This summer I’ll be turning 30 and I’m really excited about it! There’s something really satisfying about thinking back on the past 10 years and seeing how far I’ve come since I was 20.
One of the things I reflect on often (and preach to younger people about every chance I get) is my financial plan. If I could go back in time and choose 3 financial accounts to open right at 23 years old when I finished school, it would definitely be: 1) a Roth IRA 2) an employer-sponsored retirement plan and 3) a high-yield online savings account. Let me tell you why…
- A Roth IRA is one of the most flexible investment accounts that exists (as of 2019). When I first learned about retirement accounts at my first job, the big turn-off for me was that the money would be locked away until I turned 59 and a half! Even though a Roth IRA was designed to help you invest and save for retirement, it allows you access any of the money you put in (called your “contributions”) at any point with no taxes and no penalty fees. You cannot access the profits you make from your contributions, though! So make sure you are keeping track of how much you invest and what your return on investment is. Over time, investing in the stock market with a Roth IRA is much more helpful for wealth building than just saving at the bank. For example, if you put $100 in a savings account with Bank of America, Chase or Wells Fargo and do not withdraw that money for an entire year, then you’ll earn a free penny in interest (because of the APR or annual percentage rate, which is 0.01% at those banks as of June 2019). That means your new balance would be $100.01, but that’s NOT a good return on investment. If instead, you invested that $100 in the stock market, you’d likely get an average return between 6% and 10% and that’s MUCH better!
- Up next is an employer-sponsored retirement account – if you get one at your job. This could be a 401k, 403b or 457 account depending on where you work. Basically, you can use this account to invest and save up for retirement too, but unlike a Roth IRA, the money that you choose to contribute will be deducted from your paycheck before the government takes taxes and before you even get your paycheck. Since you don’t pay taxes on that money now, it means that when you go to withdraw the money in retirement, you will have to pay fees on it at that point. Investing through a plan with your employer is even more of an awesome choice when they offer you a company match! You definitely want to ask about a match and find out the details because that could mean the money you invest gets either doubled or multiplied in some way! When you fill out your paperwork at your job to sign up for the plan, you can put down the amount in dollars that you want to contribute from each paycheck or you can write down a percentage of your yearly salary you want to contribute. Just so you know… most experts recommend investing at least 5% of your income or about $25 every week – whichever is more feasible for you!
- Finally, you want to make sure you have a high-yield online savings account – and this is a something you should aim to have for 2019 and beyond – because of the interest rates offered. I already told you about the problem with having your savings account set up with big, major banks because they offer the lowest interest rates ever! In 2019, high-yield online savings accounts offer up to 2.4% interest, which is 240 times more free money back each year than many of the big banks are offering. So, if you have a big goal that you’re saving for in the near future, like buying a car or paying for an upcoming vacation, you want to make sure you have your money growing in a high-yield savings account that is FDIC insured!
Below you can see the difference between three people’s wealth accumulation from saving $250 monthly in the 3 accounts I’ve mentioned above. The only financial account that will ensure you can earn close to or over one million dollars in your lifetime, is one that invests in the stock market!
There are some of the most important financial accounts to have as you move out of college and into your adult life, but these three are definitely going to set you up with a strong start! If you have some free time this weekend or on your next lunch break, consider researching a reputable company to open your accounts with!