Your Best Financial Advice

I used to be fundamentally incapable of managing money, no matter how hard I tried to learn. I felt like that part of my brain was always broken. Eventually something in me just clicked, and I’ve been working very hard over the last two years to improve my credit and my overall ability to manage money and create wealth.

So here I am, I’m 24. I’m eager to hear any financial advice that Dopers may have accumulated over their years and years and years of personal experience. What do you wish you’d known about money when YOU were 24? And if you are my age, what are some things you recently have done to improve your financial situation? All advice welcome.

This should be interesting.

My biggest regret is not investing in the stock market when I was 24. I’d be pretty well set by now. Of course, the market may be entering a long flat period, so YMMV.
On the other hand, I bought my house at 23, and that ended up being a pretty good move.
All financial advisors recommend paying yourself first. I.E. - put some money aside every month, before spending on frivolous, ephemeral things.
Don’t run up credit card debt.
Don’t think of things like Cars as investments. They’re not.
Try not to outspend your neighbors / friends. It’s a sucker’s game, and you will be much happier with some money in the bank and a nice cozy small house than they will be with a crushing mortgage and a zillion dollars of debt.

Start saving for retirement. Yes, now! And even if you can only put $5 or $10 a week into it now, do it and increase the amount every time you get a raise. A little money saved over a long time really adds up.

If you have a job with a 401k plan, use it. Or open an IRA.

I used to work for a place that matched its’ employees 401k contributions up to 4% of their total salary. There were people there who didn’t take advantage of it. They gave up what was essentially free money! Stooopid.

Excellent advice. I plan to open up an IRA this year. It’s been on my list of things to do for a while, but I’ve never had the income to do it. That’s about to change.

My husband’s job DOUBLES whatever he puts into his 401K. If he puts in $100 a month, they’ll put in $200 for a total of $300. Isn’t that madness? Of COURSE he is taking advantage of this.
ETA: Can I ask a question here? Neither of us are in jobs we’ll have for much more than a year more (we are going onto graduate school.) Does this stuff carry over somehow? If you have a bunch of different jobs, would you have a bunch of different 401Ks? Something I never understood.

You can roll over the funds from your previous 401k into a new 401k (or whatever it is I have that’s similar but called something else because I work for a nonprofit), or you can also roll it into an IRA. Or, you can keep it, if you want. I still have 6000 dollars sitting in a 401k from my previous employer that I haven’t gotten around to getting rolled over yet, 10 months later. Need to get that done…

When you leave your job, you convert your 401k with them into an IRA, which you own. You can then keep your money with whatever bank or brokerage house you like, and have many IRAs or combine them all to one. By the way, you may not get all of that “match” money your employer put up…they often have it vest 20% a year. But all the money you personally put in, you will keep. More info here: http://www.smartmoney.com/retirement/401k/index.cfm?story=rollover

When you’re young get your 401K contribution % as high as you can stand it. Compound interest is your friend and starting saving when you’re 20 instead of 30 can determine wheter you retire a millionaire or not.

If you can afford it always go for “shorter term- bigger payment” over “longer term- smaller payment” when financing big purchases.

Keep vehicles you buy for at least 8 years.

Never ever ever cash-out or borrow from your 401K.

Tax-deductible interest (student & home equity loans) does not mean tax-refundable interest. You will be paying more interest in dollars per year on these loans than you will get refunded on your taxes.

Think twice before marrying someone who’s deeply in debt. Once married their debt is your debt. Can you spend the next 10 years helping them dig-out without fighting about it?

If you take advantage of “0% financing for 18 months” type deals, take your total purchase, divide by 17, and pay that amount every month. Do not count on “I’ll have the money later.”

Like others have noted, you can (1) leave it just where it is by doing nothing and it will stay there continuing to earn interest in the funds you choose until you retire, (2) roll it over into your new jobs 401K plan, (3) roll it over into it’s own IRA, or (4) cash it out (bad, bad, bad).
Just be careful when rolling it over and get assistance on how to do it. If you screw it up (example: cash it out and then open an IRA to put it into) you’ll pay steep penalties.

Oh, good. That’s nice and convenient. I was just worried I would be paying money into a 401K or something and have to leave it behind. So it is most definitely not a waste of time and effort for me to get started this year.

Yeah, there isn’t very much difference between a $20,000 and $10,000 car, and you have to ask yourself is it worth $200 more in monthly payments for basically status? Same thing with a decent used car and ~$100/month in payments.

The thing I am proud of myself most financially is paying off my car loans early, after an emergency fund and maxing out the matching in my 401K and making sure there were no prepayment penalties.

But! People might object. The 401K/IRA is tax advantaged! But by prepaying a car loan you are avoiding paying taxes on the money you have to earn to pay the interest on the car loan, and are getting, in effect, a guaranteed return rate better than any bond.

LONG BORING TECHNICAL ANALYSIS FOLLOWS
Say you had 3 people with $1000 and could either invest it in an IRA or pay off part of a car loan of $1000 with an %8 interest rate early or invest it in the market. Assume both ones that invest the money make %8 on their investments as well.

Person 1 - Invests $1000 in an IRA
end of the year: Has $1080 in IRA
owes: $1080 in car loans.
net change: 0

Person 2 - Pays of $1000 of her car loan
end of the year: owes $0 in car loans
has $0.
net change: 0

Person 3 - Invests in a taxable account
end of the year: Has $1080 in a taxable account
owes: $1080 in car loans
ALSO owes ~$20 in taxes on the taxable account
Net change: -$20

So in effect, in the third scenario you are paying $20 in interest on the money you are earning to pay off the car loan.

Of course, this is assuming that you are not talking about a large home loan you can deduct, and assuming you cannot earn a larger interest rate safely, and that you have the extra money floating around. (After I paid off my car loans early, I of course upped my 401K and Roth IRAs to the max.) IANAFA, etc etc.

When I think about doing things differently, I would have thought more about what really is worth it and not gone through 1000s of dollars on the credit card. But OTOH I think it takes years to really learn these things, so it’s not like I regret it.

I actually almost regret having put away retirement money. It’s money I could have now for a house or car. If I had known the nest egg my Grandma left and the fact that my parents won’t spend the principal, I would have known I didn’t need to save anything. But, something catastrophic could still happen to any of these resources, I guess.

Figure out what your “big ticket” annual expenses are, such as car insurance, property taxes (if they aren’t collected with your mortgage payment and paid by your bank), your once-a-year trip home to see family or vacation to the tropics, car maintenance (assume at least 2-4 oil & filter changes, allow for possibly replacing a tire (or all 4, if you’ve been driving on them for a while), and at least a couple hundred bucks for unexpected problems, like a dead battery, alternator, starter, etc.), and anything else you can think of that you know you’ll have to come up with funds for at least once a year. Estimate slightly on the high side, if you can, total it all up and divide by 12.

Then open up an online savings account, like any of the ones scotandrsn recommends in this post, and deposit that amount every single month as if it were a monthly bill. Then, when it comes time to pay out those expenses, the money’s already there and you don’t have to figure out how you’re going to come up with the cash, finance it on a high interest credit card, or do without something else so you can afford to live.

Lots of good advice. A few more things:

Don’t finance anything (except a house) unless it is absolutely essential. We’ve never had car loans, and it’s saved us a bundle. We get cashback on our credit cards, we never pay interest.

Think about what you spend day to day. I bring lunch. Not only is it healthier, and I get to read the Dope during my break, but I save a bundle also. Eating out for recreation is fine, eating out because you never bothered to plan a meal is expensive. We started sitting down on Saturday morning and planning our menu for the week, and getting everything we needed that would keep in one big shopping trip. We found we reduced the amount of food we wasted, and we never have to get takeout for not having anything good to eat. We started this when my wife had eye problems and I had to do it myself, but we’ve found it works great.

If you want to buy something for you, fine. If you want to buy it to keep up with the Joneses, don’t. The Joneses are near bankruptcy.

M y best piece of financial advice is pretty basic: live below your means. I don’t mean that you need to eat ramen if you’re pulling down 100K, but that you shouldn’t necessarily buy the most expensive things you can afford. When my husband and I bought a house, we deliberately looked for one with a smaller mortgage than we were qualified for. A couple of years later, because we had a lower mortgage payment, he was able to go back to school full-time, rather than working 40 hours a week and going part-time. Hopefully, when we have kids, I’ll be able to spend a couple of years at home with them, because our mortgage doesn’t require both of our full-time incomes.

Lots of good advice so far.

I saved money as soon as I started working. Eventually I had enough to put down a deposit on a house. I continued to save and am just about to pay off my entire mortgage (I’m aged 54).
The savings also paid for good holidays - you need to give yourself affordable rewards throughout your life!

I always paid off my credit card in full. (Why pay huge rates of interest?)

Get a job with a good pension (or set up your own). Whenever I went for a job interview, I asked what the pension was like. (Apart from finding out, I also got appreciative looks - this guy wants a future with the company!)
All my pensions are index-linked and based on final salary (few jobs in England have this now though.)

Write down your budget. it doesn’t have to be detailed, but you should have a clear idea what your overall income and outgoings are.

My husband and I were actually discussing this yesterday. We would rather have something humble and comfortable that leaves us wiggle room (for savings, changes in income, or heck, even travel) than live in a big expensive house we can just barely afford.

And ideally, yeah, we would never finance a car. But it’s going to be a while before we have enough money to pay for something like that in cash.

I appreciate the advice that a car is not an investment. I think it’s an important thing to consider.

Gosh, this is such great advice. Thanks.

If you have trouble staying on a budget, figure out how much you want to spend per week and take that amount of cash out of your bank account on Monday. When it’s gone, you don’t get to spend anymore 'til next Monday. Voila. You’re on budget, and no difficult accounting to do.

If you’re married and both work, see if you can live on one salary. That will curb your house, your cars, etc. But it frees up a lot of money for investments and allows you to save for big ticket items.

First, get your credit in good shape. Find out what your credit score is and how to improve it, and do what you need to, to improve it. Your credit score will impact the rate of car insurance you pay, the mortgage rate you get when you buy a house, and whether you will qualify at the best possible rate for other large loans, like a car loan. If you follow everyone else’s advice, you’ll have good credit anyway, but make it a priority to get and maintain good credit. Pay your bills on time, don’t use more than 50% of your credit on any one credit card – these aren’t just sensible measures, failing to do them dings your credit score.

Second, at 24, if you are given “risk-level” options for a money-market account in your IRA (usually they offer three levels: Very safe, less safe, and not-dangerous-we-hope-but-the-highest-risk), take the highest-risk one. You can afford the risk and you will earn the highest return. And by “afford the risk” I mean you are still young enough to replace the money in the unlikely event you lose it all.

On the other hand, the purchase price of a car is only part of the cost of owning it. You also have to take into account insurance and expected maintenance costs. It might turn out to be worthwhile to spend a little bit more up front to get something more reliable. The same goes for any other major purchase.

Seconded. This is a good way to manage money for people who don’t like to write down a budget or think about managing money.

A relatively painless way to live below your means is to spend extra only on things that are important to you, not on things you think you should have or that other people think you should have. Buy the cheaper versions of the other stuff, or keep your old one. Just because you’re in your 30s and are presumably a real grownup now doesn’t mean you have to have matching furniture- if that doesn’t matter to you, don’t spend money for it. If your ugly couch doesn’t bother you or any other adults in your house, why replace it? If you’re personally fine with an economy car, and your job doesn’t involve impressing other people with the car you drive (as most jobs don’t), buy a Honda Civic and keep it as long as you can. If you don’t care about designer clothes, buy your clothes from Target. Don’t let other people tell you that you should be spending more money on something that isn’t important to you.