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Posted: 2/8/2013 9:49:12 PM EDT
I'm 24 years old and work in my career field which unfortunately is a low income field. I make 34k a year.

I have a employer sponsored retirement plan that is similar to a 401K. They match at 220% and the investment company guarantees 7% interest per year. the bad part is last year they actually made 11.20% on their holdings, but we still only get 7%. I contribute 7% of my monthly earnings ($197.04). (this is before tax, and taxed at withdrawal or retirement)

I opened a Roth IRA account and invested in "investment company of America" funds. I will contribute an additional $100 a month.

I bring home $1940

My rent is $300 a month
cell $100
Insurance $100
Gym,netflix and lawyers on retainer is $75 a month. (together not separate).
Roth IRA account is $100

Leaves me with $1265 a month.

here's the predicament. I will need a new vehicle soon. mine is falling apart. I just spent $1000 today getting axle fixed, $200 last week for fixing a broken sway bar link. I'm shooting for the increase in car insurance to be around $50, and a car payment of less than $450.

That leaves me with $765 a month left over .I spend 400 a month on gas and food right now. is this doable? would I be cutting myself too short with $365 left over for everything else?

What says ar15.com financial experts?
Link Posted: 2/8/2013 10:47:20 PM EDT
[Last Edit: 2/9/2013 2:26:08 AM EDT by KILLERB6]
If your firm really matches at 220% (which implies for every $ you invest, they give you 2.20; not sure if that's what you meant) then you'd be crazy not to max out your 401(k).

In reality, almost no matter what the company match is, max it out.

As for the 7% deal:

1. I would wait until after the debt ceiling/sequestration gets sorted...if it gets sorted. Should know by March.

2. Depending on outcome of #1, the current bull market is going to keep going as long as the FED is force feeding the stock market with US$2.5/day...all of the $ has to go somewhere, and the only place with any kind of yield is the stock market.

3. I would probably be OK with the guaranteed 7% for this year, but as you saw, that sword cuts both ways. The other thing you have to ask, is in a bad year, can they still guarantee 7%? That is the other side of the coin, if they win, you don't win as much; if they lose, you lose (more, actually since they charge you management fees to lose your $).

Bottomline: you'd be crazy not to take advantage of every tax advantaged investment you can. If it turns out you can't swing it, back some of your contributions down a bit to where you can.
Link Posted: 2/9/2013 12:04:05 AM EDT
You are asking a bunch of questions.

First, for the investments:
1) Maximize the employer match. That is free money. Use it all. After the employer match is maxed, you want to put additional funds into a ROTH (which it sounds like you are doing) due to your current low tax bracket.
2) The "The Investment Company of America" (https://www.americanfunds.com/funds/details/ica/a.html) fund looks like BS. The expense ratio is 0.61%. Compare that to Vanguard's Target Retirement fund ER of about 0.18%. You are giving up almost half a point of returns from expenses alone. I know the paperwork is a pain in the ass but shift your assets and future contributions to something with a lower expense ratio ASAP. If you don't care about investing and don't care to learn then stick with a target date retirement fund from a large company like Vanguard with an expense ratio below <0.25%.

Check out Bogleheads.com for more on retirement savings.


Next, for your cash flow:

First, I'm assuming you have no debt. If you have debt paying that off needs to be a priority. I am also assuming you have an emergency fund with at least a few months of living expenses (maybe a few grand looking at your low expenses).

Some of your expenses look a little wonky. Lawyer on retainer? Really? I can't imagine you're getting a great lawyer on retainer for $25/month, and do you really need one? Are you considering costs for clothes, including professional or work attire? What about other mid-term purchases such as replacing your computer every few years or saving for a down payment or saving for an engagement ring? What about your guns & ammo fund? Do you ever go on vacation or have any entertainment expenses? Before you guess at what you can afford for the car I think you should take a hard look at all your expenses over the last few months, and your projected expenses, and really size up your budget.

Next, when planning a major purchase like a car, don't look at the monthly payment. The payment can be essentially anything depending on the terms of the loan. Look at the total cost and buy something you can afford. If I were you my goals would be to (1) get an affordable car for a good price, (2) pay it off early, and (3) buy my next car cash so that I am not paying interest to the bank. Buying the car cash also gives you much more negotiating power. I have always been able to secure a better deal when buying cars by having the option to write a check right this moment. Plunking the cash on the barrelhead is an effective negotiating tactic.

For example, say you get a $20K car. If you put $500/month at that car you will own it in around 4 years. If you continue to put away $500/month in savings you can buy your next car -- 7 years or so from now -- cash, with no loan. If that is unacceptable (i.e. you know you can't stand driving the same car for seven years) then you need to increase the monthly cash flow you put at the car fund which will require you to evaluate your other expenses or boost your income, or you need to get a cheaper car (used?). I think dumb choices about cars (namely, buying more than you can afford because the monthly payment looks low and trading them in too frequently) are some of the bigger money mistakes people make.

I don't drink the Dave Ramsey cool aid entirely but it is a good start for budgeting. I would suggest "investing" $10 in his book (or a library card) for tips on the monthly cash flow management.
Link Posted: 2/9/2013 9:45:50 AM EDT
Originally Posted By KILLERB6:
If your firm really matches at 220% (which implies for every $ you invest, they give you 2.20; not sure if that's what you meant) then you'd be crazy not to max out your 401(k).

In reality, almost no matter what the company match is, max it out.

As for the 7% deal:

1. I would wait until after the debt ceiling/sequestration gets sorted...if it gets sorted. Should know by March.

2. Depending on outcome of #1, the current bull market is going to keep going as long as the FED is force feeding the stock market with US$2.5/day...all of the $ has to go somewhere, and the only place with any kind of yield is the stock market.

3. I would probably be OK with the guaranteed 7% for this year, but as you saw, that sword cuts both ways. The other thing you have to ask, is in a bad year, can they still guarantee 7%? That is the other side of the coin, if they win, you don't win as much; if they lose, you lose (more, actually since they charge you management fees to lose your $).

Bottomline: you'd be crazy not to take advantage of every tax advantaged investment you can. If it turns out you can't swing it, back some of your contributions down a bit to where you can.


Even in bad years we still get 7%. My employer plan is maxed out, and yes they match at 220%.
Link Posted: 2/9/2013 9:58:02 AM EDT
[Last Edit: 2/9/2013 10:00:30 AM EDT by NoMoreGreen]
Originally Posted By armaborealis:
You are asking a bunch of questions.

First, for the investments:
1) Maximize the employer match. That is free money. Use it all. After the employer match is maxed, you want to put additional funds into a ROTH (which it sounds like you are doing) due to your current low tax bracket.
2) The "The Investment Company of America" (https://www.americanfunds.com/funds/details/ica/a.html) fund looks like BS. The expense ratio is 0.61%. Compare that to Vanguard's Target Retirement fund ER of about 0.18%. You are giving up almost half a point of returns from expenses alone. I know the paperwork is a pain in the ass but shift your assets and future contributions to something with a lower expense ratio ASAP. If you don't care about investing and don't care to learn then stick with a target date retirement fund from a large company like Vanguard with an expense ratio below <0.25%.

Check out Bogleheads.com for more on retirement savings.


Next, for your cash flow:

First, I'm assuming you have no debt. If you have debt paying that off needs to be a priority. I am also assuming you have an emergency fund with at least a few months of living expenses (maybe a few grand looking at your low expenses).

Some of your expenses look a little wonky. Lawyer on retainer? Really? I can't imagine you're getting a great lawyer on retainer for $25/month, and do you really need one? Are you considering costs for clothes, including professional or work attire? What about other mid-term purchases such as replacing your computer every few years or saving for a down payment or saving for an engagement ring? What about your guns & ammo fund? Do you ever go on vacation or have any entertainment expenses? Before you guess at what you can afford for the car I think you should take a hard look at all your expenses over the last few months, and your projected expenses, and really size up your budget.

Next, when planning a major purchase like a car, don't look at the monthly payment. The payment can be essentially anything depending on the terms of the loan. Look at the total cost and buy something you can afford. If I were you my goals would be to (1) get an affordable car for a good price, (2) pay it off early, and (3) buy my next car cash so that I am not paying interest to the bank. Buying the car cash also gives you much more negotiating power. I have always been able to secure a better deal when buying cars by having the option to write a check right this moment. Plunking the cash on the barrelhead is an effective negotiating tactic.

For example, say you get a $20K car. If you put $500/month at that car you will own it in around 4 years. If you continue to put away $500/month in savings you can buy your next car -- 7 years or so from now -- cash, with no loan. If that is unacceptable (i.e. you know you can't stand driving the same car for seven years) then you need to increase the monthly cash flow you put at the car fund which will require you to evaluate your other expenses or boost your income, or you need to get a cheaper car (used?). I think dumb choices about cars (namely, buying more than you can afford because the monthly payment looks low and trading them in too frequently) are some of the bigger money mistakes people make.

I don't drink the Dave Ramsey cool aid entirely but it is a good start for budgeting. I would suggest "investing" $10 in his book (or a library card) for tips on the monthly cash flow management.


Lawyers are great and have to stay. (I work in a jail). I have about 10k in the emergency fund and I carry a small amount of credit card debt. I have spent $300 on attire last year, and just bought a new laptop.

Part of the reason I chose Ica is I got a financial advisor that I can call anytime along with it. Hence the expense ratio. I'm terrible at stock markets and finances. I like the idea of having someone to talk too.

Part of me is saying contribute early, live less today and retire wealthy.

The other part is saying I'm crazy for investing in a volatile market.
Link Posted: 2/9/2013 11:38:38 AM EDT
[Last Edit: 2/9/2013 11:39:37 AM EDT by Slappy600cc]
I figured you were a CO based on the OP. I had the same TX retirement plan. I would shoot for 15% of your income going into retirement, so that would mean $200-230 going into the Roth IRA monthly. I would decrease the projected car payment by $100 a month, try to spend less than $20k on a vehicle and with a small down payment you should be able to keep it under $350 a month. Or save and buy a reasonable vehicle in cash would be the best idea.

For the IRA provider, I strongly recommend you go with Vanguard. You will need the minimum of $1,000 to open it but for expense ratios and fund performance together they can not be beat IMO.
Link Posted: 2/10/2013 4:39:09 AM EDT
I would get a 5-7 yo car. I wouldnt spend more than 10K at your income.
Link Posted: 2/10/2013 9:14:45 PM EDT
Originally Posted By hicap:
I would get a 5-7 yo car. I wouldnt spend more than 10K at your income.


Wish this was as feasible as it sounds. I drive a less than 10k car now and am constantly dropping more money into it then its worth. its time for a new(er) vehicle.

serioursly between my dad and I weve spent 10K on this car in the last 3 years.
Link Posted: 2/11/2013 4:18:47 AM EDT
I know you're young, but I'd drop the cell and gym, netflix, etc. You spend more on it per month than you do investing, and that money can be saved to buy a car.
Link Posted: 2/11/2013 9:42:09 AM EDT
Originally Posted By TheGunCollector:
I know you're young, but I'd drop the cell and gym, netflix, etc. You spend more on it per month than you do investing, and that money can be saved to buy a car.


Netflix is my only source of tv. The gym I use, I'm trying to lose 50 pounds. Together those two are 43 bucks a month.

I am re looking into a >10k car though. 90s ford bronco?

When I buy a car I keep it.
Link Posted: 2/11/2013 11:16:13 AM EDT
Originally Posted By NoMoreGreen:
Originally Posted By hicap:
I would get a 5-7 yo car. I wouldnt spend more than 10K at your income.


Wish this was as feasible as it sounds. I drive a less than 10k car now and am constantly dropping more money into it then its worth. its time for a new(er) vehicle.

serioursly between my dad and I weve spent 10K on this car in the last 3 years.


People will shake their fists at me for this but have you considered LEASING a no frill economy car? I believe there are some out there which can be had in the $100-$200 per month range. I checked Ford's website and it looks like a no frill Fiesta is $149 per month on lease. Before I get shouted down, here's my logic:

1) Car should be reliable out of the box being a "new" car. Low risk of having to miss work to deal with car problems.

2) Your cost is a fixed monthly rate that you can plan for. No surprise repairs that dent your savings or god forbid put you into debt.

There is a value to knowing what you are in for up front especially if money is tight. You might spend less money with a used car but the keyword there is "might". It sounds like from your experience that you've realized the pitfalls of that unquantifiable risk a couple times already.





Link Posted: 2/11/2013 12:06:25 PM EDT
I agree with the lease. I leased a Honda Accord for 3 years. Total due at signing was $1680 which included taxes and fees and I pay $149 a month.

If I was to take that $7000 and buy a used car I would be dropping way more money into fixing and maintaining and at the same time driving an older vehicle.
Link Posted: 2/11/2013 12:15:22 PM EDT
A lot of good advice here. The 7% doesn’t matter much, considering your employer is contributing so much. That’s a really good deal, plus you’re not being taxed on his contribution and it’s a tax-deferred investment. If you’re guaranteed a 7% tax-deferred return, there’s nothing wrong with that. Do as much as you can.

I have no experience with leasing, but if woodsie is right, that might be the way to go. Look into it. A 90s Bronco sounds like a money pit to me.
Link Posted: 2/11/2013 11:59:54 PM EDT
Originally Posted By NoWayOut:
I agree with the lease. I leased a Honda Accord for 3 years. Total due at signing was $1680 which included taxes and fees and I pay $149 a month.

If I was to take that $7000 and buy a used car I would be dropping way more money into fixing and maintaining and at the same time driving an older vehicle.


Hmmmm now this is good idea.
Link Posted: 2/12/2013 12:00:31 AM EDT
Originally Posted By woodsie:
Originally Posted By NoMoreGreen:
Originally Posted By hicap:
I would get a 5-7 yo car. I wouldnt spend more than 10K at your income.


Wish this was as feasible as it sounds. I drive a less than 10k car now and am constantly dropping more money into it then its worth. its time for a new(er) vehicle.

serioursly between my dad and I weve spent 10K on this car in the last 3 years.


People will shake their fists at me for this but have you considered LEASING a no frill economy car? I believe there are some out there which can be had in the $100-$200 per month range. I checked Ford's website and it looks like a no frill Fiesta is $149 per month on lease. Before I get shouted down, here's my logic:

1) Car should be reliable out of the box being a "new" car. Low risk of having to miss work to deal with car problems.

2) Your cost is a fixed monthly rate that you can plan for. No surprise repairs that dent your savings or god forbid put you into debt.

There is a value to knowing what you are in for up front especially if money is tight. You might spend less money with a used car but the keyword there is "might". It sounds like from your experience that you've realized the pitfalls of that unquantifiable risk a couple times already.


Actually this is the good idea.
Link Posted: 2/12/2013 8:28:35 PM EDT
a lot of times leases have expenses at the end, and they can be STEEP. just be aware and tear up a sales manager with questions if you are going to go that route.

i think a better route would be to buy a slightly used car and simpply have a sinking fund for repairs , maintanence. This is what i do to smooth out monthly costs and it works pretty well. If you plan it well and things go unusually good a few months in a row you might even find yourself with extra cash. I built mine up over time and now i self insure collision.

and rather than the lawyer, what about a million dollars of liability coverage. its pretty damn cheap, probably cheaper than the lawyer unless its all bundled as a work deal.
Link Posted: 2/13/2013 12:19:35 PM EDT
when I was in your shoes, and had to get a car, the new car lease was the way to go.

like right now here in texas they are showing the fiat 500 for 99 bucks a month. don't remember what the down was.

if you can stomache driving one of those, worst case you refi when your lease is up and spread it out another 4 or 5 years to keep the payments the same.

yes you are over paying on the car by a couple of k, but it keeps you in a newer car for less than what you can find a good used car for.

especially if you can't do work yourself, this is a cheaper way out.

for me it wasn' t I couldn't do the work, I just didn' t have the time any more, between school and work, any free time I had left was fixing my car. plus I was getting like 10 mpg with it at the time.

changing to a car that got 30 mpg helped off set the cost of the car as well.

the use car market is fubar still due to cash for clunkers.
Link Posted: 2/15/2013 10:06:38 PM EDT
Originally Posted By NoMoreGreen:

Part of the reason I chose Ica is I got a financial advisor that I can call anytime along with it. Hence the expense ratio. I'm terrible at stock markets and finances. I like the idea of having someone to talk too.

Part of me is saying contribute early, live less today and retire wealthy.

The other part is saying I'm crazy for investing in a volatile market.


Let's say you have $3K in your ROTH today and invest $100 more each month. There are no guarantees in investing, but historical stock rate of return has been around 10% in this country. Both the Vanguard Retirement and ICA funds are going to be a bit less than that as they are more conservative, but an 8% rate of return is a reasonable estimate. With ICA, that means 7.39% after expenses, and with Vanguard that means 7.19%.

In ten years with ICA you will have $23,573.09.
In ten years with Vanguard you will have $24,214.99. I just made you $750.

In 30 years with ICA you will have $151,163.22.
In 30 years with Vanguard you will have $164,896.64. I just made you almost fifteen grand.

The target date funds are set up exactly for the person who knows nothing about investing. You use the website, open an account online, and start auto contributions to the target date account. Over time the account composition automatically shifts to an appropriate mix for your age. Bam. Done. Easy.

The only variables YOU can control in your retirement savings are:
1) Tax efficiency. Roth is a good choice so you're doing well here.
2) Expenses. You are doing poorly here. You are paying almost a half point in fees which is like an anchor on your long term growth.
3) Asset Allocation. In a nutshell, more % towards stocks = risky (more volatile but more room for growth), and more % towards bonds = stability but less growth. The Target Date funds take care of this for you. If you want to "tilt" a bit more aggressively or conservatively, once you have more than peanuts in your account (say, five figures or more) you can open a second fund inside the ROTH with either more stocks or more bonds to "tilt" more aggressively or more conservatively. If you don't know anything about investing and don't care to learn over at Bogleheads, then the Target Date funds do this for you.
4) The amount you save each month/year. To max your Roth takes $450/month. That would be the goal I'd work towards. This requires discipline to stay the course when the market gets volatile. Putting the investments on autopilot every pay period helps. Worrying over things when the market goes crazy is a recipe for "buy high, sell low in panic." Otherwise, maxing your employer match is smart too.

Beyond that, there's a lot out of our control. I can't control interest rates or money printing at the fed, inflation, market volatility, etc. I can eliminate a 0.5% drag on my return from fees though, and be smart about taxes, and save more every month. I can't tell you if congress will be a pack of back stabbing hyenas that steal our IRAs. I can't tell you if the stock market will break from a century of history and crash as we all live in a dystopian Mad Max fantasy with collanders on our heads in the Thunder Dome. So I focus on what I can control, which are the four things above.

If you think that you or your broker/adviser have some special insight into the market that somehow the rest of Wall Street has missed, and you think you can beat a broad index fund, then you should read the advice from a former stockbroker here.

I think you're being wise to at least be saving regularly now! If you run a few calculators you will see that it is of enormous benefit to get another decade of compounding returns early in life.
Link Posted: 2/17/2013 12:23:37 AM EDT
Originally Posted By armaborealis:
Originally Posted By NoMoreGreen:

Part of the reason I chose Ica is I got a financial advisor that I can call anytime along with it. Hence the expense ratio. I'm terrible at stock markets and finances. I like the idea of having someone to talk too.

Part of me is saying contribute early, live less today and retire wealthy.

The other part is saying I'm crazy for investing in a volatile market.


Let's say you have $3K in your ROTH today and invest $100 more each month. There are no guarantees in investing, but historical stock rate of return has been around 10% in this country. Both the Vanguard Retirement and ICA funds are going to be a bit less than that as they are more conservative, but an 8% rate of return is a reasonable estimate. With ICA, that means 7.39% after expenses, and with Vanguard that means 7.19%.

In ten years with ICA you will have $23,573.09.
In ten years with Vanguard you will have $24,214.99. I just made you $750.

In 30 years with ICA you will have $151,163.22.
In 30 years with Vanguard you will have $164,896.64. I just made you almost fifteen grand.

The target date funds are set up exactly for the person who knows nothing about investing. You use the website, open an account online, and start auto contributions to the target date account. Over time the account composition automatically shifts to an appropriate mix for your age. Bam. Done. Easy.

The only variables YOU can control in your retirement savings are:
1) Tax efficiency. Roth is a good choice so you're doing well here.
2) Expenses. You are doing poorly here. You are paying almost a half point in fees which is like an anchor on your long term growth.
3) Asset Allocation. In a nutshell, more % towards stocks = risky (more volatile but more room for growth), and more % towards bonds = stability but less growth. The Target Date funds take care of this for you. If you want to "tilt" a bit more aggressively or conservatively, once you have more than peanuts in your account (say, five figures or more) you can open a second fund inside the ROTH with either more stocks or more bonds to "tilt" more aggressively or more conservatively. If you don't know anything about investing and don't care to learn over at Bogleheads, then the Target Date funds do this for you.
4) The amount you save each month/year. To max your Roth takes $450/month. That would be the goal I'd work towards. This requires discipline to stay the course when the market gets volatile. Putting the investments on autopilot every pay period helps. Worrying over things when the market goes crazy is a recipe for "buy high, sell low in panic." Otherwise, maxing your employer match is smart too.

Beyond that, there's a lot out of our control. I can't control interest rates or money printing at the fed, inflation, market volatility, etc. I can eliminate a 0.5% drag on my return from fees though, and be smart about taxes, and save more every month. I can't tell you if congress will be a pack of back stabbing hyenas that steal our IRAs. I can't tell you if the stock market will break from a century of history and crash as we all live in a dystopian Mad Max fantasy with collanders on our heads in the Thunder Dome. So I focus on what I can control, which are the four things above.

If you think that you or your broker/adviser have some special insight into the market that somehow the rest of Wall Street has missed, and you think you can beat a broad index fund, then you should read the advice from a former stockbroker here.

I think you're being wise to at least be saving regularly now! If you run a few calculators you will see that it is of enormous benefit to get another decade of compounding returns early in life.


Good info. When I finish paying off my debt, I might open a traditional Ira with vanguard based from this post. My goal is to retire from my first career in 23 years and 6 months from now. At that point I will only be 47 so I'll find something to carry me to 60 at that point. I want my county retirement and my Roth IRA, traditional IRA and social security there when I'm ready. If for nothing else I'll be a millionaire retired.

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