am actually capable of doing right now with my total savings (not that I intend to drop a lump sum in there immediately). After spending some time on the phone with a very helpful financial consultant, she recommended a pretty promising, medium-risk mutual fund for my first IRA investment.

My question is - how do I go about staggering my investments in this mutual fund? I think I understand the theory behind why I should invest in portions instead of in bulk payments for right now, and I know it's not the best idea to spread myself too thin with too many different investments so soon, what with my limited resources and allowance. But how does a person go about making a trade on a mutual fund? How do I know when I should buy? Does it really matter when I buy, and if not, why not drop the four grand for '07 in there now and be done with it?

I know I might be blurring the lines between stocks and mutual funds a bit, but hopefully that will only help to determine where my misunderstandings are and will facilitate in correcting them.

I think that's going to have to be it for tonight, though, as I must be off to bed. Cheers!

-Carly

You may get several different views on "when to buy". The quick and simple answer is to buy on a day that the market is very low. Many people will tell you however that, when investing in funds over the long term, you should not even pay attention to the daily condition of the market when placing an order.

Your choice of funds will be to a certain extent a personal one. No matter how you slice it though, you will want the majority of your investments in growth funds. At your age and position, I would be going mostly after aggressive growth funds (I do myself at age 27). Look for a fund that has been around for a while and has proven to provide a good return since inception. My personal portfolio includes all growth stock and international stock mutual funds along with a very small portfolio of single stocks.


Note, I am not a financial professional. This advice represents my personal opinion only.

Heya James, welcome to my journal. And please, tell me more! I promise I'll be taking your advice on a strictly illustrative basis and not a prescriptive one, but I'd really like to get a general picture of what our age bracket is more likely to find useful when it comes to money (mutual funds specifically for now, possibly other things later or when I am more knowledgeable about them). How do I go about setting up an aggressive growth portfolio? I understand better now the logic behind regular monthly contributions to a specific fund (I ran across an explanation for dollar-cost averaging in my reading last night), but I'm a little less clear on how I'd be able to control the ratio of international stock investments to aggressive domestic stock investments in one complete fund, for example.

And since right now I can only really afford one mutual fund in my IRA, being as it's at its nascent stage, I need some help in picking a place to funnel the rest of my current income.



In setting up and managing my current cash bundle ($5,000), I've become aware of the fact that most of the money I've accrued up to this point has been purely the result of saving large portions of my paycheck and almost nothing as a result of growth. This, I've decided, is a problem. I don't want any of my earnings from this point on to be stagnant. I do realize that I have certain things I should be prioritizing while it's most advantageous to do so, like my Roth, for instance, as I'm pretty far away from $99,000 in income and so can continue merrily contributing the full amount each year for a while. But I'd like to start branching out with my income, ideally so that I have every type of investment - from long-term and high-risk to short-term and low-risk. I'd like (1) a slow and steady emergency fund, (2) a relatively faster-paced fund that I can choose to use as supplementary source of cash or allow to grow (whichever suits my fancy at the moment), and (3) a place to keep savings that I intend to use sooner than retirement but later than college - something that will afford me the ability to travel or freelance without worrying about having enough money for rent and the like. I don't want to be reliant solely upon a salary or a paycheck to get by; I'd like my money to be enough to sustain me (even if it's a lean existence) by the time I'm 30. I find the idea of being pinned down to a job like an indentured servant pretty distasteful. I might have a sour bias toward the working lifestyle largely due to my time spent in retail so far, which I know a 'real job' for me isn't likely to be, but still. Money does and will grow, why not cultivate it?

To achieve this, I'm prepared to put most of what I'm earning now away. Even though it's only been a week, my budget exercise has been illuminating. Apparently my spending habits aren't as conservative as I'd assumed.

I have tentative plans to take up an au pair position overseas by the end of this year, which should have a significant impact on my finance situation, but I'll get to that in a bit. For the meantime, I have at least two and a half months to do some serious saving and budget cinching. My priorities right now are to set up a system that will allow for me to complete my 2007 contribution to my Roth, rebuild my emergency fund, and build up my money market account as much as possible.

I'll go into more detail about my concerns with being overseas for a year in my next update; for now I have to get ready for work tomorrow. Cheers, all!

This is going to be pretty difficult if you're thinking of being able to live off anything other than the capital of investments. Its only 10 years until you're 30. And then you've got another 50 years (probably!) left to live. I sort of roughly worked out that you need to save / invest a little more than 1.33 x what you can live on, with growth occuring at 7% above the rate of inflation. I've ignored tax.

I don't mean to rain on your parade, just point out that you might find this a less realistic target especially as things often change in your twenties. I would recommend trying to find a career that you would enjoy anyway, as its better all round, to get paid for a job you enjoy as opposed to either not being paid or doing a job you don't enjoy.



As for investments, I strongly prefer index funds, and they are what I use myself (about 70% UK and 30% overseas, 100% stocks). I'm also suspicious of advice received by someone who is essentially selling me something. If you have more details on the fund, I think there are people here who might be able to tell you more about it.

Well, I probably should have been a little more clear - my vision didn't involve me living solely upon the returns of my investments, as I don't really have that kind of money to invest, but more that those investments would hopefully be substantial enough by then to allow me a financial leg-up. That sounds suspiciously like I'm backtracking here...hm.

Okay, as a for instance - let's say I'm 30 and I've established a pretty basic lifestyle: apartment, a bike rather than a car, probably a dog as I can't see myself living without a dog ever, and some form or another of work. I'm majoring in philosophy and minoring in history right now, and while there aren't nearly as many job opportunities tailor-fit to those studies as there would be to organic chemistry and biology, neither is there a complete dearth of work. I also don't expect to stick strictly to what I've learned in school - a degree is a degree.
I've a plan to look around for work in a publishing house, law office, or accounting firm when I get back from overseas next year, so one way or another I'll be furthering the knowledge I'm interested in pursuing. But assuming those potential jobs don't pay so well, or in the not-too-unlikely event I'll be largely freelance, I don't want to be forced to live off of credit cards (no matter how responsibly I'd do so) or take out loans or (heavens forfend) call my mom up for a little help. I do want to be able to take vacations, I do want to be able to get my dog the good dog food, I do want to be able to visit my family wherever they may roam, and occasionally I do want to be able to do stuff for me, like add to my wardrobe or splurge at Williams Sonoma. I don't really expect it to be much, but on the other hand I know it'd be virtually impossible without some serious preparation first, even for those relatively modest goals.

Of course, as you say, everything may change and I might find myself somewhere completely different by the time I'm 30, but at least I'll have something reliable to fall back on - and not just my emergency fund.

As per the consultant, I'd normally agree with you, but my IRA is with USAA, and their people are salaried. I'm still a little wary, because I don't know the in-depth details of their policy regarding their clients, but still... I feel better about it than I would going to an independent company like Vanguard, for instance, even though they do come so highly recommended. Even with her advice, I'm thinking of going with a more aggressive fund, so while I appreciated her advice, I'm not certain I'm going to follow it just yet.
The index funds that are available to me through USAA aren't really an option, unfortunately, though they are very appealing prospects. Most of them require a minimum balance of $10,000 to open, which I don't have just yet. Some of them can't be opened within the IRA I've already set up... So I'm looking into equity funds as my best bet right now. There's a good mix of international and domestic funds in some of them, and I'm going to be calling USAA back again today to baffle them with more brilliant questions.


Nothing new to report today, I guess. Thanks for your input, plonkee! Life has been getting a little more hectic here at home, so it was nice to receive an email notification reminding me to visit GRS and catch up.

More to come soon. Cheers, all!

-Carly

That sounds perfectly reasonable.



Interesting. I'm not an American, so I actually have no idea who USAA are, but my suggestion for investments is to choose the investment that you want and then work out the cheapest way of getting it. I'd prefer to deal with a more independent company and I'd love it if Vanguard set up shop in the UK. Whatever you decide, don't forget that its not set in stone - you can change investments in the future if you need to, but you can't go back in time and invest as early as you'd like.

Plonkee,

USAA is a financial institution in the US along the lines of a credit union, but they offer more services. They limit their membership to members of the US armed forces and their family members, military retirees, grown children of USAA members, etc. They offer banking services, insurance, investments, credit cards and more. It's a wonderful company.

Quackerjack,

I haven't looked at USAA's funds recently (I should though b/c I need to rebalance my portfolio in a couple months). Sometimes they waive or lower the minimum amount to invest in certain funds if you invest with an automatic allotment or if you invest in a retirement fund. It is something to look into.