Where should I place my money for investment if I am making 43K a year?

I am 25 years old, currently making 43k/year (before taxes). I have a car payment, expenses, etc. but I have anywhere from 1000 to 1500 of money left over each month.

I want to buy a house by the time I am 30 years old but it seems like an impossible task?

Should I invest my money in an IRA, CD, or simply let it sit in my savings account? I thought about investing in stocks but I think I will have to learn more before I jump into it.

Where should I be placing my money with my current salary and at my current age and my current goal (of buying a house) ???

Update:

My parents told me that an IRA is important but right now this should not be the number one priority. A majority of the people here also seem to agree and it looks like I should place it in a mutual fund.

Update 2:

Thanks for all your responses.

I know I should diversify my money into the various topics that you all have mentioned.

I am still not sure if there is a correct formula or recipe i should follow...

(ie. 30% in mutual funds, 40% in IRA, etc.)

Also What are Money Market Funds? Should I place my savings into these funds for now?

7 Answers

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  • 1 decade ago
    Best Answer

    19 May 2008

    Let us put the horses before the cart. You will start saving systematically. Out of the $1,500 "left over", I am not sure how much is for expenses. I will assume you can save at least 10% of your net. Seems you can save way much more than that, so you will be able to do more.

    Think of savings as a giant tea pot you will be filling on one side. The intended uses are the small cups to be served.

    First (your first cup), you need an emergency fund. This is 3 - 6 month of you current level of expenses. Once you have this amount, then think about other purposes. It will take you a few months to reach this amount. But it is critical to have it. It goes to savings or up to 90 days CD.

    Second, retirement. Give priority to it, but now you can run parallel goals. Start to save as much as you can of the 10% savings I suggested above, without jeopardizing other goals. Try to go 401K or any other self-retirement plan your employer has. You are young, you can go a little on the risky side (if you can tolerate the market's moves). If nothing out there, go IRA to with your bank right now. You don't want a stock broker yet. Unless you have a good capital, they will nickel and dime you with every unheard charge possible.

    Third, the house. Start to save as comfortable amount here. Current housing market might help you a lot. But credit market has tighten a lot, they might require 10 - 20% just in down payment. Go FHA if this is your first home. They would let you go with a 3% down payment (a little additional cost added to your monthly oayment, but you can get your house with little down). This money should also be on savings or secure instruments. Perhaps CD's of longer term. You don't want the down payment of the house dissapear in a downturn of the market.

    Insurance: Very important, because it protects this savings pool you will be generating. Make sure you have a good health insurance. I am assuming you have no dependents, so little life insurance is needed (enough to burry you and pay related expenses). Check to see if employer offers long term dissability. You need it.

  • 1 decade ago

    If you haven't already opened an IRA, I would recommend doing so immediately, not so much for buying a house within five years, but to set yourself up for retirement. You will be VERY happy when that time comes, because the sooner you plan for retirement, the more comfortable you'll be. Now, for buying a house, CD's have terrible rates right now, and letting it sit in a savings account, although basically risk free, will not help your goal. Since you're new to investing, I'd suggest maybe finding a financial planner. Ask friends, co-workers, family who they use or who they would recommend. They will be able to sit down with you, lay everything out and see where you currently are, figure out where you want to be, and make a plan on how to get where you want (the house). I work for a financial company, and I can tell you that whoever you find will be looking at your cash flow, debt management, asset accumulation and preservation. These are key, as you'll never be able to buy a house if your debt to income ratio is too high. Lenders like DTI ratios less than 50%, with good income and good credit history. Stocks, mutual funds, ETFs are all good vehicles, but finding someone to look over your entire situation will be invaluable for your goal. Good Luck.

  • 1 decade ago

    there's no doubt that you should have a Retirement account.

    This will help you not only for future use but will provide tax benefits today.

    There are thousands of people just like you that are, or were looking to invest and those that did bought Mutual Funds and/or Exchange Traded Funds (ETFs). One purpose of mutual funds is to help investors like you, who are either just entering the investment world or who have no investing experience. Once you feel you at least have an understanding of investments you should look into ETFs which are similar to mutual funds but are traded on the exchanges.

    Mutual Fund companies as well as ETFs have an entire array of products many will fit your needs. You can go to the MSN.Money website

    http://moneycentral.msn.com/home.asp it has an entire section on mutual funds and Exchange Traded Funds. Read about the various products and in doing so you will be getting investment ideas and at the same time educating yourself about investing.

    You could also contact the funds companies for more information. I have found that Vanguard & Fidelity can meet your needs for mutual funds. The service and information they provide is all free and you will find it helpful.

    You should start investing (actually you should have started years ago) as soon as possible AND open an IRA account if you can.

    Remember, never take investment advice from someone who is not investing.

    Good luck, just get started

    Source(s): Industry experienced
  • Anonymous
    4 years ago

    Comfortably is an opinion. A bum on the street might be comfortable, or someone who is a doctor might only be comfortable making at least 200 k per year. What you should really worry about is how to make more money. 43,000 a year in SF (I'm assuming you mean inside the city) is not alot I imagine. Since SF is extremely expensive, I can only think you will be struggling for a while. You can use that 1,000 per month as a future downpayment on a condo or house. After 3-6 years of saving that much you can afford a downpayment for a decent home. But try thinking about promotions, job change, investing something to make more money. It would be nice to make alot more then 43 k per year, especially since your living in SF. After about 5-10 years you will probaly have many bonuses, raises and promotion I would guess. So also keep that in mind, you will probaly not make 43 k your whole life. Not to mention getting married, which will earn you a double income. And that guy above me is right, best get a roomate.

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  • 1 decade ago

    Since your tax bracket isn't too high, and you want to use the money for a down payment in about 5 years, an IRA isn't advisable since you would have to pay a penalty to get to the money when you go to buy your house. I'd advise a mutual fund company such as Vanguard or Fidelity. They offer a bunch of no load (no cost to you) funds with low expenses. In this environment of uncertainty, I might suggest the Vanguard Inflation Projected Securities fund. You get interest plus the inflation rate. When the market settles down and inflation is back under control, perhaps in a year or two, your could then transfer the funds to one of the Vanguard stock funds, such as theri Wellington or Wellsley or Index fund. Good luck.

  • Anonymous
    1 decade ago

    It is not entirely impossible. Depends on how much are willing to save, where you invest and how much the house you want to buy. I do not recommend you investing all your left over. You need some space to move around whenever you need to do so. If you are not good at stocks, perhaps you can try investing in mutual funds. I will not explain how they work here. You're probably get some basic idea from the library. Happy reading~!!!

  • Anonymous
    1 decade ago

    Diversify with a few Exchange Traded Funds, Closed End Funds, or "Blue Chip" stocks with good safe dividends.

    Source(s): Opinion
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