PERSONAL FINANCE

I am not a financial advisor so I don’t plan on giving financial advice here. I am simply going to state what I use and what I do. Maybe you will see something that you don’t know about and utilize this in your own personal financial road map. You can always contact me if you have any general questions about how something works.

  • This depends on many things, but a typical formula to follow would be to put money into the following things in this order:

    1. First pay down any high interest debt

    2. Make sure to have an emergency fund in a high yield savings account that would cover at least 3 months, but preferably 6 months, of living expenses.

    3. If your employer has a 401k plan in which they match a certain percentage, then contribute at least the percentage that they will match. This is basically free money from your employer.

    4. Start contributing to your RothIRA

    5. Increase your contribution to your employer 401k until you are able to max out contributions

    6. Start contributions to a health savings account up to the maximum

    7. Lastly, utilize a brokerage account to invest

    More information can be found on some of these below.

ACCOUNT TYPES

ROTH IRA

A Roth IRA in simple terms, is an account where you put money. While that money is in the Roth IRA account, you can use that money to invest in things like Stocks, Bonds, ETFs, etc. The primary feature of a Roth IRA is that any growth you make in the Roth IRA is tax-free growth.

    1. How much can I put into my Roth IRA?

      • The government sets a limit on how much you can contribute to your IRA each year. In 2024, the max you could invest was $7,000.

    2. When is the deadline to invest?

      • You have until April 15 the following year to contribute for the year. For example, you can make 2024 contributions until April 15, 2025. You could also start your 2025 contributions January 1, 2025, so there is some overlap.

    3. When should you start investing in a Roth IRA?

      • As with all investing, the earlier the better. If you have the funds, then invest.

    4. Can I take out my money whenever I want?

      • You can withdrawal your contributions at anytime, without penalty. However, any earnings made on top of the contributions will have a penalty if withdrawn before the age of 59 and a half.

401K

An employer 401K is also an account where you put money, and then that money gets invested. This, however, is an account that is usually managed by a company hired by your employer, or maybe your employer themselves. The key features of this is that money goes in BEFORE taxes are taken out and in many cases, your employer will match a certain amount that you put in.

    1. What does it mean that my money goes into the 401k before taxes are taken out?

      • Whenever your employer pays you, they take out certain things they are required to, such as income tax. Whenever you set up your 401k contributions, you can select a percentage to contribute. This percentage is calculated before those taxes are taken out. You can also select a specific amount instead of the percentage if you'd like.

    2. Are my gains in a 401k tax free?

      • No. Since the money going in is tax free, whenever you take money out, you must pay taxes then.

    3. Is a 401k worse than a Roth IRA since you have to pay taxes?

      • Not necessarily. The idea behind making this determination is to figure out when you will be paying the highest amount of tax vs the lowest amount of tax. For example, if you are making 250,000 a year now, you are going to be in a very high tax bracket. So paying tax now instead of later as you would utilizing a Roth IRA might not be as good as deferring tax until later via 401k, when maybe you've retired, and are in a much lower tax bracket.

    4. How much should I put into my 401k?

      • If you can afford to, it is generally recommended that you put in at least whatever percentage your employer will match.

  • I have my 401K through my employer and I contribute a bit above what my employer matches just because I am able to do so.

HIGH YIELD SAVINGS ACCOUNT

A High Yield Savings account (HYSA) is an account where you store money. The institution that you store this money with will then pay you a certain APY (Annual Percentage Yield) to keep the money in the account. The key feature of this type of account is that generally this account is just as liquid as a regular savings account, but pays you a much higher amount of interest.

    1. What determines the APY you can get with a HYSA?

      • Banks will typically follow the federal reserve rate. When rates are high, your HYSA will offer higher APY. When rates get cut, so will your APY.

    2. What is the current rate I can expect?

      • As of October 2024, you can typically find APY around 4.5%. There are some offering higher, and some offering lower. Federal Reserve rate cuts occurred in September, and more are expected however.

    3. Why should I keep money in a HYSA when the stock market earns a higher return?

      • The stock market CAN earn a higher return, but there is a level of risk to take into account. Also, a HYSA is typically considered to be more liquid than stocks, so if you needed to access your money quickly, it would be much easier to do so in an HYSA than through stocks. This is why many people keep their emergency fund in a HYSA.

TAXABLE BROKERAGE ACCOUNT

A brokerage account is an account that is similar in a way to a Roth IRA or 401k account. This account has no tax benefits like those two, but it is an account where you input money, and use that money to buy and sell things like stocks, bonds, and ETFs. The key feature to this is that you are in total control.

    1. Since I am in full control, does this mean I can take earnings out anytime I want?

      • Yes, however there are tax implications. For example, gains taken out before 1 year will be subject to short-term gains tax.

    2. Why would I use this instead of a tax advantaged program like Roth IRA or 401k?

      • Typically you'd want to max your Roth IRA and at least contribute up to what your employer matches in the 401k before moving into self managed stock, bond, and etf exchanging via a brokerage account.

  • I have my brokerage account through Charles Schwab, however I don't currently utilize it as I am still building up my emergency fund in my HYSA.

Other ACCOUNTS to Consider

A few other accounts to consider are:

  • Traditional IRA

  • Health Savings Account

  • Flexible Spending Account

  • Crypto Currency

  • Other tax-advantaged plans such as 529 Savings Plan.

Disclaimer: The information provided on this website is for general informational purposes only and does not constitute financial advice. I am not a licensed financial advisor, and the content shared here reflects my personal opinions and experiences. Before making any financial decisions, you should consult with a qualified financial advisor or conduct your own research. While I strive to provide accurate and up-to-date information, I make no warranties or representations regarding the completeness, accuracy, or reliability of any information presented.

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