Sharing What I (We) Learned #3 Saving and Investing

    Read Part 1: Introducing Nuri

    Read Pat 2: Banking and Budgeting

    Nuri: What are good guidelines for 401K options, which I'm pretty sure the company will have?

    DH: Yikes, this is one I have to plead a little ig'nance on. Everything I know about 401ks, I got from Suze Orman's Young, Fabulous and Broke (an excellent primer) and from the Motley Fool online. Most of my allocations go to index funds like the S&P 500. I also put money in International funds -- they fluctuate more, are much riskier, but when they pay off, they pay off more than other funds.
    All I do know is that you should contribute up to the company match, at least. So, if they match 50 cents on the dollar (or dollar for dollar, whatever it is) up to 6% of your salary, then contribute 6% of your salary to your 401k, more if you want. The point is, don't leave any of that match money on the table. If they're offering it, take it!

    You mentioned to me also that you've talked to some folks who have said there are better places for young people like you to save money than in a 401k. I'm reading a book right now where the author says that it's dumb for young people to put away money that they can't touch for 40 years. But, that's obviously not the common wisdom, so I can't say that I agree. Like I said, at the very least, contribute up to the company match.

Nuri: With the student loans, is it better to pay the minimum amount they suggest, or go up to something higher that I can handle?

DH: This depends and it's an answer that will change depending on who you talk to! I didn't have to pay student loans. I had a generous family friend pay the little loan amount that I did have. But, since this is debt, then there's really only one way to handle debt -- pay it off as quickly as you can. Do you have any other debt besides the student loan? If not, then you'll want to pay down as much as you can afford to each month. Yes, it's always a good idea to pay more than the minimum. Paying the minimum will get you no where. If you don't want to do a lot of math, then pay double the minimum.

    There are a lot of debt calculators online, just punch it in Google (fool.com has one too I think). Input your debt, the interest rate, the minimum payment and either the amount you want to put down a month or the number of months you want to take to pay off the debt in full. The calculator will tell you either how long it will take you to pay off the debt (based on the monthly payment) or how much you'll have to put down a month to pay it off in the number of months you input.

    I would suggest doing it the second way -- pick a debt freedom date and aim for that. Whatever the monthly payment is, plug that into your budget and plan your budget around that. Keep in mind that may be impossible! But plug in the numbers and see if it's doable.

Nuri: And later down the line: investments? What are the best resources for total beginners?

DH: As soon as I find this out, I'll let you know!

Nuri: Any other advice you have to offer!

DH: Start with the Motley Fool Get out of debt seminar. Go to the site and poke around until you find it. Actually, I might have a link right to it on my site. Look at my Helpful Financial Tools box in the right rail.

Comments

[Evelyn Guzman]

I enjoyed reading your advice to those who owe money and I find the sincerity in your counsel shone through. To do it the way you did in a conversational way I think will be more effective than lecturing them on what to do.

Evelyn Guzman
http://www.debtchallenges.com (If you want to visit, just click but if it doesn’t work, copy and paste it onto your browser.) Debt Challenger

[mapgirl]

As far as minimum payments go on student loans, there is almost never a prepayment penalty for student loans. I paid mine off early and sent more than the minimum in, but I signed up for the fixed payment plan on my primary loans ($98.07/mo for 10 yrs). That way I could round it off to $100 to make accounting easy. I could have done the graduated payment plan, but by the end of the 10 yrs, I would have had payment amounts much higher.

[Fiona]

I paid off my student debt at a higher rate than the minimum recommended. They charge interest just like everyone else.

About resources for investments down the line: my primary source of guidance is Personal Finance for Dummies. The author makes recommendations based on your tax situation and also your individual goals/needs. He also does a good job of explaining why he's recommending one thing over another.