Is It Bad To Have More In Pm Than You Do In Your Savings Act

Jenger:

Congratulations of being debt free! You are ahead of many people your age.

Here is my advice since you asked. I would stop stacking PM and start saving some money. You need to have an emergency fund so you don't have to use a credit card when something bad happens. You don't need a year of expenses at this point in life since you don't live on your own so if you lost your job you wouldn't be homeless in a couple of months. I would shoot for $1500 in a savings account. Don't try to save in your checking account, start a saving account and be disciplined to not touch that money unless you have a true emergency.

You also need to start saving for retirement. As others have said, you will be on your own and the sooner you start saving, the smaller the percentage of your paycheck you have to save. I would shoot for 10% of your income to start. You need to get into the stock market. I know you are afraid of it but you will not get ahead without investing. It doesn't have to be complicated, you shouldn't be trying to pick individual stocks. I would recommend Vanguard's Target 2050 Fund. It is an index fund based on your targeted retirement year. It has very low fees which is very important to maximizing your long term returns. This fund requires a minimum of $1000 to buy in so you will need to save for a while in your savings account. After the initial $1000 you can save in small amounts weekly. You will be investing in an Roth IRA (Individual Retirement Account). IRA's are different from 401K's. A 401K is run by your employer while an IRA is between you and a bank.

So in summary:
1. Save $1500 in a saving account for emergencies.
2. Save $1000 more in your savings account so you can buy into an IRA.
3. Start saving 10% a week into your IRA

This is just the basics, you will also need to start thinking about what you need to move out on your own in the future. That will take money because most landlords require about 3 months rent up front plus you will need money for security deposits to turn on your utilities.

You should also stop smoking. Not only is it very expensive but it will kill you. I watched my grandfather die from lung cancer and it is a horrible way to die. I am also watching my mother-in-law's health decline. She is in her late 50's and has smoked since she was 14. Right now she looks about 70 and has emphysema and a horrible smoker's cough in the morning trying to clear her lungs.

You asked about us so a little background. I am 35 and married. Right now we are 45% stocks, 34% real estate (House and REIT), 10% bonds, 10% cash, 1% PM. We have no debt except our house and the mortgage will be paid off in 3 more years. We are also planning to take 1 year off per decade to travel and enjoy life, instead of making a list of things to do when we retire. Life has no guarantee so no retirement "bucket list" for us.

In my early 20's I had the attitude that I would live life to the max. I got married at 22, we bought a new truck for the wife and a used Porsche for me, a motorcycle, and a house. In less than a year I racked up 3x my yearly salary in debt. Then my company started laying people off and I got scared. A quick calculation said if I was laid off I could cover bills for 3 weeks and my wife had just started college. That is when we got serious about paying off debt and budgeting. I didn't get laid off but we lived on a strict budget. No cable, no vacations, and the Porsche and truck were sold and replaced with a less expensive reliable car for my wife while I rode the motorcycle. In the beginning we each had $20 of spending money per MONTH the rest was targeting at saving and paying off debt. We budgeted using an envelope system where at the beginning of the month each category's envelope was stocked with cash and when the cash was gone, it was gone. It took 4 years to dig out of the hole and pay off the consumer debt and student loans. When my wife graduated we started taking vacations and budgeting some more money for fun. However, we didn't upgrade our life when we went from 1 income to 2. Instead the extra money went to maximizing savings and debt payments.

You are ahead of were I was at your age since you don't have a huge debt burden to dig out of. You can focus on saving and investing instead of paying off debt. It starts will small steps and over time those small steps pay off in a big way.

This has been a great discussion. Reminds me of when I used to watch the Suze Orman show on Saturday nights with the wife. All great advice. Glad to see I am not the only one with debt around here :)

I was told I cant start a roth IRA because I do not get paid on the books. I work with a family business and we are at the point where my father is stepping back and I am moving forward. The deal was, once I got my license, we would legally split ownership so I would become co-owner legally, and I assume pay taxes and all that good stuff. I unfortunately didn't get my license last time around, going for it again in october and am very confident.

After HS I kinda jumped around jobs while going to county college. That lasted alittle bit but then I started helping out my father with his business part time, on the side. I started advertising heavily online and our business started growing rapidly and we became pretty successful in the sense that the business is supporting my father and myself along with another person.

I have high hopes and big plans for it once I take over because my father is not a good "business" man. Don't get me wrong, hes a great worker and he knows this trade inside & out, but as far as the paperwork end of things, its just not for him.

But thanks for everyone's advice!

I started investing in mutual funds when I got my first job out of college back in 2000. If you look at the history of the S&P500 you will notice that was the very top of the tech bubble. I have seen two huge crashes, one bottoming in 2003 and one in 2008. In fact the S&P 500 only passed that September 2000 high this year. In spite of those two crashes I'm still way ahead. The key is that I stayed in. Regardless of what the market was doing I bought index funds. Those shares I bought back in 2000 are finally worth what I paid for them and the ones I bought in 2003 and 2008 are worth way more than I paid. The one right financial move I made early on was to start saving 15% of my salary in a 401k. Even when we cut the budget to the bone to pay off debt and send my wife to school I still saved for retirement.

There were two ways people could lose money with mutual funds since I got in in 2000. The first was to freak out when the market dropped and sell. The second was to be too heavily invested in stocks close to retirement and have to sell in the downturn. My father did both. First, he was way too heavily invested in stocks for his age because he started saving in his 40's and was trying to catch up. When the market started tanking in 2000 he rode it all the way to the bottom in 2003 and then freaked out switched everything to fixed income. He then waited until 2004 to buy back in so he missed a lot of the recovery. He lost half of what he had in 2000 by selling in 2003 and only through even more aggressive saving was he able to get back to his 2000 level by the time he retired and cashed out in 2008.

Starting early allows one to avoid both of these problems. Having 30-40 years before you can access the money without penalty allows one to have the long term focus needed to stay in when the market is down. That early start also allows you to dial back stocks and move into less volatile investments as you age because you don't have the pressure to try to make up for lost time and stay aggressive.

I'm another vote for Dave Ramsey. We used his plan when we were getting serious about paying down debt. I don't agree with everything he says, like his fear of credit cards but it is a good basic plan. As a note, he has a bunch of books but they are all pretty much the same. Financial Peace, Financial Peace Revisited, The Total Money Makeover, and his newest Complete Guide to Money are the same information repackaged.

My wife and I have done a "modified" Dave Ramsey Plan:

0. Track expenses a make a budget
1. $1000 emergency fund
2. Pay off all consumer debt
3. 6 months of expenses in an emergency fund
4. Max out 401K and IRA for both of us
5. Make extra payments on mortgage

The difference is that I never stopped contributing to my 401K, I only cut it back to 10% while concentration on paying off consumer debt. (There was no way I was giving up my company match)

I didn't sell my wife's reliable car to buy a $1000 beater though he told me in person to do that. (My wife was driving 100 miles a day to the university and the gas savings from getting 50 mpg went a long way towards covering the payment not to mention she needed a reliable car)

We maxed out our tax advantaged retirement options before starting to pay off the mortgage early.

I don't think credit cards are inherently evil.

"I didn't sell my wife's reliable car to buy a $1000 beater though he told me in person to do that"

Man for as smart as this guy is, he does have a couple of crazy ideas eh....

Guess he never owned a Toyota Tocamo eh, as I have changed a battery twice and brake pads in like 10 years lol....

IF people don't invest in the stock market, they are missing out on one of the best places to get returns for their money.

Now, I can see the anti-stocks people just reading this and going ballistic and poo pooing the stock market. And thats good because those are the people you exactly want to tune out. Those are the people who have missed each and every single run up in the market, so of course they are gonna say the stock market is horrible.

The negative folks who only believe in PMs and there are many here, will fail on PURPOSE to admit that people who had good quality names have been made whole since the slide in 08 as stocks now sit at all time highs.

OH BUT WAIT,, I can hear the feverish gold and silver bugs on this board jumping up and down and pitch forks in their hands now, ready to lynch me, saying "no matter what, the stock market right now is too "overvalued and its going to implode and its going to end ugly".

And to that I say..... ignore these people because they know nothing, their negativity made them miss the several hundred point run in the S & P. FYI, there is NO SUCH THING as overvalued nor oversold. Why? Because the market dictates that and no one is big enough or smart enough to outwit the markets.

So, make sure you put steady money into the stock market and you will see it grow. If you are scared of the market then stick to just buying index funds and dividend paying funds and over time you WILL see the money grow.

Well,, thing is tho, there is no such thing as overvalued or oversold. IF that is the case, then by whos metrics? By whos definitions? ... and thats just it, stocks run in whatever direction as dictated by the market.

That is why in any asset, the only thing that is truth, true and can be followed is price. I remember trading AAPL in the past as an example. As it climbed higher and higher, I kept buying and buying it. All the financial media said was "is aapl overbought now?" Well all the talking heads said aapl was too expensive blah blah blah... but yet I kept buying at yearly highs and kept cashing in. Eventually aapl peaked and rolled over. But before that, despite everyone saying "its overbought", I cashed in many times trading that stock.

So the same holds to something being "overvalued or overbought." There really is no such thing. The bottom line is any asset runs in any direction, the market decides how much and how far and always it goes farther than anyone thought. That is why there is no such thing as overvalued or oversold. We see the same in reverse with gold. Everyone and his brother is saying gold has been sold too much and therefore it cant go any lower. Well guess what. Thats wrong. Gold will continue to keep selling down until the market says so.

I have made excellent trades over the years especially where there is a perception of an asset being oversold or overvalued.