husseycr
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Hi. You should consider establishing three different accounts.
First, a short term "emergency" fund that you can access for (guess what?) emergencies. This is for true emergencies (lost job, illness, etc.) not foreseeable expenses like car maintenance, insurance, etc., which you should budget for separately. Most advisers recommend 3-6 month's income saved in this first account. For now, most would recommend 25% of your available monthly should go to this account until you reach that 3-6 month saved amount, then roll this 25% of your monthly to the next category. This money should go to a short term type "investment" like a money market account; you can find several that pay about 5%.
Second, concurrently set up a longer term account to save for purchases you know you'll be making in the 3-10 year time frame (car/grad school, vacations, etc.) You want to consider lower "risk" mutual funds for this account, since you will have a bit more time to allow for, but still benefit from, market fluctuations. You should be able to get 6-9% earnings in this type of investment. You should put 25% of your available funds into this account until you have it where you want it. Once that account is at the level you want it then excess money from this (and the pourover from first account) should all go to the longer term investment.
Third, you want to establish a long term, no touch account, for retirement. 50% of your funds go here, to be later supplemented from the pourovers of the first two accounts when they are properly funded. These investments should go to a good, diversified mutual fund that invests in "equity" (stock) in various companies. There's a huge list of them, and sorting through them can be a real headache. The online services are good, but in my experience a bit cumbersome to use. I like to find Money or a similar magazine that has summarized the various funds, and review those results. You are looking for long term results of the fund, how long the fund managers have been in the game, and what the expenses are. You should be able to find something that will yield 12% or more over the long run. These funds should also be in a tax-advantaged account (Roth IRA is probably best. In essence you make your investments with after-tax money, but all the earnings thereafter grow tax free). You should NOT ask the bank for these recommendations; a bank is not the place for long term investments and they'll always try to sell you their stuff first. (As an aside, NEVER invest money in an insurance policy. DON'T buy whole life, variable life, variable universal life. They are hugely expensive, and with surrender fees, etc., the investment returns are horrible. Plus, with few exceptions, you lose your savings if you die!!). Congratulations on doing so well at such a young age. FYI, $450/month from age 22 to age 65, invested at 12%, will be worth $7.6 million. |
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