401K’s are a popular type of retirement plan where money from each paycheck is invested into a stock market fund. The money collected into the funds is then invested in different stocks. The portfolio of stocks allows you to be diversified in the stock market. This means that your money is spread out across a number of stocks which allows for more consistent returns and lower risk.
401K’s are pre tax investments. This means that you only pay taxes when the money is taken out of the account. Because of this you can lower the amount of taxable income you make in a year.
Employer Match
Many employers offer a 401K match program. My company offers to match 6% of my salary yearly if I put 8% into my account. This means that if I put 8% or more of my salary into my 401k, my company will pay 6% into my account. That money adds up fast and helps you get better returns on your investment.
The Power Of The Stock Market
My favorite thing about the stock market is compound interest. Compound interest can cause massive growth for your investment. As you gain interest over time you are gaining interest on the money you put in as well as the money you have earned from past interest. This can cause a snowball effect and is a massive boost for your investment. The best way to capitalize on this is to invest early to give your investment more time to grow.
Roth IRA’s and Mutual Funds
Roth IRA’s are another popular retirement program. They work like 401Ks but they are after tax. This means you pay your taxes up front instead of having to pay taxes when you take the money out. This can be a powerful investment tool
Improving personal finances is a goal many people share. It is a goal I have had for a long time. I left school with a good chunk of debt and luckily found a good job in IT at a finance and investing company. While working in the industry I learned a lot of helpful information to improve my personal finances and I want to share it with you all.
I have put together a 5-step plan to help you get the most out of your money. For the first year after I graduated I had a rough time with my finances. My car broke down and I ended up having to buy a new car. The debt was being paid off slowly and it was hard to see it disappearing any time soon. When I landed my job in IT I learned a lot about handling money. The plan I put together is the same plan I followed and helped me build up a decent savings and investment portfolio. This plan will build a great foundation for your wealth and will help you get your money to work for you!
1.Budget
The first step to financial wellbeing is understanding how much money is coming into your bank account and how much is flowing out. Write down your income and your expenses broken out by categories (rent, food, electric, car payment, 401k investments, etc). You don’t have to get super in depth with this. My own personal budget is a rough estimate of how much I spend.
I have put together a free budgeting spreadsheet for you to use to help with this process. All you have to do is plug the numbers in and the spreadsheet is setup to do all the calculations for you. To get the spreadsheet signup for my Email List.
2. Take full advantage of 401k matching.
A lot of employers offer a 401k match. This means that they will match any money you put into your 401k account up to a certain percent of your income.
401k plans are a popular form of retirement plan. The best part is it is mostly automated! You tell your employer to hold a certain amount of money each paycheck and they put that into what is essentially a mutual fund.
A mutual fund is a when a bunch of people pool their money together to invest in the stock market. The manager of the fund decides what stocks the account invests in. This allows you to be diversified through the market which makes for a safer investment. If you invest to get your employer match you are basically getting free money to invest!
Paying down high interest debt will save you money over the long term. Credit card debt is by far the worst form of high interest debt since they normally have extremely high interest rates. It is best to pay off the highest interest debt first. If you have a loan at %5 and you pay more than the monthly payment you are essentially getting an instant %5 return over the life of that loan. So if you paid $100 extra on that loan you would save $5 a year in interest. The more money you can pay above the minimum payment the more money you will save in the long run.
4. Build Up Emergency Savings
You should be building an emergency savings account. This is money that you only use in emergency situations like losing your job. It should be enough money to live on for 4-6 months.
To get the most benefit you should find a high interest account. Many banks offer small interest rates on their savings account. My favorite high interest savings account is Ally Bank. They are currently offering a %2.10 interest rate. Since they are completely online they have spent a lot of time making their website easy to use. They also have an app and debit card option for the account.
5. Save and Invest
At this point you are ready to continue saving and to diversify your investments. Open a high interest rate savings account to get the most out of your savings. Currently I use an online bank called Ally and get a 2.3% interest rate. Vio bank is another online bank offering 2.5%.
There are tons of options for investing such as stock, bonds, real estate, etc. If you are just getting started I would suggest investing in mutual funds with low fees. Webull is an app that allows you to invest in stock and mutual with no fees! They give a free stock value between $8-$1000 on sign up. You also get a free stock once you have invested $100 through their app. Their app makes it easy to start investing in stocks. If you love getting free stuff like me this is a great deal.
Another option for investing in the stock market is the app Robinhood. Robinhood is similar to webull and is the more popular of the two. I prefer webull’s app because I think it is easier to use. Robinhood gives away a free stock on sign up and a free stock when you invite friends. The stocks range from $2 to $200 and you can only earn up to $500 in stock a year. However, they are commission free for trading.
If you follow these steps you will be on your way to building your wealth. Implementing this plan will help you get your money working for you. Thanks for reading. If you want updates from me on ways you can build your wealth sign up for my email list below. You will also get a free budgeting spreadsheet
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Clever Cash Life 