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Thread: where to start???

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    Featured Member krys's Avatar
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    Default where to start???

    I have been dancing on and off for awhile now and I think I have finally got the hang of it
    I want to start investing as I don't want to come out of this empty handed but have NO clue where to start and where to put my money. Where and how do you guys start out? ???

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    God/dess Emily's Avatar
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    Default Re:where to start???

    Every situation is different. It'd help if you could answer these questions (in my opinion, their order is listed my priority):

    1. Do you have any debt? It's generally better to pay off debt first, especially credit cards.

    2. How much do you have in liquid assets (readily available cash)? You want to have at least 6 months of an emergency fund.

    3. Do you own a house? Real estate as a primary residence is generally considered the best investment you could make.

    4. Have you opened up an IRA. Max this out. Your earnings will be tax-free.

    after that, you may want to check out CDs and mutual funds. It really depends on your savings goal. What are you saving for?

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    Banned Melonie's Avatar
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    Default Re:where to start???

    I agree with Emily. Step one is to pay off any debts you have. Start with debts that have the highest interest rates (typically credit cards) and work your way down to paying off your car loan. Exceptions to this rule are home mortgages and student loans, because both of these are "subsidized" by the US government by one mechanism or another (like the interest is tax deductible).

    Second, build up your savings to about 6 months worth of income/living expenses in a bank savings account or money market account where your money will be available to you tomorrow should you need it for an emergency, and without penalties. This is meant to cover your butt should you break an ankle and be unable to work, should the engine in your car blow up etc.

    Once you complete #1 and #2, you'll finally be ready to start thinking about investing.

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    God/dess montythegeek's Avatar
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    Default Re:where to start???

    Also agree with the ladies.
    Only difference with Emily is reversing order of #3 and #4. An IRA for a long term retirement started today is best started earlier the better to give more time for it to compond. Both are 100% correct on 1 and 2. Get out of debt and stay out of debt except for subsidized or tax advantaged debt.

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    Featured Member krys's Avatar
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    Default Re:where to start???

    no debt, no house, minimal savings......
    Guess I gotta start stashing more money into the cookie jar

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    God/dess Emily's Avatar
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    Default Re:where to start???

    Krys- Do you have a bank account? Maybe that was a joke about the cookie jar...but you naturally have to start saving in the bank if you want to save for real. And this of course means paying income tax, so if you're not doing that, it's time to start!

    and yeah, Monty, I think you're right, but I guess 3 and 4 are pretty much interchangable. I just figure you gotta live somewhere and the IRA is only $3000/yr, so they are both doable at the same time.

    As for considering paying off student loans and mortgages lower priority than investing in teh market, I'm not so sure I agree. Having debt, even if you can write off some of it, is still costing money in finance charges. I'd much rather have compound interest work for me instead of against me. Plus there is a sense of freedom by not having the extra bills. I cannot even imagine what it would feel like to truly own a house, bu tI'm sure that would be pretty cool.

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    Banned Melonie's Avatar
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    Default Re:where to start???

    Emily, in theory I agree with you completely about home mortgages representing debt with interest, even if that interest is tax deductible. In one sense, owning a home is an investment like any other with a calculated risk of gains and losses. Additionally, owning a home involves expenses i.e. property taxes, maintenance etc. But in another sense, if you are committed to living in a particular area for the next 5+ years and plan to occupy the home yourself, you have the added advantage of avoiding rent payments. In this situation owning a home may make a lot of sense financially, as long as the area hasn't been hammered by the bad economy to the point where property values are in danger of falling.

    As with any type of investment, you should do a cash flow/rate of return analysis. There ARE cases where investing in a particular way may offer a better rate of return than that which you could obtain by tying up your money in a down payment on a home, but these investments are few and far between !

    Whether home ownership is in your future or not, it all has to start first by building up that bank account balance.

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