Today I will be wrapping up this three part series on what to do with your leftover money. If you are at the point of investing, you are on step four in the step system found in my previous post found here. To get to this point you first should have set up your emergency fund, paid off your debt, followed by building your emergency fund back up to 3-6 months of your total income. Congrats! You’ve come a long way! Now we are moving
Since you started your first “real” job, post high school or college, you have put in countless hours at work, sacrificing precious sleep for your 9-5. You’ve wondered when the day would finally come when you could sit back and relax and watch your bank account finally catch up to your work ethic. Now it is time to put your money to work for you.
If your job offers you the option to open a 401k, do it. Even better, if your job offers you a ‘match’, take advantage- it is FREE money. My job offers to match my contributions up to 4%, so it’s a “no brainer” that I should contribute at least 4%. If you keep putting it off, remember, there is no better time than now. The sooner you start investing for your future, the more money you will make in the long run.
If you asked me a year ago how a Roth IRA worked, I would probably laugh at you and shrug my shoulders in question. On the other hand if you asked me about 401k, that’s a language I understood. The funny thing is, they both are very similar. A Roth may sound intimidating, but it is just another form of investment. The key difference is that with a 401k your money is tax deffered and you only pay taxes when you withdraw your money. Where as with a Roth IRA, withdrawals are tax-free.
To open a RothIRA, you will need to first choose where you want to set up your account. For example; Fidelity, Charles Schwab, Vanguard, and MerrillEdge are all reputable companies. Depending on which company you choose to go with, there may be certain qualifications you need to meet or a certain balance you need to maintain to be able to contribute to a IRA. Usually you can open your account with a lump sum or you can choose to contribute by submitting monthly payments. The company my husband and I are using requires a minimum deposit of $200 a month (assuming you are starting out with a zero balance when opening the account), while others may require a minimum initial balance in order to make contributions.
Some helpful things to know when opening your first Roth IRA:
- A Roth is a type of account that allows your money to grow tax free.
- You must have an earned income to open one.
- You and your husband can each have their own Roth IRA’s.
- You can contribute money whenever you have extra cash or you can arrange for automatic monthly payments.
- The maximum amount you can contribute to your Roth in 2015 is $5,500.
Your initial deposit will remain in your account until you designate where it will go. With a Roth you can invest in all different types of stocks, bonds, money market accounts, etc. Advice from the wise Dave Ramsey would be to invest in mutual funds because they have the greatest potential for long-term growth. Speak to your financial advisor and see what mutual funds work best for you.
If you want to secure your million dollar nest egg, here is your chance! Once you open your IRA, make sure to contribute as much as you can each year. If you can max-out your Roth every year, this would be the best case scenario. The more you invest now, the more you will have for retirement. But don’t make yourself crazy watching the stock market fluctuate day to day, just leave it alone and let it do its job, making money.
I hope you have found this series to be a helpful one! I have given you the tools you need to be able to get ahead financially. It will take time, lots of patience and persistance but keep with it. You will be so thankful you did it!
I’m here for any questions you may have along the way. You got this!