Finance guys speak out, if I can come up with $25 a month every month, where would you tell me to invest it (assuming no debts outside of a mortgage, and an already matched employer 401k plan)

Interesting.

I'd put it in the bank, probably a money market fund. Once I grew it to a modest sum, I'd consider putting it in one or several low-cost mutual funds.

Here is my logic:

First off, a lot of investments won't allow you to put in only $25/month, so those would be ruled out immediately.

Second, if you only have $25/month spare to save/invest, then your budget it probably pretty tight. If your budget is that tight, and you are socking money away in an untouchable 401k plan, then you have no business putting this money anywhere where it is not liquid.

Lastly, I would question you on several things. Do you have an emergency fund built up of at least 6 months of income? Do you have human-life-value worth of life insurance? What about family, do you have kids? Etc.

Even someone with $25/month to save could benefit from having prudent financial advice help them maximize what they can do with it.

Chris

First question, how much is a modest sum? 1 months income? 6 months income?

$25 a month is very temporary for us, we're paying down our debt, and should be able to be rid of at least our highest interest debts by September, with a significant chunk of the car paid off too.

Our emergency fund is slowly growing, we have nearly $2200 although $800 is in a CD that will mature in September. Still, since getting married in January we've paid down nearly $6000 of debt and have become a family that rarely uses credit cards anymore. Once the car is paid off we should be able to put $500 a month easily into filling up the emergency fund.

Our insurance situation is pretty good, I'm insured up to 10 times my annual income with a combination of my employer's insurance plan and a plan that my dad took out for me (and still pays on) so my wife will be well taken care of should something happen to me.

As far as family, it's me and my wife. We plan on having kids once we can live off of just one income (hers or mine). We also would like to own a home before having kids.

Currently I am fully qualified to do HR work, but around here you need a lot of time with a company to pick up an HR job. Also I could do consulting and teambuilding work, but there are so many professors at the local university that it is a very saturated market.

So, right now I work at a bank as a Customer Service Rep and Teller, although next month I will have enough in-industry experience to apply for Personal Banker jobs. I am also considering getting a CPA or some Insurance or Securities Licenses to help increase my income. Any advice on which route to take is appreciated.

Mark, It sounds like you have some good things going. Paying off debt, no longer dependent on credit cards, good life coverage. Outstanding.

You mentioned that you have some money in savings and some in a CD. If the savings is paying you less than 5%, I would be looking for an on-line bank to transfer that balance to. You will get about the same rate as the CD pays, while keeping the cash totally liquid. The extra $25 can go here too. Once you have your emergency fund where you need it to be, you can do bulk transfers to an investment. As the additional money becomes available, set up automatic drafts to an investment.

Exactly Dru.

What I meant by a modest sum was an amount that was enough to put into an investment account, such as mutual funds. This amount would be entirely dependent on the fund/account.

Money Market funds are liquid and paying over 5% at most banks (or don't be afraid to open one on-line with a reputable vendor, go to bankrate.com to compare). So as soon as your CD matures in September, I'd move it. Money market funds make great emergency fund accounts.

You have some great things going on and I would definitely keep them up. A lot of people are anxious to invest, even $25/month, in order to take advantage of growth. Keep in mind, a 10% return on $300 a year is only $30. If you had $300,000, that same 10% rate of return is a much larger dollar amount.

Keep in mind, a lot of stockbrokers won't work with you unless you have $100k to invest. Some play this off as "I only work with people who have significant amounts to invest" and it makes you feel special if you "qualify". This is garbage! Reality is that most of these broker/dealer firms require them to accumulate millions of dollars under management each year (Merrill Lynch is $10 Mill. in 1st 2 years). And because of this it is a waste of their time to deal with small dollar amounts.

Btw, a"modest sum" as mentioned above would be at least $5000; $2000 if you plan to put the money into an IRA or Roth IRA.

Warning: Below is long-winded but a necessity.

First, fully fund your emergency fund before doing *anything* else. After that, you may want to consider additional life insurance. 10x income is what I issue on 65 year olds! I'm just guessing your age, but your human life value is probably more in the 20x-25x range, and since you are planning a family, it will become a necessity. It is always good to consider life insurance when you can actually qualify for it, because you may not be able to later. It's cheaper when you are younger, and you can qualify for more coverage. Test an agent by getting a quote and if they fail to proactively discuss the "waiver of premium" rider with you, then run, don't walk, to another agent. This is a rider that should be on every life insurance policy issued. Lastly, group insurance through work is most ideal for those who cannot qualify for personal insurance. Group insurance should not be a dependable source of life insurance (I can explain later if someone wants to know why).

Chris

Please do explain, right now my wife and I both have an "if I die" folder that lists the different insurance policies etc. that we have, and how to collect (funny though, when I asked HR how my wife could collect my life insurance they didn't know right away)

Downsides of Group Insurance:

1. You can't take it with you when you leave. There are some exceptions, but most will not allow you to keep this insurance if you go to another employer. You may have less/different coverage options available at a new employer. Personal insurance follows you everywhere.

2. Your coverage typically ends when your employment does. Again, there may be an exception here and there, but most plans end on your termination date. This is important. You may not have coverage at a new employer right away. Also, there was a story in the newspaper about a guy who was killed in a car accident on the way home from his last day. The insurance company failed to pay and the family did not win the lawsuit.

3. You do not have waiver of premium. If you become disabled, you will no longer be an employee (technically), and therefore, may have coverage problems. You may be required to pay these premiums out of pocket, or they may reduce your disability benefit. Talk to your HR person to find out how this all works with your plan.

4. Maximum amount. When I was in management, the largest group amount of insurance I could get was 10x my salary, which was $650,000. My actual insurance need as defined by human life value (the science used to evaluate 9/11 death benefits, for example), was in the ballpark of $1.95 million at that time. A lot of employees max out this benefit and then never realize they may be seriously underinsured.

5. Premium cost. In large plans, this is not a problem, costs are pretty low. But in smaller plans, cost of this insurance can be as high, if not more, than getting term insurance on your own. Assuming you are in good health, you may qualify for an elite level term rating, getting more coverage for your dollars.

6. Future tax concern. One concern with group insurance is that, if your premiums are tax deductible, your death benefit may be taxable. This is a gray area that has not been addressed very well under current tax code. Make sure you death benefit is indeed tax-free. These laws could change in the future.

7. Subsidizing - You are subsidizing everyone that may not be able to get personal insurance because of health concerns. If there is a significant number of deaths in your company, especially larger ones where employee base is high, this could push premiums to a higher amount than what it would cost you to be comparable term insurance outside. This is especially true if you are young and healthy.

8. Retirement - When you retire you will likely have no insurance coverage. Now, most people believe they won't need much in retirement anyways, since the kids are gone. However, you and your family can reap huge financial benefits from having life insurance in retirement. With permanent insurance, I can show you how to spend that death benefit on yourself, while you're living. You can also take a higher pension payout and be allowed to spend down certain assets if you have personal life insurance.

These are just some of the major things. There are little issues such as lack of rider options, and some concerns with estate planning. All in all, group insurance is meant to supplement your current programs, not replace them. And I've been recommending that many small business owners forego group programs entirely, and instead implement an individual-based system. This allows them to pay their employees a greater salary with, in most cases, significantly better benefits. And from a fiduciary standpoint, their employees are much better off in the long run.

Group people hate me, I know...

Chris

Chris, I'm glad you're so passionate about this, but the reality is that I don't pay anything for my coverage right now, and with the insurance through my dad I can add more coverage if I want at the rate it was (when I was 14 I think). It will probably be added to as we get closer to having kids though. Or depending on what goes down at my job.

Hey, don't pass up free insurance coverage!

If you can get a good deal on additional group coverage, you cannot pass it up. However, understand what your total coverage should be (human life value). It is highly likely that your total coverage need is greater than the maximum you can buy through your dad. If so, you'd still need personal insurance on the side to supplement the difference.

Also, I would still compare the price of the additional insurance options through your dad with what you could get from a personal policy. Know exactly how much money you are saving by sticking with the group. This will give you some good comparison. If you ever want a free quote, let me know. I can give you a ballpark figure (I have over 200 life insurance companies at my disposal).

Something else to consider that I didn't mention above:

9. Insurability. Many people take their health for granted, but good health can save you considerable amounts of money. If you buy personal life insurance today, even term coverage, you can lock in your insurability. Later on, you can convert the term to permanent insurance without evidence of insurability. You cannot do this with most group plans. There are many people right now, as I type this, and as you read this, that would absolutely love to be able to buy life insurance. And they have the money/resources to do it.

But they can't.

Because they cannot qualify for health reasons.

And just like you cannot predict the stock market, you also cannot predict your health. My next-door neighbor in Toledo where I grew up ran every day and was a spitting image of health. He never took medications, never drank or smoked, and was the fittest man I have ever known.

One day he went out running, got about half a mile, and collapsed. He died of a blood clot. If he couldn't plan on a long, healthy life, then can any of us really do the same? The truth is that we have no idea who, what, when, why, or where.

You will always meet someone who complains that they should've bought more life insurance. You will never ever meet a family member whose loved one has past, say they bought too much.

Speaking of... I haven't been able to fully trust in an online bank yet. Any that you can recommend? It would be just "extra" cash that isn't in a MMA. How do you *know* they're trustworthy? I haven't felt that someone sticking an FDIC icon on a website is enough. Or do you just go with a well-known brick and mortar that happens to do business online?