Personal Finance: Credit/Debit Card, Checking/Savings Account, Index Fund

Right now, I'm 20 and I have about $20k to my name. It's all sitting in a checking account with no fees. I pay for things with a debit card.

I want to start a credit card to build my credit history. I also recently opened a low-fee brokerage account and wanted to put most of my cash into an index fund.

How should I structure this? I was thinking of funding the brokerage account with 19k and splitting that between maybe three indexes.

I'd keep 1k in my checking account, set up an auto-pay for the credit card bills out of there, and pay off each bill completely and on time each month. Am I able to set up a bill auto-pay from a savings account so that I can open some small amount of interest? Or does it make sense to keep a checking account? Both?

And if I need more cash for my credit card bills, I'll have to liquidate shares of the index funds.

Does that make sense? Any advice?

Thanks a lot.

 
cakepie:

I'd keep more in cash. You're young and have plenty of time to invest over time. 20% in cash ensures you'll always have some money on hand for emergencies and sudden bills regardless of short-term index drops.

I have low expenses and have future tuition payments ready in a separate account. If I ever need cash, I could just sell index shares and transfer them to my bank. Meanwhile, that cash could be making more.
 
Best Response

I'd keep on buying in the US for a long time in equity. If you are worried about the US, look at the rest of the world and you will understand. The US has the privilege of holding everybody else by the balls to get out of trouble. As long as they will keep the printing press in action you will see some nice inflation, and equity is a great hedge vs. inflation, your cash will just keep on losing its value by the day.

If you are young and in college, why don't you take a more active approach to investing? Stick in an index fund for now (if cash is not an issue, just use the cash to build your credit history as you said). And start building a mock portfolio for the next 3-6months, plenty of them to chose from online; do not invest right away, unless by active approach you are going to stick most of your cash in US blue chips and not rotate for 6mths+. Stick 4K into a Roth, or whatever the max allowance is, and play there, you can take 10K out for your first buy tax free, so you don't have to wait for retirement.

 
Disjoint:
If you are young and in college, why don't you take a more active approach to investing? Stick in an index fund for now (if cash is not an issue, just use the cash to build your credit history as you said). And start building a mock portfolio for the next 3-6months, plenty of them to chose from online; do not invest right away, unless by active approach you are going to stick most of your cash in US blue chips and not rotate for 6mths+.
Stick 4K into a Roth, or whatever the max allowance is, and play there, you can take 10K out for your first buy tax free, so you don't have to wait for retirement.

+1 (What I've personally done)

I keep about 6m worth of cost of living in cash, rest in a brokerage account with ~75% etfs on major index and ~25% bonds (PIMCO's flagship fund; that guy's good enough not to get crushed when IR rise again... hopefully). No single name as I'm just trying not to miss out on the markets over the long term, no beat them.

In your case, keep in mind you need a big chunk to stay liquid (without too much risk of a loss on your capital) because you will have major expenses coming in the next few years: maybe a car, maybe buy a house/apt or nicely furnish your new place, maybe a wedding, maybe tuitions, maybe just a less frugal way of living, etc. At 20, you know for sure some of those will come, you just don't know when.

 

I used to have a few spreadsheets built out to calc cash flow, liquidity, etc.. but it required manual updates from me.

I use mint exclusively now. There are a few things that irk me about it though. i.e. one of my favorite restaurans continues to show up as "dry cleaners" and I have to re-categorize it every time. Kind of pain. The budget setting process is a little weak, but everything else it great.

 

Thanks for the responses. I've been hearing about mint for a long time now, and I think I even created an account a couple of years ago (but haven't checked it since), but I'll give it a second shot. Didn't know I could export the data to excel.

I'm gonna toy around with it for a bit, but anyone have any useful tips for using it, or is it pretty simple with no hidden functions?

Remember, once you're inside you're on your own. Oh, you mean I can't count on you? No. Good!
 

if this is a joke, I fell for it...

  1. model is clean

  2. kudos for wanting to plan this far in advance

  3. put some money towards an emergency fund (http://www.wallstreetoasis.com/forums/the-last-what-should-i-do-with-my…)

  4. I personally think inflation assumption is too low, while CPI prints at around 2 nowadays, your real cost of living will increase more than this (to be super conservative, I'd model 4%)

  5. no idea how you can spend only $500 on groceries & dining in any city a month

  6. no clue if your raise expectations are reasonable, you're anticipating a 21% raise on salary and a 33% increase in bonus after your first year? I'm not in IB, but that sounds a bit lofty.

  7. please PM me the city you live in where you can find a 1br for 1k a month and still make NYC income. if the rent isn't section 8, I may consider moving ;)

I realize you were bored, but I think you're getting way too detailed. if you're OCD, you will get super stressed out if you don't abide by this budget every month. if I were you, I would focus on the savings portion of it, not the rest. and focus savings on the portion you can control, like percentage. if you don't get your expected bonus/raise every year, you will not hit your net worth goals. focus on the controllable. if your goal is to spend 20% of what you make, great! that's easier to stick to than what you're talking about. once your income goes up, if you keep your spending down, maybe you can just bump the percentage up (say something like once I hit 100k, I want to save 30% of what I make, at 200k, 40%, and so on). I'm a big believer in enjoying your resources (even though I don't get paid when people do that), but I didn't see a budget for vacation or fun. take a trip every once in a while, if you make a ton of money over time and save diligently, the difference in experiences and overall happiness you get from taking annual trips to the difference in your estate at death will be a rounding error.

 

Are you not going to buy a new car at any point in the next ten years? I think you are grossly underestimating extra expenses. Think: Christmas presents for family, travel, medical expenses if you get sick, ext. as stated above 2% inflation is not even close to what you should be putting in the model, I would do 3-4% as stated above. Also some things you have to think about, you may not pay any tax on investments if you hold long term

 

@"thebrofessor" I'll definitely keep in mind the emergency fund and factor in 4% inflation. As for groceries, I plan to maximize my usage of Seamless every day. I plan on using the extra money to buy other meals (for lunch and weekends) so most of the money I spend in this category will go towards home essentials and not groceries. Also as a college student I regularly spent

 

@"ct banker" that's a good point for the car and inflation, will definitely add that in. My current car is actually only 2 years old but I will add in that expenditure near the tail end of the projection period.

For gifts and other expenses...I set aside an additional $12k/year so hopefully that is enough to cover anything I did not think of. I am not really clear how employer medical insurance works, so I may add that into the model to cover any uninsured claims

 

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