ambitious start to reaching life goals
I'm a 15-year-old girl, 16 in a few days, and I've recently taken
an interest in finance, saving and investing. I've always had big
dreams for the future and it just occurred to me that I must take
high investing measures to get them done. The tough part is where
I've gotten a work permit and started working a part-time
job, at a cafe paying a small $160 a month for the three -- occasionally
four --- days a week I work. But it still just doesn't seem like
enough to get me started off.
The goals in which I have accumulated sometimes seem
"too big" for my own good. These goals include saving
up and eventually starting a money market fund for a house by the
time I'm 18 (so I can buy that house by the time I'm 25), a four-
or five-year CD account for graduate school, stocks and bond investment
by the time I'm 20 and a retirement plan going steady by the time
I'm 21. There is no need to deal with a car since I'm turning 16
and it's a present.
In the long run, these goals just seem too close together
and maybe a bit overwhelming. With interest/APY rates today, it's
even more difficult to find a bank suitable for my needs.
In short, the question is; how does one so young
yet so close to adulthood go about her goals in an organized manner?
How does one complete them?
-- Ashley Accumulates
It's great that you're looking toward the future and trying to figure
out how saving and investing can help you reach your future goals.
Don't get too far ahead of yourself, however, by creating unrealistic
expectations on what you can achieve with your investments over
the next 10 years. As I like to say, "You can't do better than
Let's say you're able to put aside $100 per month
over the next two years until you turn 18. Ignoring the investment
returns for the moment, you've accumulated $2,400. That's a tidy
sum but not enough to fund multiple goals of a house/graduate school/retirement
How you decide to invest the money will influence
its investment returns, but even assuming a 10-percent return over
this initial time period, and ignoring any tax impact, your portfolio
is worth just $2,645. Invest at a more conservative 5 percent and
you'll have a portfolio worth $2,530.
The point is that when you're starting out in a savings
program there's not a lot of upside in swinging for the fences in
how you have the money invested. What makes the biggest difference
in the size of your portfolio is your contributions to the account.
That doesn't mean you shouldn't work toward these
goals or save your money. It just means that you have to prioritize
what it is you're trying to accomplish over the next 10 years. Getting
a graduate degree, for example, could provide you with job opportunities
that you wouldn't have without that degree. That higher income stream
helps you more readily accomplish your other life goals.
For the next two years, put aside what you can in
savings and investments and see how these goals become more or less
important to you over that time period. While there's never a wrong
time to think about your future, and having goals gives you an incentive
to stick to an investment program, there's just a little too much
specificity for this point in your life.
To ask a question of Dr. Don, go to the "Ask
the Experts" page, and select one of these topics: "financing
a home," "saving & investing" or "money."