I have money I want to invest. Who do I call?

[Broomstick]

@davekhps

Lot of good advice, but let me offer up a few beginning points:

1. First thing’s first: open up a savings account. Online there are many good ones-- ING, E-Trade, etc. You’ll get north of 3% right now-- not much, but more than you’ll get just having the money lying around.

Not to mention and FDIC insured account is more secure than your mattress.

2. Set up a savings plan. Using automatic deductions at paycheck time is best-- this way, you never see the money in your checking account.

I’ve used this technique for years - well, not at the moment because, due to job loss last November, I don’t have the sort of job where that is feasible at the moment, but I used automatic deductions for savings, for paying off a small loan, for setting aside money for taxes (I have occasionally had 1099’s at the end of the year for freelance work) and so on - it’s a great option.

3. If you haven’t already, pay off any high-interest debt (credit cards, mainly). You still need to save money while you’re doing this-- always save something– but no matter what you save or invest, you’ll never make more money than you’ll pay out in credit card financing.

My husband and I paid off our major debt years ago - once you’re out from under 15% interest you’ll be amazed at how much easier it is to breathe. Since then we’ve had a couple vehicle loans (paid off) and one year with major out-of-pocket medical expenses we took out a small loan from a credit union at a lower-than-credit-card rate, paid off everyone, and used payroll deductions to pay off that loan.

4. You need a savings cushion. The rule of thumb is three months of your net salary. This way, you can handle emergencies, unemployment, etc.

Actually, I always heard it as “six months living expenses”. The point is, have a cushion of this nature.

Please note this needs to be in cash or equivalent - something you can liquidate quickly, without hassle. In other words, not real estate, not your 401(k) (which you can take a loan from, but then you’re paying interest again).

6. Do you have dependents? Be sure to fund adequate life insurance. Flexible spending accounts for health care may also be a wise idea. Also, many states offer college tuition savings accounts to put money away for their children’s education.

Just be cautious - my husband and I got a flexible spending account for health care and it turned into a complete nightmare, it was a horrible experience - they kept screwing up, we were threatened with an audit for the FSA manager’s errors, and it was just awful. So, as with everything, keep your eyes open.

@Mama Zappa

If you haven't already planned to do this, use the increase to completely fund your 401(k) to get the matching max from the employer, then a Roth IRA, then fund the 401(k) up to the limit. That's the standard money-columnist advice and makes sense to me. Then whatever's left over after that can be used for building emergency funds, and other investing. 

No, hon - you need the emergency fund FIRST - you must pay for today before you invest for tomorrow. Once you have your emergency fund you can weather job interrupts, stock market crashes, whatever, much better.

If I had fully funded my retirement I would not have had any savings – and it’s those savings that have kept my head above water this past year of on-again, off-again unemployment. I would have either gone into serious, serious debt (as it is, I have none) or even been out on the street.

It’s strictly my own opinion, but I find having that “six month’s living costs” in the bank to be extremely valuable in staying out of debt, and staying out of debt is a good thing. (yes, auto loans and home mortgages are reasonable reasons to be debt, but you have to keep those managable).

[davekhps]

"It’s strictly my own opinion, but I find having that “six month’s living costs” in the bank to be extremely valuable in staying out of debt, and staying out of debt is a good thing. (yes, auto loans and home mortgages are reasonable reasons to be debt, but you have to keep those managable). "

RE: three months vs. six months, YMMV, but you’re right-- the cushion is what’s important.

A lot depends upon your job outlook-- for example, if you’re a nurse, you might not have to worry about six months worth of income because odds are you’ll always be able to find a job quickly. But if you’re, say, a cold-temperature physicist, you might want to save yourself a bigger cushion.

Oh, and as depressing as it sounds, that rainy day fund isn’t a place to go raiding for vacations and big-screen TVs, it’s the doomsday fund. But the good news is, you place those funds in a savings account, you’ll gain interest when you don’t touch it, and so it should keep pace with your salary increases-- and maybe even give you a little side-profit for the fun times.

RE: FSA’s. . . I don’t have one because I’m single, in good health, and I have pretty comprehensive (and generous) health & dental from my employer. But if you have kids they can be good idea.

But your point is taken-- small print matters!

Finally, one point I forgot to make: the one regret I have is that I didn’t start saving earlier. I’m entering my mid-thirties and I’m in good shape finanically, but I recognize that had I started putting even a little money away ten years ago, I’d be in even better shape today.

For any readers in their twenties, if you remember nothing else from this thread, do this tomorrow: save any money you can from each paycheck, even if it’s only a little, in a competitive-interest account; and max-out your retirement contributions.

The miracle of compound interest and market returns (over time, my friends, over time!) pay off not just in the long-run, but in the mid-run as well (while people in their thirties and forties will be playing catch up to make up lost ground, you’ll be going on cruises).

[Broomstick]

I wasn’t really able to start serious savings until my mid-30’s… but I did get out of debt by the time I was 30. I certainly haven’t saved/invested as much as is ideal, I didn’t do everything perfectly, but I refuse to consider the might-have-beens. I made the best choices I could at the time with the resources I had, and I include my own knowledge as one of those resources. In some cases I made very different choices than typical (since I knew by 30 we weren’t going to have kids I never had to worry about college funds and the like, but my husband is disabled so we have higher medical expenses than most), but (IMO, YMMV) minimizing my debt, living within my means, keeping focused on my financial priorities, and trying to save something on a regular basis (even if it’s just loose change, but certainly more if practical) have served me well even when times went bad.

I should also point out that you should budget to enjoy some of your life, too - don’t become one of those people who lives on peanut-butter-and-jelly-sandwiches because they put ALL their money away do nothing but work and sleep. Even now, when I’m earning 1/3 of what I did a year ago, I am still budgeting for entertainment, it’s just that instead of flying airplanes as a hobby I’m doing things that are quite a bit cheaper. Your situation is unique to you - whether you’re married or single, have kids or don’t, plan for more education or not, have particular goals, or particular concerns… even if you go to a professional you really should do some research and self-education. There are bad financial planners out there, you need to know how to spot one.

[MsRobyn]

@Mama_Zappa

If you haven’t already planned to do this, use the increase to completely fund your 401(k) to get the matching max from the employer, then a Roth IRA, then fund the 401(k) up to the limit. That’s the standard money-columnist advice and makes sense to me. Then whatever’s left over after that can be used for building emergency funds, and other investing.

Any professional advice you seek can be used to direct those retirement accounts as well as non-retirement investing. I’m presuming your 401(K) will have enough choices to satisfy most retirement goals (ours has a dozen or more, as well as a way to invest in any Fidelity mutual fund) and obviously your Roth could be with any of the big investing houses.

What Broomstick said. You need the cushion first. You may have cash socked away in a retirement account, but if you have to get to that for medical expenses or a tree lands on the roof or whatever, you’re going to take a HUGE tax hit – it’s taxed as ordinary income AND you have a 10% penalty if you’re under 59-1/2 years old.

Maxing out retirement accounts makes sense after you’ve gotten your short- and medium-term cash needs planned for. Otherwise, you’re asking for trouble.

Robin

[binkDM]

I agree on the Vanguard index funds. They are a safe bet with low fees. You’re going with the market and not gambling on particular stocks. I did well with them in the past.

Another option is DRIPs. Definitely look into them as well. You can contribute monthly to a particular stock which let’s you “Dollar Cost Average” the price you are paying for that stock over time. You also usually pay no fees for buying the shares and your dividends are automatically re-invested for you into more shares of that stock. Here’s a site to take a look at:
http://www.directinvesting.com/drip_learning_center/what_are_drips.cfm