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Money-watching at age 20
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July 31, 2000: 5:58 a.m. ET
An Oberlin junior tries to get off to a good start, but does he save too much?
By Staff Writer Alex Frew McMillan
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NEW YORK (CNNfn) - Andy Harrison is only 20 and about to enter his junior year at Oberlin College in Ohio. A lot of students his age probably spend more time party planning than financial planning.
But money is on his mind -- "I tend to be a worrier," he says. He has started to read about managing it, and it seems to him that there's a ton of space devoted to retirement planning. But he doesn't want to spend the next 40 years stacking everything away for retirement.
 There's a story that stays with him. His mother, a professor, got to know several of the patients that visited her father, a doctor.
His mother went to visit one of them in a hospice. The patient had saved up a massive nest egg for her retirement. But now her sight was failing her, and diabetes was starting to set in. She couldn't get around.
"She said 'It's all a lie,' " Harrison claims the woman told his mother. "You work very hard for retirement, and now she has all this money. And she can't do anything she wants to."
Harrison doesn't want that to happen to him.
"I guess what I'm really afraid of is that, if I'm disciplined enough, if I really desired to, I could probably save everything, and spend very little," he says. But that would be no fun.
"Nothing addresses this idea of basically spending and enjoying life," he says.
Checks & Balances runs weekly on CNNfn.com. People with questions about financial planning are invited to write in explaining their financial picture and short- and long-term goals. See the bottom of this article for specifics. For those selected, financial planners will review the details and suggest ways to meet those goals.
He thinks he has to save a fair bit soon, while he can. Harrison spent his first college summer interning at Merrill Lynch, which put him off business. "I have too strong a social consciousness," he insists. "I keep coming back to more public sector work."
Ever since Harrison can remember, he has wanted to work for the U.S. government. Both his parents are teachers and some of his extended family worked in the Foreign Service.
"Our family definitely does have a public service leaning," he says.
Won't be beholden to nobody
But government doesn't pay that well. So Harrison figures that his first job after he graduates from Oberlin will be a government-consulting position, because it pays more.
 "If I switch from consulting to government, I'm looking at the first two to three years out of college as prime savings years," he says. Even a consulting starting salary will pay above what he makes for the feds, he reckons.
He also thinks he might have to get a graduate degree to go where he wants to in the Washington world. He gives himself two to eight years to save toward the $55,000 to $65,000 his graduate degree will cost. "I absolutely detest being in debt, but I will probably have no choice but to take on loans."
Asian interests
Harrison was born in Kyoto, Japan, and lived there for 10 years. His mother was studying the then-new social movement mizuko kuyo, or "water child," which helps parents who outlive their children deal with that.
Ultimately, she got her doctorate in East Asian studies. She now teaches at the University of Arizona, in Tucson.
Harrison is studying East Asian studies, too, as well as economics. But he's more interested in China, which he visited in high school.
He likes to travel and would also like to be philanthropic. But those expensive tastes seem to conflict with his desire to work in government.
"I don't want to ever have to worry about money," he says. "I want to enjoy the money I make but still put enough away that I don't have to worry about the future."
Starting to take stock
Harrison does have some investments. He has $4,500 in a Merrill Lynch account from working odd jobs over the years. That's in his parents' name. He has put it in various index funds such as the Vanguard 500 index fund (VFINX) and the Vanguard European Stock Index fund (VEURX).
His grandfather also has $10,000 in a mutual fund that is in Harrison's name. That means he pays the capital gains for now, but he won't control it for quite some time. "I try not to think about it even existing," he says.
He spent eight weeks of the summer as an intern in New York at National Economic Research Associates, which paid him $5,000. He's opened a Roth IRA with Janus and plans to max it out to $2,000 with the proceeds, which are going into their new Orion fund (JORNX).
He was able to save a fair bit even in New York because he was living with his girlfriend. "Living in such an expensive city, I'm proud that I've managed to save as much as I have," he says.
A long-distance relationship
During the school year, he makes $200 to $250 a month working at Oberlin. His parents are covering the cost of college.
Most of what he earns he spends trying to stay in touch with his girlfriend, who graduated a year after he started college. She has been living in New York but is moving to Boston. Normally, she comes to see him. But he makes the occasional trip, which eats up most of his budget.
But they've been together in New York this summer, and she wants to go to law school, possibly a public policy program. That could mean Georgetown. "I'm keeping my fingers crossed that she goes to D.C.," he says.
Harrison knows want he wants to do with his career. He thinks he knows what to do with his money. But he wants to make sure he's on the right course.
"It might sound like I have thought this stuff through, but I'm really not very confident in my decisions," Harrison writes. "I guess I just need someone to tell me, 'Yeah, you're on the right path. Keep doing what you're doing.' "
What the planners say:
"Can I adopt him?" asks Diane Rolfsmeyer, a certified financial planner in Lincoln, Neb. If that fails, "Would he be willing to meet one of my daughters?"
About the most attention 20-year-olds tend to pay to their financial well-being is 'Mom and Dad, send money,' Rolfsmeyer jokes. "This much interest this soon is going to reap Andrew huge harvests over time!"
Scott Kahan, a certified financial planner and president of Financial Asset Management in New York City, also commends Harrison for planning so early. "This type of discipline can only work to his advantage in the coming years."
Beholden ain't all bad, all the time
Still, according to both planners, Harrison might want to change the way he comes at money. For instance, both CFPs think he needs to change the way he thinks about debt.
He's unlikely to be able to pay for a house with cash when it comes time to buy, and he'll probably need a car before long, too, which will likely also mean a loan, Rolfsmeyer points out. But borrowing isn't always bad, she says.
If Harrison is borrowing on a home at 8 percent but generating a 10 percent return on investment, he's ahead of the game. Then again, 18 percent credit-card debt likely puts him in a hole. "It is important to put debt in its proper place," she says.
"He detests debt, but that may be something he will need to deal with in life," Kahan chimes in. "Not everyone likes it, but for most people it is the way to reach their goals."
But being uncomfortable with debt is good, Kahan continues. Harrison shouldn't become too dependent on it. Many others miss their goals because they've spent too much time and money servicing debt, the planner explains.
Off to a "great start"
Kahan thinks Harrison is right to plug $2,000 a year into a Roth IRA, which "is a great start." If he keeps funding that, by age 65 and assuming a 10.5 percent return, it will have grown $1.7 million, according to Kahan's calculations. It will also be tax-free at that time.
Harrison might want to reconsider his choice of fund, though. Kahan doesn't recommend investing in funds that have less than a three-year track record. The Orion fund opened at the end of June.
Portfolio Rx, a retirement-planning column, also runs weekly on CNNfn.com. Click here to read the latest Portfolio Rx.
"It does come from a good family and probably will be fine," Kahan says. Still, he would recommend sticking with an S&P 500 fund for the next few years. Not only does Harrison like index funds, but Kahan looks to build a core portfolio with them and add managed funds later.
Harrison should also build an emergency fund once he starts working, according to the planner. He can do that through Janus or Merrill Lynch, since he has accounts with both. Harrison could also do it through a bank, though that pays lower interest than a money-market account.
Tax consequences to consider
Kahan also suggests that Harrison look into the exact legal standing of the $10,000 his grandfather is holding for him. Though Harrison says he doesn't know its status, and pretends it doesn't exist, it will legally be his when he turns 21 if it is in a Uniform Gift to Minors Act account, Kahan points out.
He should talk to his grandfather about it to make sure he understands the tax consequences. Again, putting that in an index fund would reduce the tax bite, Kahan says.
"It hurts my heart that you are paying capital gains tax every year," Rolfsmeyer says. "I recommend that you consider contributions to a traditional IRA to reduce or eliminate that tax."
She has some issues for him to deal with
Rolfsmeyer has some ideas for ways Harrison can invest. At his age, he can be a bit riskier with his investment decisions, she says, which means he can invest in specific stocks rather than just mutual funds.
She has four individual stocks in mind that are mainstream but that she thinks are set to reap the rewards of the growth of the Internet. "These four companies are currently players, and are both not likely to hurt you and are likely to continue to be players," Rolfsmeyer says.
For Harrison, she likes Intel (INTC: Research, Estimates), Dell Computer (DELL: Research, Estimates), Microsoft (MSFT: Research, Estimates) and Cisco Systems (CSCO: Research, Estimates), some of the biggest-cap tech stocks around. He should consider them for his Roth IRA, she suggests.
He IS on the right course
Both planners think Harrison is ahead in the count. "He is off to a great start. The best part is that he is a financially responsible 20-year-old. Not always easy to find in today's world," Kahan writes.
Both planners think he should look into stipends to cover graduate study costs, possibly from the employer he picks. That way, bearing the brunt of grad school tuition might not be as bad as Harrison predicts, they say.
Rolfsmeyer understands that Harrison has a long way ahead of him. "The idea of not having to worry about money undoubtedly looks impossible, she says. But with some simple tips, the planner believes it is at least manageable.
Harrison should contribute to a Roth IRA or regular IRA each year he is working, Rolfsmeyer says. Once he gets a job, Harrison should try hard to take full advantage of any retirement program that his employer offers, she continues.
When he starts working, Harrison should create a written budget, she thinks, bearing in mind that debt isn't always bad. He should stay in the stock market.
She also has some advice to ease Harrison's worries about saving too much and not enjoying life.
"Always budget in some 'mad money' to which there are no strings, no guilt and no accountability," Rolfsmeyer recommends.
* Disclaimer
Got questions about financial planning? Need some advice? CNNfn.com has organized a panel of outside experts to answer your questions. If you want to be considered for the "Checks & Balances" column, where professional planners suggest ways you can manage your money, send us an e-mail at checksandbalances@cnnfn.com. Include information about your age, occupation, income, assets and monthly expenses -- imagine you're providing a full income statement and balance sheet. Also, share with us any short-term and long-term financial goals you may have. And don't forget to leave your phone number. 
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