I'm 19 and hold down a decent job, what should I do with my excess money?

April 3, 2006 1:04 PM

I'm 19 and hold down a decent job, what should I do with my excess money?

I live in the Washington, DC area and attend the University of Maryland on a full-time basis. About a year ago I picked up a job at fairly medium sized publically traded company doing grunt work(IT related). I got in good with a couple managers and our CIO and got elevated to a DMS administrator(with the pay that goes along with it).

All my school expenses are taken care of (through my undergrad years) through scholarships and money my parents had saved. This includes living expenses(other than the occasional meal out).

This leaves me with a good income and basically no expenses.

The first thing I did was pay off my debt (which wasn't much) and paid off my car in 3 month after purchase. Right now most of my money is sitting in my checking account, which I know is not the right thing to do. I also have 15 thousand in a CD that will be available to me in 2 months.

I'm a little nervous when it comes to investing in the stock market because I'm not sure I could let the money sit there for 5-10 years. While I don't have expenses now, that is sure to change!

I'm also reluctant to put money in a retirment fund at my age. Though I thought I read something about being able to use that money for purchasing a house later on?

Should I go the safe route and put money's in CD's? Or what other options do I have when it comes to safe investments for short term growth?

posted by aznhalf to work & money (40 comments total)

Roth IRA first and foremost. You can put up to $4,000/year in the fund and can take it out when you purchase your first home without having to pay taxes. After that, mutual funds and stocks. You're young and have no debt, it's a good time to be a little risky.
posted by billysumday at 1:12 PM on April 3, 2006

I'm in a similar situation as you, you don't really have enough money to invest with -- I'd put your excess money in a money market account you can draw from if need be.

Seriously? I'd keep a good chunk of change around so you can quit if you need to for a year or 6 months (think ~$10,000 in cash) or whatever it will take to sustain your current lifestyle without hardship should the job cease to be or you want to quit.

After that spend it. Unless you know with a reasonable amount of certainty that you will buy a house and will need a down deposit, spend it on fun trips, eating out, getting drunk and living the life. Buy nice clothes, go to the cool places around town and generally find yourself living like a yuppie or whatever sub-culture you most identify with. Financial independence and no real financial worries (if you lose your job you still have your parents footing virtually every bill) only come around a few times in life, and I doubt next time it comes around you can stay up partying until 3AM. Obviously don't go crazy and get an expensive addiction, but live like a rock star within reason.
posted by geoff. at 1:14 PM on April 3, 2006

Although you are clearly not "broke," a very good book I read was The Money Book for the Young, Fabulous & Broke by Suze Orman. Most financial advice is geared towards older adults, but this book has a lot of topical information, including about investing and retirement planning, and what you should be thinking about now and what you can put off until later. I would definitely recommend it!
posted by apple scruff at 1:19 PM on April 3, 2006

Dang, that's cool. Take a couple of finance classes to learn about your options. If I were you, I'd invest in some mutal funds, stick some in a retirement fund (it's really never too early to start saving for retirement, given cost of medications and housing and whatnot), and put some in a savings account with ING Direct for travelling and any other big luxury expenses you might want down the line. Keep the rest for clothes, food, good times.

I would definitely not spend it all or "live like a rock star". If emergency expenses come up three, five, ten years down the road, you'll be glad you have some funds to pay for them.
posted by schroedinger at 1:27 PM on April 3, 2006

"I'm a little nervous when it comes to investing in the stock market because I'm not sure I could let the money sit there for 5-10 years."

I'm not sure how to interpret this statement. The US stock exchanges are very liquid - especially for small investors such as yourself. Using a discount on-line brokerage, you can execute a transaction for a small fee. For most people, the best way to maximize return is to hold the investment for the long-term, but your money will not be tied up.
posted by mullacc at 1:34 PM on April 3, 2006

Congratulations for being so responsible with money. Many of your friends are probably living on credit card debt, a total disaster.

Funding a Roth IRA is a great idea. But you still have to choose what to invest it in. If I were you I'd invest it in something that's likely to be high risk / high return, like US stocks or international stocks. I'd buy a mutual fund.

For the rest, when I was your situation I put most of my money in a short term liquid investment like a money market or a CD. In retrospect that was too conservative, but I wanted the money close at hand if I needed it. If you're feeling like you can take on more risk, a stock market index fund is a good choice.

If you're at all inclined to travel, spend a reasonable portion of your savings on it now. The older you get the harder it will be for you to travel. Go places now. Road trip in the US. Wander around Europe. Go to Southeast Asia. It's a different kind of education than school, but equally valuable.

Vanguard is a great place to go when looking for specific mutual funds to buy. They have great customer service, low fees, and simple mutual funds. Take a look at VFINX, VTSMX, VGTSX, and VMMXX as examples of simple index funds you can buy there.
posted by Nelson at 1:37 PM on April 3, 2006

This is a great time to get into the markets. You're young enough that you should be very open to higher risk opportunities.

One thing to note: don't limit yourself to NYSE/Nasdaq. There are fantastic markets all around the world. You could consider investing in China, Brazil, India, Russia.... lots of great options.
posted by I Love Tacos at 1:40 PM on April 3, 2006

(mullacc — In the long term, the stock market is likely to go up. But in the short term, it may go down. What anzhalf wants to avoid is a situation where he buys stock, it goes down, and then he needs the money right away and can't wait for the market to go back up. Then he's taken a needless loss.

In general, the sooner you might need your money, the less of it you should have in stocks.)
posted by nebulawindphone at 1:43 PM on April 3, 2006

Buy a little gold. Don't overdo it, but an ounce every couple of months won't hurt.
posted by Malor at 1:44 PM on April 3, 2006

Talk to the managers that you got in with. Ask them to recommend a good financial planner that can help you with selecting a nice distribution of mutual funds, start some IRA's. Ask for some references from whoever they recommend. Don't take advice from random people on the internet about what to do with your money.
posted by Roger Dodger at 1:45 PM on April 3, 2006

mullacc-
Most sources I've read have told me not to invest heavily in the stock market unless you're willing to sit on them for 5-10 years. I was trying to say that I'm not sure if I can wait out a volatile stock market.

geoff-
What would you consider 'enough' money to invest with? Are we talking 100k?

Lets say if I could invest 30-40 thousand in the immediate future to fool around with, is that too little to seriously consider the stock market?

And I have definately mulled over 'living like a rock star'. Unfortunately, it's hard to find the time for it between working full-time and classes full-time. I've even considered quitting for this reason, but in the end I decided that this oppurtunity (mainly the job) was too good to let go. I doubt I'll be able to find another comperable job considering my qualifications, even when I'm out of college! Everything has a cost right, this case its a little less living it up.

All your responses have been very helpfull so far!
posted by aznhalf at 1:48 PM on April 3, 2006

Does your company offer a 401(k) with matching plan? If so, and you're eligible, you should definitely enroll and contribute the maximum amount that they will match. That's free money for your retirement!

As the Fed raises interest rates, annual returns on Money Market accounts are going up to 4% and higher. The stock market, on the other hand, has been relatively stagnant for the last year. (Not to mention all the prognostications of economic doom and gloom, which you can take or leave.) My mutual funds have been returning in the neighborhood of 4-6% -- not much better than my money market. As a short-term investment, mutual funds are unlikely to do much better than a money market account, and entail greater risk as well as fees.

Bankrate.com will give you good info on the Money Market accounts and IRA's with the best yields right now. First, enroll in your 401(k) if you're eligible. Then start a Roth IRA, then consider a high-yield, no-penalty money market account that gives you easy access to your cash. Any money you put into the market should be money you're willing to leave there for a long, long time.
posted by junkbox at 1:49 PM on April 3, 2006

Put aside enough money for six months of living expenses. (I would suggest setting this at an amount you would be paying if you weren't living at home.) Even though you're at home now, you can put this aside for later. Never touch this money. If more people had emergency funds, they would be less likely to get into hot water.

Then go see a financial planner. A real one who charges fees for advice -- not one who will make commissions from your decisions. Do not make investments based on the opinions of random Internet people.

However, some things you might want to include in your financial plan:
- your emergency fund (maybe have some CDs maturing monthly, since you live at home)
- retirement savings
- savings for a downpayment and maybe even renovation expenses for your first home (you would want this to be safe enough that you can access it in 4 years or whenever you think you're likely to buy a home)
- savings for your car insurance (always pay cash and save the money up till the next year, so you never have to finance it)
- savings for your next car, so that you can buy it in cash
- savings for a trip when you graduate
- savings for grad school, if your education fund won't cover that
- savings for any other dreams you have

Your financial planner may tell you that you don't want to turn to the stock market until you have enough cash to provide for a well-diversified portfolio and offset fees. Some of the above expenses aren't long term, so you might not want your money tied up. (By tied up, I mean that a 20% drop in the savings for your downpayment would perhaps force you to wait for the market to rebound.)
posted by acoutu at 1:56 PM on April 3, 2006

nebulawindphone: That's what I figured, I just want to make sure anzhalf isn't under any misconceptions about buying/selling stock. If he works with people who have been compensated with restricted stock, or stock options, that have vesting periods associated with them, he may have heard some confusing conversations.

Anyway, aznhalf, while it's wise not to put your whole wad in the stock market if you're expecting to have near-term expenses, I'd still recommended investing at least the minimum in a Roth IRA and investing that amount in higher-risk/higher-reward investments. Personally, my retirement account is where I have my NASDAQ 100 index fund, but it could also be a good way to invest in an emerging markets equity fund as I Love Tacos suggests. It's sounds like you'll have a nice amount saved and/or invested conservatively, so it makes sense to put at least a couple grand in this kind of investment now.
posted by mullacc at 1:57 PM on April 3, 2006

aznhalf writes "What would you consider 'enough' money to invest with? Are we talking 100k?

"Lets say if I could invest 30-40 thousand in the immediate future to fool around with, is that too little to seriously consider the stock market?"

I think that is too little if your intention was to build a portfolio by picking individual stocks. That amount of money does not justify the amount of time and money it would take, in my opinion, to properly research your investments. However, if the total amount you have to invest is $30-$40, you should certainly consider investing a portion of that in equities. It should be the portion of your portfolio that you do not intend to utilize for expenses in the next 10 years, but rather the piece that you plan to hold for the long-term. As others have mentioned, I think the best way to invest the equity portion of your portfolio is through index funds, such as those found at Vanguard.
posted by mullacc at 2:02 PM on April 3, 2006

I cannot recommend this book highly enough:

The Green Magazine Guide to Personal Finance: A No B.S. Money Book for Your Twenties and Thirties

That will tell you everything you need to know to make an iinformed decision. Set-up a 401(k) and in the immediate future, at least think about getting some of that money into one of these savings accounts at HSBC which is currently offering 4.8% APY -- a whopping ammount for a savings account.

Also, another bit of advice -- since you have a lot of income for someone ridiculously young (good work, BTW), remember that wealth accumulates over time. Since you're so young, don't be afraid of taking a few risks in the short-term. You're likely to learn a few things about investing, something might pay off big and, assuming you will stay on an upward income trajectory as you finish schooling, you'll have plenty of time to buckle down and save. I mean, obviously don't send money to emails from Nigeria, but no reason to be especially conservative in the short term since you're so young.

Good luck, you lucky bastard.
posted by Heminator at 2:04 PM on April 3, 2006

Start saving for retirement. This is a habit you need to get into early. It doesn't have to be a lot but keep in the mind that the money you put away now has a loooong time to grow, as oppossed to the rest of uf who started saving at 40. Maximize those Roths while you can, all the interest you make in those is non-taxable (ie FREE MONEY!).

Spend the rest living like a rock star now while you're young and beautiful.
posted by Slarty Bartfast at 2:04 PM on April 3, 2006

Sorry, equities (in this context) = stocks, if that wasn't clear. And here is the Wikipedia entry on index funds.
posted by mullacc at 2:06 PM on April 3, 2006

Anzhalf,
As improbable as it sounds, you really will be 55 or 60 one day (what, you like the alternative?) and staring down the barrel of retirement and old age. At point, you will be much happier if you put money by for those years. You will be unhappy and scared shitless if you haven't. Do not, do not, DO NOT, piss away anything but a trivial amount on consumption that won't matter a damn five years from now, let alone when you're older. Toys are fun, but they do not make you happy.

Right now is the time is to take advantage of a Roth and/or 401(k), where the wonderful power of tax free compound growth can act on it for a quarter century or so.
posted by mojohand at 2:09 PM on April 3, 2006

Index funds.
Index funds.
Index funds.

Put money away. Wait 20 years. Compound interest does its magic. Then, poof! Congratulations, you're a millionaire!

If only someone had told me...
posted by frogan at 2:10 PM on April 3, 2006

I'd buy a house to live in, and have some roommates pay rent to live with you.

I'd pay back my parents for some of the college expenses (just to be nice, you certainly don't have to).

And I'd buy Oakmark mutual funds. Maybe about 2-5K in direct stocks but only if you really know the company and trust what they provide.

And I second the Roth ideas, start saving for retirement now!
posted by visual mechanic at 2:13 PM on April 3, 2006

aznhalf, well if you had 20-30 grand in cash sitting in a checking/savings account I would definitely diversify it and try to be as liquid as possible. Once again, personal experience, but I decided that "having fun" was more important than holding down a full time job and full time school, working out that I could show up late from time to time and generally have the freedom to do what I want. I'm not going to give you any of the "special time of your life" crap, but why not save the money and then quit your job with a year left? Then you can go wild your senior year and not have to worry about expenses -- are you planning on staying in IT or with the company? If not earn the cash then spend it. I tried the save and be a good look finance kid when I first started rolling in the dough in college, but then I realized by broke friends were several times more happy then me, did crazy things road trips and had cool stories from going out and having fun after finals. I would say I'm several times more happy now that I've cut back (keep in mind I'm still working ~ 30 hours, going to school 18). I have a nice car, nice things and live somewhat worry free as far as finances go. If I need clothes or want something that's not a big budget item I can just get it and not have to worry about it. The problem with the 30K nest egg that I can see, and in relatives with similar financial position, is that those who pinch every penny and invest wisely are always investing and never spending. They're 30, still have a large chunk "just in case" which is great, and you should have 6 months to a year in living expenses plus a diversied portfolio but remember that if you're making what are now you will probably be able to make at least that and more after college. It's a risk, much like investing, but it's one I'd play if I were you.

I apologize if I didn't answer your question in the way the financial analysts like mullacc did, and if you're passionate about investing the very act of it might very well be considered your thing. I'm just saying I used to look down my nose on those "credit card burdened" peers who would scrounge around for beer money on the weekend, but I think, and believe I found, somewhat of an equilbrium. It's okay to give into your consumerist impulses every so often. Besides if going out isn't your thing, try traveling -- go to Europe, the Carribean or other places. Be especially aware of burn out, it'll creep up and you might want to tough it out but don't be afraid to let loose. I'll stop my school marm lecture now.
posted by geoff. at 2:13 PM on April 3, 2006

I'm 23, and if I were in your situation, knowing what I know now, I would save up about $10-$15K so that I could travel extensively after graduation. The rest I would split between saving for retirement and a rainy day (and if that rainy day never comes, you have a downpayment on a home). Saving for retirement sounds really unsexy at 19, but the compounding interest really does add up. You'll thank yourself immensely later on. Even $5k saved for retirement is a great start for someone so young.
posted by gatorae at 2:19 PM on April 3, 2006

geoff,

Everyone's different, but I'm one of those 'save it, hardly ever spend it' types, and I'll testify there's lots of ways beyond retirement where steadily saving can help your life.

Example 1. Our company went thru a rough patch. All around me people were freaking. I wasn't happy, but I knew that having diligently saved for the last 20 years, our family's shit wasn't going to be stacked in front of our house in a few months if I lost my job.

Example 2. My daughter just got into her 'stretch college' Because of saving, I'm not wondering how we'll ever pay for it. Things like these, in my view, are worth a ton more than consumer trinket bullshit that breaks/wears out/becomes obsolescent in 12 months.
posted by mojohand at 2:28 PM on April 3, 2006

Index funds seconded.

Also, regarding the above advice, first Money Market Accounts at banks are worthless, just glorified savings accounts. Money Market accounts from trading companies are what you want.

Gold is at a high right now, it won't take much for that price to fall.

You could also buy a bunch of Chinese Yuan before the next round of controls are lifted. Instant return on investment.
posted by Pollomacho at 2:32 PM on April 3, 2006

Sponsor a kid and/or fund a teacher in the third world.
posted by the cuban at 2:32 PM on April 3, 2006

I'd have two goals for now:

1. Travel.
2. Saving towards retirement.

If you sock away $10,000+ towards travel, you can live for a long time on that while visiting low-cost-of-living countries. This would be an excellent use of your money, and could pay you back (both on a monetary and intangible level) in ways that are hard to predict.

If you could put $30,000 towards retirement, that would put you at least halfway towards completely funding a long and reasonably comfortable retirement beginning at 65. That puts you way, way out ahead of the curve.

My recommendation? Work for another year, live humbly, save, and then quit. Travel for a year or two, and then come back (if you choose) and figure out what the next thing you do with your life is.

Good luck, and send postcards.
posted by adamrice at 2:39 PM on April 3, 2006

1. Money market (3-6 months living expenses)
2. CD (whatever you need to feel comfortable about putting the rest of your money into longer-term investments)
3. Invest in "experiences," travel, trying to start your own business, etc.
3. Mutual funds (max you Roth IRAs, at the very least).
4. If you are so inclined, earmark a couple grand for investment into individual stocks of a couple of companies you love over the next couple years. You might loose it, you might not. You'll probably learn something, and you might make a nice fat return.
posted by Good Brain at 3:08 PM on April 3, 2006

This is a young attitude, but I'm in the camp of thinking that saving for retirement isn't actually worthwhile these days. With global warming, the international situation, and the advance of technology I imagine the world to be extremely different in 50 years. I don't consider the odds that a) the money will be of much use, b) that I'll even make it, and c) there won't be things I'd still want to do for money .. high enough for me to really bother.

My personal suggestion is to use your money to buy assets that will allow you to have a more secure life later on. Property appreciates well. This could also include setting up a business or investing in someone else's business. Over many years you can build up your assets and property to such a level that you don't really need to worry about a retirement fund, and you could have more money than the people who stashed their money in an anonymous bank account only to be used on retirement.

Use your money to get rich, not to buy a little bit of security once you turn 60.
posted by wackybrit at 4:12 PM on April 3, 2006

Oh, and only travel if you feel the urge to, or really want to. It's pretty common when people ask these sorts of questions around here to be told 'go travel!' Travelling is great fun and it can open a lot of doors, but it's not for everyone. I've only been to several countries and think I've had my fill, but there's a lot more to do that's just as fun and most likely more productive.

(Saving 6 months - 1 year of living expenses is always good advice though)
posted by wackybrit at 4:14 PM on April 3, 2006

My personal suggestion is to use your money to buy assets that will allow you to have a more secure life later on. Property appreciates well. This could also include setting up a business or investing in someone else's business. Over many years you can build up your assets and property to such a level that you don't really need to worry about a retirement fund, and you could have more money than the people who stashed their money in an anonymous bank account only to be used on retirement.

Starting a business is a high risk, time intensive endeavour. It may mean years without income. A huge number of new businesses go under. As someone who has run their own business for several years, I urge you to think carefully about considering a business to be less risky than saving for retirement.

The best financial plans call for diversification. But don't abandon saving for retirement. The person quoted above probably does not recall the real estate markets of 10 years ago, 1982 or other times where property dropped 25% or more. Or when interest rates went up and people had to walk away from their homes. That's why diversification is important.
posted by acoutu at 4:48 PM on April 3, 2006

I'm also reluctant to put money in a retirment fund at my age.

Keep in mind, man, that the earlier you start, the miracle of compound interest kicks in. You start plunking a relatively small amount of money down now — maybe $40 a check — you could end up having a friggin' huge amount by the time you retire.

I know it feels odd to think about planning for something that far out, but you really don't want to be eating cat food when Pierce Bush III institutes his next round of Duties to the Crown.
posted by WCityMike at 5:35 PM on April 3, 2006

About 30 years from now $4,000 invested with a return of 6% APR will be approximately $25,000. That could be a tax free $25K if you put it in a Roth and a 6% return isn't an unreasonable expectation if you invest in a decent low risk mutual fund. If you averaged 8% it would be $40K plus. Use at least part of what you have to start on that retirement. The $1,000 per year I put into my 401K 15 to 20 years ago when I was 25 to 30 was the best thing I ever did (Roths weren't avaliable).
posted by Carbolic at 5:46 PM on April 3, 2006

And now for a different approach.

The poster is only 19! Aside from putting something aside for a house and keeping a cushion in case of a disaster, you should be thankful for the amazing good fortune that has befallen you.

Finish school first. Then use the money to do something that you might never get the opportunity to do later when you may be married and have kids. Travel the world, perhaps, as somebody else said. Buy a motorcycle and tour the U.S. Hike the Appalachian trail. Pick up and move to a completely different part of the country.

Enjoy yourself a little. You never know when you could get hit by a bus or you may encounter health problems and such. You can pretend that you're a stockbroker later.
posted by bim at 6:11 PM on April 3, 2006

The Roth IRA isn't a retirement fund at your age, it's a tax shelter. You'll put in taxed money, but it will then forever appreciate tax-free, and when you withdraw it, the withdrawals will be tax free. By the time you're ready to buy a first home, you'll be able to withdraw the maximum allowed (at the moment, that's a feeble $10K) to apply to your first home down payment.

Money that appreciates tax-free, without yearly capital gains - well, if you don't care to learn more about that, just trust me when I say it's the best deal Uncle Sam's handing out at the moment.
posted by ikkyu2 at 7:47 PM on April 3, 2006

Do your parents need it?
posted by Napierzaza at 9:04 PM on April 3, 2006

"I know it feels odd to think about planning for something that far out, but you really don't want to be eating cat food when Pierce Bush III institutes his next round of Duties to the Crown."

To hell with Metafilter convention -- THIS should be the best answer, just so people will see it when they search for the topic later on.
posted by rossination at 10:56 PM on April 3, 2006

Support a charity of your choice.
posted by cass at 8:00 AM on April 4, 2006

Starting a business is a high risk, time intensive endeavour. It may mean years without income. A huge number of new businesses go under. As someone who has run their own business for several years, I urge you to think carefully about considering a business to be less risky than saving for retirement.

Sure it is, but I wasn't just talking about opening a business like a store or something. Running your own business can be as simple as maintaining your own real estate portfolio or similar low-risk ventures.. more exciting than watching a few dollars a day accumulate in an account, and means you get to 'play' with the money and be proud of your work rather than sit in some dull 9 to 5 playing it the safe way.

The best financial plans call for diversification. But don't abandon saving for retirement. The person quoted above probably does not recall the real estate markets of 10 years ago, 1982 or other times where property dropped 25% or more. Or when interest rates went up and people had to walk away from their homes. That's why diversification is important.

But retirement is a long-term proposition, much like the stock market. Just because prices might fall for a few years doesn't mean you won't cash in 20 years down the road. I'd say the overall gains in real estate (and especially as we enter a time when swathes of land are going to go underwater) will be significantly more than those from compound interest over the next 50 years. Of course, diversification is important, but locking up money to compound for 40 years just doesn't seem sane either when it could be doing some real work. Who knows where inflation will go (especially given a really shaky US economy).
posted by wackybrit at 9:56 AM on April 4, 2006

I know it feels odd to think about planning for something that far out, but you really don't want to be eating cat food when Pierce Bush III institutes his next round of Duties to the Crown.

It's exactly this sort of far-out outcome that should dissuade retirement saving.. not encouraging it! Inflation from stupid monetary policies can wipe out savings, and if the Fed goes on like it is it's going to need a lot more money printed one day.
posted by wackybrit at 9:58 AM on April 4, 2006