It’s time for another reader’s question – due to sensitivity I’m going to blank out some information as it maybe too personal: The numbers don’t change my answer anyway.
Matthew wrote: “Hello my name is Matthew. I just have a quick question. I am 19 years old and live with grandparents. My Roth IRA is worth about $XXXX, i have a cd at $XXXX, and a savings account at $XXXX. I recently got a car loan for $XX,XXX, now paid down to $XX,XXX, and i have a credit card balance of XXXX at 0% for another year, do you consider me being in good financial health? Any tips of wisdom to help me through all of my future financial life? I currently am a sophmore in college.
THANKS FINANCE DAD!
First off, thanks for writing me Matthew. You’re doing better than most people your age because you’re simply paying attention and have an awareness that your personal finances matter. You’ve done a good job to get started investing with the Roth IRA, as well as socking money in the CD and putting money into savings. You’re also smart to stay with family as long as you can possibly do it, bank that money and begin to prepare for the after college plans. As you probably already know, credit is a necessary evil, however, keeping those balances paid off every month is a good habit to get into – I realize it’s at 0% right now and you could pay it off with savings, but there’s no incentive, however, I would personally pay it off sooner rather than later. What’s done is done – you took out a fairly large loan to buy a vehicle – and if that was very important to you – maybe it’s something you deemed necessary. However, I believe there’s significant cost to owning a vehicle like that – the fact that you’re going to have a monthly payment for the next several years, as well carrying full coverage insurance. In the future you should consider saving up and paying cash for a vehicle – it’s a better financial decision.
To really answer your question though – I would have to know much more about you and where you want to go in life, what are you aspirations. What are your goals? Why are you saving that money and investing it? There’s got to be a purpose and a goal or how will you know if you’re on track or doing well?
If you told me you had 10,000 in the Roth IRA and that was set aside for retirement, and you asked me are you doing well, I would say how am I supposed to know? If you are planning on retiring at 30, probably not. If you said you wanted to retire at 50, I would ask how much are you going to set aside each year and what kind of lifestyle are you expecting to have when you retire? How much money will you need? There has to be an end goal, and you have to determine what will it take to get there by working backwards.
How am I supposed to know if $5,000 in savings or $10,000 is good if I don’t know what you’re planning on using it for? Are you wanting to buy a house when you finish college? Maybe that money is for your future wedding? Let’s say you were wanting to use it to buy a house, what kind of house – how much will it cost? What are you wanting to put down – if you’re wanting to put 50,000 down on a house in 3 years when you finish your undergrad degree, I would say you probably don’t have a realistic goal and you’re not doing well there.
My point in telling you all of this is to help you understand, a number is just a number, until you put goals behind it and evaluate if it is feasible. I’m uncertain you’re work situation and many other factors, but I can tell you it’s time for you to start planning. As silly as it may sound, right now is the best time to start planning for retirement. Those that plan at your age can travel the world or do what they want and quit working in their 30’s, 40’s and 50’s, those who don’t plan will work until they’re far too old and wrinkled to actually enjoy it.
Hope this helps! Good Luck!