Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: MONDAY, August 14, 1995                   TAG: 9508140008
SECTION: BUSINESS                    PAGE: A8   EDITION: METRO 
SOURCE: 
DATELINE:                                 LENGTH: Medium

JUST STARTING OUT?

Should he put the money aside each month in a retirement plan, or should he put it in other kinds of savings? He has some student loans that need to be paid off. In the future, he needs money in case he loses his job and for vacations and those types of expenses. He may need a new car in a few years.

Even though $24,000 is not a lot of money, it's more than he's ever had, and this is a good time to begin putting something away. Should he invest in tax-sheltered annuities or mutual funds or just bank accounts?

A: James E. Pearman Jr., a certified financial planner with Fee-Only Financial Planning L.C. in Roanoke, said his first recommendation is that the young man get started on the right track by developing the habit of using a budget to govern his spending and saving.

Based on the salary figure you quoted, your son will be receiving about $1,552 per month after deducting income and Social Security taxes, Pearman said. You did not specify whether your son would be living at home or would be renting. If it's the latter, these living costs potentially would consume a major portion of his disposable income and would significantly impact the amount available for savings and investment.

Your son should pay off the student loans as quickly as possible, Pearman said, although you did not give the amount and interest rate.

Your second question concerned the need for liquid funds for emergencies and other short-term priorities. Pearman said your son should certainly plan on building up an emergency fund, but realistically this goal will take some time to meet considering the other expenses that he faces.

He can set up a savings account and begin making smaller regular contributions until he accumulates enough to meet the minimum balance requirements for a money market account or fund. Once his loans are paid off, Pearman said, then your son can increase the amounts set aside in these accounts. Pearman said your son should delay the purchase of another car (and then not necessarily a new car) until he achieves his savings objectives.

Because your son's employer does not have a retirement plan, he is eligible to start an IRA and contribute up to $2,000 per year. Pearman would recommend that he pursue this course because it would result in a reduction of current income taxes (thus helping to fund part of his IRA contribution) and he would begin to receive the benefits of compounded interest.

If he contributed $166 per month for the next 10 years to an IRA that earned 10 percent, and then did not make any further contributions, he would have $595,740 in his IRA at age 67 (his normal retirement age under current Social Security regulations). If he waited 10 years before starting and contributed $2,000 per year for 30 years, he would accumulate $328,988. Clearly, Pearman said, the sooner he can start saving, the better off he will be in the long run.

Q: If a widow has only one child and she has a home worth around $40,000 and a small amount of cash in the bank, is it necessary to have a will? If so, how much does it cost to have one made?

A: If your child is a minor, you should have a will in order to provide for the guardianship of your child in case of your death. You can also ensure that the person you trust to take care of your child is the same person who controls the money to be used for the child's benefit.

If your only child is an adult and your estate is worth less than $600,000, a will is not mandatory. But you can ease your child's way by providing through a will that he or she can serve as executor without paying for a bond. It also should facilitate settlement of the estate. People with more than one child should have a will to ensure that the children do not inherit undivided interest in the house, which could cause ill feelings among them.

If you know in advance what you want to accomplish, a single simple will should cost no more than $100 to $150.

Mag Poff helps our readers find answers to personal finance questions every Monday on the Money Page. Send questions to her at The Roanoke Times, P.O. Box 2491, Roanoke 24010. Also, questions can be left in recorded telephone messages by calling (703) 981-3434 and, when asked to enter a mailbox number, press 66639 (MONEY), followed by the # symbol.