Kara McGuire: Savings start-ups

Lindsay Bauman has a problem that most of us can only wish for. At 23, the college graduate has a good income, little debt, and few expenses.

She also has money left over to spend on coffee, clothing and across-the-world trips with her church.

Her dilemma: where to start saving?

Inertia is half the battle when it comes to money matters. To get the ball rolling, we put 20-something Joe Pitzl on Lindsay's case. The first thing Joe did was sit down with Lindsay and figure out what makes her tick. She spoke passionately of her work with her church group and global service trips.

"Tithing is really important to me," said Bauman, who gives her church 10 percent of the $41,000 salary she earns working in customer service for a software engineering company.

When she's not hanging out with her youth group kids or jet-skiing on Lake Minnetonka, Lindsay likes her Starbucks and Caribou, which she indulges in several times a week. She also has trouble saying "no" to a new pair of shoes.

And since she's always on the go, she picks up food on the run more than she'd like. She's certainly not alone.

"It's a familiar place, and I'm a financial planner," Pitzl admits to her.

As for Lindsay's budget? "I don't have one," she said. "I'm sure I could put so much more away than I do."

Fortunately, her low fixed expenses have prevented her from relying on credit to finance her lifestyle. After her roommate married, she moved back to her parents' Apple Valley home. Driving to her job in Arden Hills takes a lot of gas, but her new Mazda gets decent mileage. Her car payment, gas, and insurance of about $500 each month is her primary fixed expense. Other than that, her fitness membership is the only bill she has to pay; Dad covers the family cell phone plan.

Lindsay knows she should be saving, but finds her workplace 401(k) retirement plan to be "really confusing." And she's not sure how much to save for down the road when she hopes to get an MBA and buy real estate in the near future. "Prioritizing financial goals is overwhelming," she said.

Pitzl is glad Lindsay is thinking about these issues today. Many of his middle-aged clients are "asking the same things right now," he said.

Not wanting to add too much to her to-do list, Pitzl offers specific recommendations.

Retirement saving

If Lindsay puts in 6 percent of her salary, or $2,460 per year, her company will give her $1,230 (a 3 percent match). "This is as close to a free lunch as you can get," Pitzl said. If you save more today, you'll have more money compounding over time, which means less to save down the road.

It's all about balancing tomorrow's needs with today's, Pitzl said. "We're still young and we still want to have fun -- a good life."

Pitzl suggests the following investment mix in her 401(k): 10 percent in a broad bond market fund, 25 percent in a diversified stock index that tracks the S&P 500, 20 percent in a mutual fund that buys mid-sized companies, 20 percent in one investing in smaller companies, and 25 percent in a fund that buys international companies.

Strategic savings

Because Lindsay wants to buy a house and finance a professional degree, Pitzl doesn't want her to funnel all her resources into retirement savings. Besides, her employer's 3 percent match added to her 6 percent contribution amounts to about 9 percent of her salary, very close to the 10 percent rule of thumb many financial planners use.

"We have the rest of our lives to get there," he said of building a retirement nest egg. He also figures that after she gets her MBA, she can use her salary bumps down the road to supercharge her 401(k) savings.

But she has some planning work to do. First, she needs to figure out how to finance her MBA. Lindsay plans to work and go to school, a smart choice because her employer pays tuition benefits up to $6,000 per year.

Pitzl urged her to start talking with financial aid officers to get a ballpark figure for the total cost of her business degree.

Then its up to her to decide how much student loan debt she's willing to take on for grad school. "Education debt isn't bad," Pitzl said. "I can't stress that enough, as long as you're using [your degree]."

After tallying her tuition benefit and her grants and loans, Lindsay will have an estimate of how much she'll need to pay for school out of pocket.

Now for the budgeting. Instead of cutting out lattes and flip-flops, Pitzl likes to have clients figure out what their budget will look like in the future -- including the cost of short-term goals.

Once Lindsay has a guesstimate of how much she'll need for grad school, she should start automatically putting that dollar amount aside monthly in a savings account earning at least 4.5 percent interest. Whatever she has left over after tithing, saving for retirement and future school expenses, she should feel free to spend as she pleases.

If worst comes to worst, her education account can double as emergency savings. Flexibility is key when juggling multiple financial goals.

"There goes Caribou and Starbucks," Lindsay lamented. But Pitzl's advice is no shock. "I knew I wouldn't have all this extra money forever," she said.