‘I feel like everything is good but my net pay is roughly $1,960 a month and my bills are $300’: I have $17,000 in savings and solid financial footing. How should I start investing wisely?

Hi Money Minder,

How can I assist you today?

Hey Money Minder, I’m a 19-year-old pulling in about $980 twice a month. My monthly costs, which cover my car, phone, and chow, are around $300 – maybe a tad high. I’ve got just over $17,000 stashed in a savings account earning 4.25% interest. I only use my credit card and my score is at a solid 757. I always clear my balance as soon as it’s processed a few days later. Plus, I’ve got a 401K with a 6% match, holding $2,700 right now.

I feel like I’m in a good spot with my finances. With roughly $1,960 coming in each month and only $300 going out for bills, I think it’s time to spread some of my cash around. Any good game plans? I’ve thought about the S&P, but beyond that, I’m lost. How much should I be investing since I’ve got a big safety net compared to my monthly needs? Any tips would be awesome!

Thanks a bunch!

– Young and Curious

Response from THE MONEY MINDER:

Sure, here is "Hello There," in bold:

Hello There,

Congratulations on your financial discipline and foresight! At just 19, you’re already making strides with a solid income, low monthly expenses, excellent credit score, significant savings, and a growing 401K. It’s commendable and sets a robust foundation for your future financial security.

Given your current situation, it’s wise to consider diversifying your investments beyond just a high-yield savings account. Here’s a realistic and practical approach to help you make informed decisions:

Firstly, continue maximizing your 401K contributions, especially since your employer matches up to 6%. This is essentially free money and a fantastic boost to your retirement savings. Aim to contribute at least enough to get the full match if you aren’t already doing so.

Beyond your retirement accounts, considering the S&P 500 is a good step. Historically, it has provided strong returns over the long term. You could designate a portion of your savings to a low-cost S&P 500 index fund. An investment of around 25-30% of your surplus income would be a balanced start, allowing you to benefit from market growth while retaining a significant portion of your cash for liquidity and security.

Additionally, diversifying with other investment vehicles can enhance your portfolio. Consider these options:

Roth IRA: Given your age and likely lower tax bracket, investing in a Roth IRA allows your money to grow tax-free. You can contribute up to $6,000 annually as of 2023.
Individual Stocks or ETFs: If you’re comfortable with more risk, allocating a smaller portion (say, 10-15%) of your investment fund toward individual stocks or sector-specific ETFs could be beneficial. Just ensure you research thoroughly or consult a financial advisor.
High-Yield Bonds or Bond Funds: These provide more stability and can balance out the riskier parts of your portfolio. Allocate around 10% to maintain a conservative risk profile.

Lastly, consider setting aside an emergency fund that covers 3-6 months of expenses, which could amount to around $900 to $1,800 in your case. Given your current savings, you’re already in a comfortable position but ensuring this is earmarked specifically for emergencies is prudent.

By diversifying your investments and maintaining a strategic approach, you’re setting yourself up for a stable and prosperous financial future. Keep up the great work and continue to educate yourself on financial planning and investment opportunities.

Best of luck with your financial journey!

Leasing wealth,

THE MONEY MINDER