Building Wealth......where to start?

[icyhot]

I've learned a lot about building credit on this forum....now I want to learn to build wealth. I see people on here talk about having a six figure income and so many assets, I just want to be comfortable and have a good nest egg.

Some background
23 years old, in graduate school, will be making about $36K as a first year teacher come August, income should jump once I get my masters. I have about $5K in CC debt that I'm in the process of aggressively paying down and don't plan on running up that high again. I have a car loan with a $19K balance that I want to refinance because the payments are $430 with an interest rate of 6.9%. Once I graduate I'm gonna have about $100K in student loans that I plan to pay off consistently for 10 years and then they will be cancelled since I'll be a state employee. I also want to buy a house by the time I'm 25, and I want to start a consulting business. I have an IRA with BofA that I have yet to put money in, an investment account with Fidelity, and $200 in savings. I plan to begin saving $200 a month since I started working. I also currently live with my parents, so this is prime time to save.

My question is, where to start?? What's the best way to tackle my debt? How much should I put in my investments to make a real difference, how much should I be saving, how can I accumulate assets so when it's time to buy a house, I have more assets than debt? Right now my student loans would be the only thing holding me back.

[Anonymous]

 If it were me, I'd do something along the lines of:

1. Build emergency fund for 1-2 months worth of expenses. 

2. Pay down credit card debt. 

3. Grow emergency fund to 4-6 months of expenses.

4. Invest

Personally, I'd go with an IBR or graduated repayment plan for those student loans and just make the minimum payment for now. You can start working on paying down those loans once your income increases. The BIGGEST favor you can do yourself is to avoid any new debt at ALL costs. Each person has their own ideas on the "correct way" to tackle debt vs. wealth, and this is simply my philosophy. Best of luck!

[tacpoly]

Read If You Can - How Millenials Can Get Rich Slowly by William J Bernstein.  He answers your questions in 16 pages.  Here a link to the pdf file:  http://www.etf.com/docs/IfYouCan.pdf

[Pway]

This something I found very useful as well.  It talk about how they retired at the age of 30 I believe.

http://www.mrmoneymustache.com/

[Anonymous]

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@Anonymous wrote:

 If it were me, I'd do something along the lines of:

1. Build emergency fund for 1-2 months worth of expenses. 

2. Pay down credit card debt. 

3. Grow emergency fund to 4-6 months of expenses.

4. Invest

Personally, I'd go with an IBR or graduated repayment plan for those student loans and just make the minimum payment for now. You can start working on paying down those loans once your income increases. The BIGGEST favor you can do yourself is to avoid any new debt at ALL costs. Each person has their own ideas on the "correct way" to tackle debt vs. wealth, and this is simply my philosophy. Best of luck!

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+1

Congratulations on wanting to have a financial plan at a young age!  Yes, the student loans will hold you back a bit, but it won't kill you.  The biggest thing that will be important as stated above is to avoid any new debt.  The emrgency fund will help you should you have emergencies come up.  And yes, they do come up, so do not feel bad, just keep following your plan.   Research budgeting softwares out there.  Check them out and figure out which one appeals to you more.  I used several before really digging the "You Need A Budget" software.  I knocked down a big divorce debt then aggressively saved.  The YNAB has a forum and while it's mostly for people that are trying to get out of debt or living paycheck to paycheck, you can read some great feedback on ways to manage your monthly budgeting and accruing savings.  Stick to the budget every month, live below your means, save, and invest! 

As for the car loan, good luck getting it refinanced!  I have read many doing this successfully with their credit union banks.  I don't know much when it comes to this because I have never taken car loan out. 

[Anonymous]

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@Pway wrote:

This something I found very useful as well.  It talk about how they retired at the age of 30 I believe.

http://www.mrmoneymustache.com/

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I like this site!  Have never seen it, but just read one of his blogs and I like this guy

[Anonymous]

I would start putting as much as you can afford into a 401k or thrift savings if your job offers one.  Next  I would start tackling the higher interest of your debt, probably in the order of credit cards/auto loan/high interest student loans.  I would put your 401k allocations in something very conservative because the market is at a all time high, and wait for the market to reevaluate itself(crash) before putting it into more risky funds.  Create a budget you can stick too, read up on the stock market, (maybe try a free simulator in your free time to learn how the stock market works and learn how to develop a strategy for investing).  Remember with an IRA I think you can withdraw 10k tax/penalty free for your first house.  If your serious about homebuying, I would start looking into first time homebuyers programs in your area, the process of purchasing a house could be anywhere from 6 months to 2 years for you anyway.

[longtime_lurker]

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@Anonymous wrote:

I would start putting as much as you can afford into a 401k or thrift savings if your job offers one.  Next  I would start tackling the higher interest of your debt, probably in the order of credit cards/auto loan/high interest student loans.  I would put your 401k allocations in something very conservative because the market is at a all time high, and wait for the market to reevaluate itself(crash) before putting it into more risky funds.  Create a budget you can stick too, read up on the stock market, (maybe try a free simulator in your free time to learn how the stock market works and learn how to develop a strategy for investing).  Remember with an IRA I think you can withdraw 10k tax/penalty free for your first house.  If your serious about homebuying, I would start looking into first time homebuyers programs in your area, the process of purchasing a house could be anywhere from 6 months to 2 years for you anyway.

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OP, there was a previous poster with an EXCELLENT 13-14 page paper explaining the best way to invest. What I highlighted above is known as timing the market - very speculative, and usually wrong.

Might I suggest reading Common Sense on Mutual Funds By John Bogle (he's the founder of Vanguard). I actually think it's recommended in the short paper posted above. Anyways, it is a great foundation to understand long-term investing. 

[Anonymous]

Congratulations on looking to the furure. There are many different ways you can go about doing what you want.

- The first thing I would do is pay off your credit card debt. There is no need to continue to pay interest.

- Pay your student loan debt on time.

- Make sure you are responsoble with your credit, do not miss any payments.

- Continue to put money in your IRA.

- Do not over purchase on a home

- As previously stated, have reserve cash available

- Put as much away after paying off your debt as possible

Starting a company is not always easy and can put a drain on cash. I encourage anyone that wants to go that route to do so, but be cautious. Do not try to do too much in a short period of time.

Wealth is in the eye of each individual person. For instance, I do ot consider myself to be wealthy but many other people do. A little about me:

I currently own 100% of my Holding Company which owns at least 50% of stock in multiple other companies.

Annual income of over 6 figures

Net worth of over $1mm

Good amount in savings and retirement

Total debt including home/car/credit is only $120k

Good luck to you in everything that you decide to do.

[icyhot]

Thanks so much for you guys insight. Question, since my loans are still in deferment cuz I'm in school, once I do an IBR, will that consolidate them all into one account? They're all about 20 separate loan accounts from the same issuer