I have no real bills yet, and I can't find anything online to help me figure out how to split my paycheck. I want to put a lot of it towards investments, but what percent breakdown should it be: savings vs. investments?
The first question you need to answer for yourself is what your goal is for your money. Investments could be the answer, sure.
But presumably you live at home? Are you going to go to any kind of secondary education? Will you have to take out loans? What might their interest rates be? It could be the case that keeping the money liquid to help pay for classes makes sense.
Do you have a car yet? Will you have to move out at 18? Maybe it makes more sense to save for a down payment or first + last month’s rent.
In general, at your age, I would say to just park the money in a high yield savings or checking account (3%+ interest), or a money market fund.
Anything else has too long of a time horizon for when you might need it.
Luckily, I don't really have to worry about college. I want to buy a car because I think that is a very impressive achievement, but my parents want me to drive their old ca,r which I think will most likely be the best financially option. I also have a decent-sized savings account and have about 50% of it in the market and mainly the S&P 500.
If you have college funded, I'd look into setting up a custodial Roth IRA and putting it in the s&p in there. Put 20% there, keep some portion for fun stuff, some portion for bigger things you're saving for.
I think the only thing I'd be saving for in the future will be things after college, so basically just living expenses. Should I start saving for that now rather than putting that money into an index fund, for example? I can always pull money out, and I probably will leave it in for ten years; therefore, the odds of losing money will be extremely low.
Personally, I'd say maybe do that with half of it? You've got enough of a backup plan with having your college savings set already that you can probably risk more than I could have.
You may want some of it for apartment furniture, study abroad, summer/spring break travel earlier than that though. And if you get a car insurance is expensive at your age.
That's true, I think that's a good idea. What sum of money do you think will be a good goal to focus on hitting? Maybe a number achievable before leaving for college?
buying things to impress others will 100% put you on a path to being broke your whole life. I make 6 figures and don’t drive a new car. never will. I put as much as I can into income producing assets (real estate and stocks) and as little as I can into depreciation assets (cars, literally anything else)
That's not what I was saying. I don't want to impress others, and the car I would buy would be a used car from the early 2000's. But I like the idea of being financially independent from my parents, and I would be able to bring it to college and have it after college.
thats good. if you’re looking at a bigger college most don’t allow freshman to have cars, mine didn’t allow sophomores to have them. look into that before buying something you’ll have to register and insurance that you won’t be able to drive
Yeah this is solid advice - you're gonna need that money way sooner than you think. College, car repairs, moving out, all that stuff hits fast and you don't want your emergency fund tied up in the market when your transmission dies
At age 16 you are smart to think about the future of your money. You can't open your own bank account at age 16 so that limits your options. From the wiki: "Generally, if you're a minor, you will need to open a joint account with a parent or guardian. Note that joint bank accounts can be emptied by either account holder at any time so it is strongly recommended you open your own account after you turn 18."
I'd put back 150-200 for responsibility items, mainly if you're driving, for gas and at least 100 towards your parents for insurance. Every family is different, while it may not be a burden for them to pay your insurance its showing financial maturity, that you're at least willing to help.
I know you think I'm joking, but I'm not. You're only a kid once, and when you're old and boring like most of us here you will want to look back on this time in your life with fond memories. No one looks back on their teen years and says "I wish I had put a few hundred more dollars in savings instead of having all that fun."
I see where you're coming from. I think maybe "blowing every paycheck" isn't the smartest idea when that can add up to 8k, and I can do that for multiple years before going to college.
Yeah don’t listen to this person. Save as much as you can and as soon as you’re able to open a retirement account, do that and contribute as much as possible.
God if I had done that at your age I would be retired now (40).
Short answer. Yes. It’s good to get in the habit of managing your money.
Long answer is to learn as much about personal finance now. You’re so far ahead just by thinking about it.
It’s best to follow a system. Here’s what I follow (Financial Order of Operation, The Money Guys), going up and down the steps as life happens.
make sure you can cover your highest insurance deductible in cash. Keep in High yield savings account (HYSA)- if you a car likely your car insurance deductible. Otherwise this might not apply now.
put at least as much money as needed into your 401k to get the match (not applicable yet)
eliminate high interest debt (all credit cards/ student loans above 5% for a 30s/above 8% for car loans if it will be paid off within 3 years)- shouldn’t this ar your age. Avoid credit card debt. You can use them to build credit but pay it off every month
build emergency fund (3-6 months expenses). Keep in HYSA (likely a very low number right now for you)
max Roth IRA/HSA. Make sure the funds are invested in a low cost index fund
max 401k. Again index funds
do step 6 until your savings rate is 25% your gross income including match (if you combine HHI of $200k don’t include match). If you hit that percentage before maxing out it’s ok to move on. Otherwise the remaining percentage put in an after tax brokerage account earmarked for retirement.
prepaid future expenses. Save for kids college. New cars. Luxury trips. Ect.
Pay off low interest debt. Things like mortgages. Not necessary but if it makes you feel better you can throw extra money at principle here. Or pay Down cars faster than three years if you needed to take out a loan.
These are general steps. They don’t mean you can’t do fun things if you aren’t at 25% savings yet. Just try to work up to it as quickly as possible. And make wise choices. Do free/cheap family things rather than fly first class and do Disney every year. The luxury should wait until your future is more secure.
And again, low cost index funds. Always be buying. Don’t worry about the market dips. That’s just an opportunity to buy at a discount. Hope this helps!
My pleasure. Take some time to watch the money guys, erin talks money, Humphrey yang, or if you wanna see why debt is dangerous Caleb hammer. All provide a lot of quality content on YouTube to give you some added context as to how to make good financial choices.
Remember there’s no get rich quick scheme. It’s all a very long and patient climb. Consistency wins every time
At your age, with presumably zero assets and no debt, I would focus on saving a nest egg and then investing. I would look at things with guaranteed returns like CDs or bonds. Look up the average cost of an apartment + utilities in your area and try to save for ~6 months worth of expenses. From there you’ll be infinitely better prepared for adult life than the majority of your peers, and you can afford to lose out on some investments, which often have high and low years (you don’t want to see a market crash the year you move out on your own, with all your money tied up in investments).
Unless you plan to have higher education expenses. Then save for that too. Interest rates on student loans are bonkers.
Yes, you could miss interest returns with this method. But you’ll also have guaranteed money come 18.
I feel like bonds and CDs aren't worth it since I am so young and don't really have to worry about losing all my money if the market crashes. Maybe I could look at bonds, but CDs don't seem necessary.
I agree with the nest egg, and I do have a lot of money saved, not in the market. But I don't know if I even want to live where I am right now, so maybe I'll try to save 6 months of the average rent in the US.
6 months sounds like a sensible goal, though hopefully you have a couple of years to reach it before you might need it.
Biggest things is to find your personal balance of how your money helps meet your goals. Saving is good. Enjoying life is also good. A Roth IRA and saving for an apartment is great, but I would set aside some percentage of your paycheck to just spend on stuff you want. What percentage is up to you.
It sounds like you’re well on your way to having a good nest egg / emergency account. CDs and bonds are just a good way to earn a little interest on it without risking loss.
Do what you want with your investment to savings ratio once you feel like you have enough savings. The economy is weird. The job market is weird. Going into adult life with a guaranteed cushion would be a huge stress lifted :)
Good for you for thinking about this so young. And best of luck with your future! The next few years will be over before you know it. How awesome that you’re in a position to set yourself up for success.
The first question you need to answer for yourself is what your goal is for your money. Investments could be the answer, sure.
But presumably you live at home? Are you going to go to any kind of secondary education? Will you have to take out loans? What might their interest rates be? It could be the case that keeping the money liquid to help pay for classes makes sense.
Do you have a car yet? Will you have to move out at 18? Maybe it makes more sense to save for a down payment or first + last month’s rent.
In general, at your age, I would say to just park the money in a high yield savings or checking account (3%+ interest), or a money market fund.
Anything else has too long of a time horizon for when you might need it.
Luckily, I don't really have to worry about college. I want to buy a car because I think that is a very impressive achievement, but my parents want me to drive their old ca,r which I think will most likely be the best financially option. I also have a decent-sized savings account and have about 50% of it in the market and mainly the S&P 500.
If you have college funded, I'd look into setting up a custodial Roth IRA and putting it in the s&p in there. Put 20% there, keep some portion for fun stuff, some portion for bigger things you're saving for.
I think the only thing I'd be saving for in the future will be things after college, so basically just living expenses. Should I start saving for that now rather than putting that money into an index fund, for example? I can always pull money out, and I probably will leave it in for ten years; therefore, the odds of losing money will be extremely low.
Personally, I'd say maybe do that with half of it? You've got enough of a backup plan with having your college savings set already that you can probably risk more than I could have.
You may want some of it for apartment furniture, study abroad, summer/spring break travel earlier than that though. And if you get a car insurance is expensive at your age.
That's true, I think that's a good idea. What sum of money do you think will be a good goal to focus on hitting? Maybe a number achievable before leaving for college?
buying things to impress others will 100% put you on a path to being broke your whole life. I make 6 figures and don’t drive a new car. never will. I put as much as I can into income producing assets (real estate and stocks) and as little as I can into depreciation assets (cars, literally anything else)
That's not what I was saying. I don't want to impress others, and the car I would buy would be a used car from the early 2000's. But I like the idea of being financially independent from my parents, and I would be able to bring it to college and have it after college.
thats good. if you’re looking at a bigger college most don’t allow freshman to have cars, mine didn’t allow sophomores to have them. look into that before buying something you’ll have to register and insurance that you won’t be able to drive
Yeah this is solid advice - you're gonna need that money way sooner than you think. College, car repairs, moving out, all that stuff hits fast and you don't want your emergency fund tied up in the market when your transmission dies
At age 16 you are smart to think about the future of your money. You can't open your own bank account at age 16 so that limits your options. From the wiki: "Generally, if you're a minor, you will need to open a joint account with a parent or guardian. Note that joint bank accounts can be emptied by either account holder at any time so it is strongly recommended you open your own account after you turn 18."
I do have a bankaccount and portfolio.
How much are you earning?
Not sure where you are located but this is if you are in the UK.
Personally I would do 20% fun money then 80% savings.
Look into a lifetime isa is really great for saving a house deposit.
I would do 20% fun money 40% cash isa 40% lifetime isa
Once you put money into your lifetime isa you can only take it out for a house deposit or when you retire.
I'm in the US. I will hopefully be earning about 500 a month minimum.
I’d probably still stick to the 20/80 rule :) not sure about the u.s equivalent to ISA’s but it’s basically a tax free savings account.
I'd put back 150-200 for responsibility items, mainly if you're driving, for gas and at least 100 towards your parents for insurance. Every family is different, while it may not be a burden for them to pay your insurance its showing financial maturity, that you're at least willing to help.
At age 16 with no bills you should be blowing every paycheck on fun experiences.
Wow
I know you think I'm joking, but I'm not. You're only a kid once, and when you're old and boring like most of us here you will want to look back on this time in your life with fond memories. No one looks back on their teen years and says "I wish I had put a few hundred more dollars in savings instead of having all that fun."
I see where you're coming from. I think maybe "blowing every paycheck" isn't the smartest idea when that can add up to 8k, and I can do that for multiple years before going to college.
Yeah don’t listen to this person. Save as much as you can and as soon as you’re able to open a retirement account, do that and contribute as much as possible.
God if I had done that at your age I would be retired now (40).
Yeah, I think the experiences can be very fun, and I don't want to be home every night learning about finance, I think this is very necessary.
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Read the simple path to wealth by jl collins.
Spend less than you earn, invest the surplus Avoid debt
Is this book targeted to teens?
It’s for everyone. The sooner you start, the more you will reap the benefits of compound interest.
Yes; he wrote it for his college-aged daughter. It is easy to understand and will set you up very well for the rest of your life.
Short answer. Yes. It’s good to get in the habit of managing your money.
Long answer is to learn as much about personal finance now. You’re so far ahead just by thinking about it.
It’s best to follow a system. Here’s what I follow (Financial Order of Operation, The Money Guys), going up and down the steps as life happens.
These are general steps. They don’t mean you can’t do fun things if you aren’t at 25% savings yet. Just try to work up to it as quickly as possible. And make wise choices. Do free/cheap family things rather than fly first class and do Disney every year. The luxury should wait until your future is more secure.
And again, low cost index funds. Always be buying. Don’t worry about the market dips. That’s just an opportunity to buy at a discount. Hope this helps!
Thank you, this is very helpful.
My pleasure. Take some time to watch the money guys, erin talks money, Humphrey yang, or if you wanna see why debt is dangerous Caleb hammer. All provide a lot of quality content on YouTube to give you some added context as to how to make good financial choices.
Remember there’s no get rich quick scheme. It’s all a very long and patient climb. Consistency wins every time
At your age, with presumably zero assets and no debt, I would focus on saving a nest egg and then investing. I would look at things with guaranteed returns like CDs or bonds. Look up the average cost of an apartment + utilities in your area and try to save for ~6 months worth of expenses. From there you’ll be infinitely better prepared for adult life than the majority of your peers, and you can afford to lose out on some investments, which often have high and low years (you don’t want to see a market crash the year you move out on your own, with all your money tied up in investments).
Unless you plan to have higher education expenses. Then save for that too. Interest rates on student loans are bonkers.
Yes, you could miss interest returns with this method. But you’ll also have guaranteed money come 18.
I feel like bonds and CDs aren't worth it since I am so young and don't really have to worry about losing all my money if the market crashes. Maybe I could look at bonds, but CDs don't seem necessary.
I agree with the nest egg, and I do have a lot of money saved, not in the market. But I don't know if I even want to live where I am right now, so maybe I'll try to save 6 months of the average rent in the US.
6 months sounds like a sensible goal, though hopefully you have a couple of years to reach it before you might need it.
Biggest things is to find your personal balance of how your money helps meet your goals. Saving is good. Enjoying life is also good. A Roth IRA and saving for an apartment is great, but I would set aside some percentage of your paycheck to just spend on stuff you want. What percentage is up to you.
It sounds like you’re well on your way to having a good nest egg / emergency account. CDs and bonds are just a good way to earn a little interest on it without risking loss.
Do what you want with your investment to savings ratio once you feel like you have enough savings. The economy is weird. The job market is weird. Going into adult life with a guaranteed cushion would be a huge stress lifted :)
Good for you for thinking about this so young. And best of luck with your future! The next few years will be over before you know it. How awesome that you’re in a position to set yourself up for success.
Please read the book "The millionaire next door"