This afternoon I spent two bliss-filled hours going through bank statements and filling out my FAFSA form with my dad. While not an extremely exciting event, going through all my forms and options raised multiple questions as to how all the money is handled, as well as what the best way to go about investing it is.
My main question had to do with my IRA. I'd been reassured that if I put at leaste $2000 a year into that account I will have around a million dollars by the time I retire. I don't know if this is true, but it's sounds easy enough, right? Wrong. I understand interest and all that jazz, but what gets me is the fact that those fun, loving accountants think that a highschooler or college student is going to be able to continually fund their account.
I see it as a decision between long-term and short-term benefits. If I can come up with that $2000 every year and don't have to pay for anything else, then alright! I'll be rich! However, I forsee some minute expenses that will be showing themselves in the next few years. With my current part time job (yes, it doesn't pay great, and that has an impact) I just barely made enough to meet this year's quota. Next year I won't have a steady (if you can call it that) income, plus I'll have to pay for school. With my lifetime savings I have just enough to cover my portion of schooling for the first year; plus the IRA money. Next year, though, I'll have....umm...oh yeah, nothing. Is it really beneficial to work towards and IRA when there are so many other pressing costs?
Taking $2000 out of your (a student's) income means $2000 more that you will have to take out in loans. This means that after you're done with school you'll have to pay that much back to the government (or whomever you get loans from), plus interest. It's no surprise that most kids fresh out of college won't have any extra money lying around to immediately pay off loans, plus put some cash into an IRA. Extra loans could lead to more loans to pay off school, then loans for other adult necessities (home, car, etc.). Starting off in too much debt almost invites one to jump into a vicious cyle of loans and interest.
So, my question is this: Is it worth it too make the extra effort to put money into an IRA so you're garuanteed to have a comfertable retirement? Or is it better for your personal finances to take care of the pressing expenses before worrying about your financial situation 50 years from now?
Subscribe to:
Post Comments (Atom)
6 comments:
that was very interesting...however I didnt kinda sleep alittle but its ok. Anyway it really reminded me to both consider my short and long term benefits and remind me to fill out my FAFSA. good work joelle
Great job looking at all your choices! So many possible ways to answer this...should I answer as an economist, as an econ teacher who loves their students, or as me, personally? Hmm...
Okay - the easy answers first. Yes, you will have a buttload of money if you are able to put aside $2000 a year right now. You have so much time on your side. If you remind me sometime after the national exam, I have a great overhead that shows some numbers on things. But in general - with the time value of money and compound interest (it can be your friend), you have a terrific opportunity to have more money than you can imagine by the time you retire.
Now...is it realistic to think that can continue through the ramen years of college? Well, not really. I guess if you had a great job and were able to pull it off - that would be fantastic. In other words, it CAN happen, but should it? Not so sure.
But...something else to think about - once you graduate and get a job, you'll have more money than you've ever had before. THAT would be a terrific time to look and see if you can start pulling that $2000 a year out again. In general, the younger you can start, the more money you'll end up having. And if you do it right as you start working - chances are you'll never miss it, because you were used to ramen-lovin' college life anyway.
Me? I think it's silly to borrow money just in order to have the $2000 to put aside for retirement. But that's just me. :)
i like how you spelled comfortable :)
Anyway, I agree that investments are far from a young college student's mind--they are also unreasonable for us. Depending on your income as you get older, however, you might be able to put in more than $2000 per year if you make a lot of money at your job. For me, investing that much right now just doesn't really work--I've got too much to pay for with college coming up and a shoe addiction to feed. Hopefully, however, in the future investments will be more reasonable for me and my long term goal of buying shoes until I die of overconsumption will be reality.
Just kidding...sort of.
Like Lynds said, the best option is to make up for your lack of funds now by putting in more than 2000 later. Its not a perfect substitute, (you will lose out on interest) but its certainly better than taking out a loan just to put some money away.
and besides, five years of ramen noodles just may be too much.
Yeah, our entire generation will be forced to do loan after loan and we will probably be the worst as far as debt goes. We can't possibly be expected to have the extra amount of income needed to pay for school and the time to do well. Education is getting so expensive and independent funding is getting smaller and smaller.
Shut it Lyn. You and I both know I have a severe, practically lethal, condition when it comes to spelling.
Post a Comment