Young Adult wants to start investing

I was wondering if you could give me some advice. I am 18, I will be 19 in June. I have been working at my full-time job making about 40,000 a year for about 4 months. I have a 12,500 loan for my car. The payments are 380 a month and I contribute an extra 120 a month to that. What should I be doing with the rest of my money? I am thinking of buying a house next year so my plan was to save the rest for a down payment. But I have also considered mutual funds and I can do a 403(b) through my work also. What do you think? Thanks

I would definitely jump on the 403B at work. If they match (I'm guessing they don't?), it's free money. If they don't, it's just a great way to get started in investing. I'd also save for the home down payment as well. Good luck! You sound like you're off to a great start.

Oh, and unless your interest rate on the car is out of this world, I'd take that extra $120 and put it on the house savings fund.

My interest rate is 6%

Paying off the car might help you qualify for the house. What is the expected house payment and house cost?

What is the percent of take home income
a) allocated to debt payments?
b) allocated to probably house payment?

a) needs to be less than 45%
b) needs to be less than 36%

meaning 36% of income to house payment, 45% of income to debt payments.

If car puts you over 45%, then you need to pay it off.

house payment would be about 1100, for a 170,000 dollar house and car payment is 380 for 12,500 dollar car. Take home pay is about 2600 a month.

I'd get the car paid off in the next 6 months or so then start piling funds into savings like a maniac. Once you've got $1k cash emergency fund plus 3-6 months expenses in accessible major emergency fund then pile up major cash for house down payment. If you have any other debts pay them off as well. In 3-4 years you'll have enough down payment to avoid PMI on the house and save a good bit on payments. Find Dave Ramsey on the radio and listen to him. You're in the enviable position of being able to retire with millions by starting at your age. Good luck.

So what should I be doing until I get a house, because my girlfriend and I are going to get married in the next year or two and I don't want to live at home. Should I rent or what? How much should I have for a downpayment on a home? Thanks

Considering the mortgage crisis, you will likely need a pretty solid downpayment. I believe 20% is the standard, pre-crisis, and I'd shoot for AT LEAST that much.

Renting always works for married persons who don't want to live with their parents. Time honored tradition.

At your age and salary, you and your girlfriend should rent for now and start saving for retirement as well as an emergency savings/house downpayment. Save, save, save, but don't suffer.

As interest rates have dropped, shop around for the best savings accounts, CDs, etc., as well as a better APR loan with a low maximum balance transfer fee to move that car note to. 6% isn't so bad a rate where you need to pay the car off in 6 months, IMO.

I am going to get a roth IRA I think and probably put the majority of my paycheck into an online savings account. Would that be a good idea? Thanks

Find the most affordable safe rental you can once you get married. Save up until you can put at least 20% down on the house so you aren't required to have PMI on it. That will lower the monthly payment noticeably. Get a copy of The Total Money Makeover and read through it. It's not the only way to go. It may not be the best way to go. It is far from the worst way to go. If you and your wife do what that book teaches you'll have a very solid chance of retiring rich. Good luck.

Well the lowest priced rental in my are is like $800, do you still think that I should rent? I feel like I am wasting that money, when it could be going towards a house payment. Please give me some advice. Thanks

That's still cheaper than the mortgage would be.

Fact is, you can't afford a house yet. You say you have salary of $2600, and are looking at a mortgage of $1100. Despite the hype of recent years, the old formula is the best formula -- mortgage/rent should take no more than 25% to 30% of your pay. Anything else makes you "house poor" -- meaning, you have a house, and you practically have nothing else.

I like to see young folks thinking like you. My mind definately wasnt there when I was your age.

does your fiance work? IF she does that may make the house idea a viable option

While you live at home save as much as you can.

As mentioned, $1100 out of $2600 take home is way on the high side. Even $800 is higher than desired but at least better. If you have the discipline to rent at $800 and put the $300 you'd have to pay extra on the mortgage into a good savings vehicle every month for say 3 years you'll be in better shape to get into a house. You'd have $10,800 plus growth that could go toward down payment to help hopefully get you below the PMI threshold. By then your income should be up enough to support the payment as well.

She doesn't work yet, but she will start working about 4.5 hours a day 5 days a week for about 10.50 an hour.