Just got a job or are starting a new one or maybe you know its time to take a serious look at your finances. But where do you start? There are three main buckets that should considered: Retirement, Savings, and Investing. These are multi-faceted buckets that can have a ton of complexity to them: read BORING. Here is the nitty-gritty of what you really need to know to jumpstart your financial future.
Bucket One: Retirement
Pay yourself first by investing in your future aka retirement. This seems like far, far, far, far away, but just like how you remember your middle school days (dang that flew by!) you will want to start early to take advantage of this magical power of compounding (read: amazing way that your money adds up over the years). There are two main retirement vehicles you should take advantage of, the 401k and the Roth IRA.
The 401k is a retirement vehicle that allows you to save for retirement through your company. Some companies even offer a match to what you contribute – hello free money!! If for example, your company matches up to 5%, and if you contribute 5%, you are really contributing 10% to your 401k because the company is putting in money for you as well. Your company will automatically take the money from your paycheck so you don’t even see it leaving your account!
- Roth IRA
The Roth IRA is an additional retirement account that you can open at pretty much any brokerage account from Charles Schwab (fancy, fancy) to those who just want to begin investing (Betterment or Wealthfront). You can contribute up to $5600 a year. If you choose the “Roth” version versus the “traditional” you get taxed now (typically in a lower income bracket) and your money grows tax free. Basically, whatever money is in the account when you retire and want to take a distribution (a chunk out), that money is yours – The Gov’t cant tax you again on it!
Bucket Two: Savings
Wait, I thought Retirement was savings. Yes – that is true, but what you save for retirement is what you will live off of when you are older. Here, we are talking about some of items on your major Big Kid List. Traditionally, people like to to have some bigger savings goals for things like a:
These tend to be 5-10 year horizons. I like to put this money into a brokerage account and invest it. WOAH, a what? Brokerage account: an investment account where you can buy stocks, bonds, mutual funds, index funds, etc. But I don’t know how to invest! Its okay, you can follow a Stock Market investment newsletter (like Motley Fool – my fav!) or invest in something you know (like Marvel, GE, Nike, etc), or if you want to distribute your money across the investing world, try a mutual fund (a group of stocks nicely wrapped in one) or an index fund.
Still a lot of work? Yes it can be. Not your forte but you still want to save? Try a Betterment account where you can set your goal and they will adjust as you get closer to your goal target date.
I like to keep my savings in investment accounts because you still have the opportunity to grow your money versus having it sit in a traditional savings account with little to no benefits.
There are of course smaller savings goals like building an emergency fund, a fun fund, or a travel fund. These can be funded in 1-2 years and should be replenished after it is drained.
- Emergency (3-6 months of expenses covered)
- Fun Fund ($1k or more to spend however you WANT)
- Travel ($1k-$2k if you want to travel internationally or $500-$750 if you want to travel across states)
Now say you have checked off all of the above items. Nice job! You doing more than 85% of your Millennial peers. The last bucket is how you can grow your wealth through investing.
Bucket Three: Investing
- Growing your wealth
You can grow your wealth through investing in the stock market, in real estate, in business, in art, or collectables. You can even grow your wealth by investing in yourself. Get another degree or take some classes or join a work association. All of these investments could allow you to earn more, thus growing your wealth.
All of these are easier said than done, but half the battle is having the knowledge and the direction where to go. Its better late than never to start growing your financial future.
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