Basic Financial Fitness: Investing in the Future
In this edition of BFF, I'd like to talk about investing. Now, when I say investing, I'm talking about the various ways that one can save money for the future, particularly retirement. Considering my age, I'm relatively new to investing, and, because I'm late to the game, I'm working hard to catch up. Right now, my investing goals are focused on two things:
1. an emergency fund
2. retirement savings
I've talked about the importance of saving before, particularly as it relates to emergency situations, so that's nothing new. To read my posts about saving for emergency situations, click here, and for using credit cards for emergencies, click here.
In regards to Goal #1, I save money from each paycheck in case of an emergency. Now, mind you, it's not much as I don't make much money, but every little bit counts, and eventually I should reach my goal. My goal is to have the equivalent of three months worth of salary saved up to help me get by if tragedy should strike. Three months worth of salary would go a long way in helping me out in many a bad scenario, and should, I feel, get me on my feet again.
Goal #2 is more of a new thing for me. Well, not entirely new as I have thought about it a lot over the past several years and have made some decent headway over the last few years. Back in 2008, I worked for a Fortune 500 company that offered me a retirement plan option (via a Roth IRA through Vanguard) and a stock share option (via Fidelity) right from the beginning of my employment there. I only worked there for a short period of time as I decided to go back to school and quit. At that time, I had invested in both options via small deductions from my check each pay period. When I quit, both the Roth IRA and stock option were both less than $200.00. I proceeded to forget all about both of them and went on with my life.
Flash forward to a couple of years ago when I thought about those long-forgotten investments and set about getting back in touch with them. I had forgotten what my usernames and passwords were, so after a few phone calls to both Vanguard and Fidelity, I was able to get back into my old accounts. Imagine my surprise when I saw that my Vanguard Roth had actually increased, but imagine my bigger surprise when I realized my Fidelity stock share had increased 10-fold. That was my first lesson in the stock market: it's a long-term investment.
I have mentioned a few times before how I saved a nice chunk of change throughout my 30s by saving as little as $5.00 a paycheck. Well, I decided to take all that money and split it up between the Vanguard and the Fidelity accounts. I bought a Traditional IRA through Vanguard and set it up to reinvest the dividends into Index Funds. How did I decide on this course of action? I read an interview with Warren Buffett and that's what he recommended. I figured if one of the wealthiest men in the world (who happens to live in my city) recommended it, then it must have some merit.
This last point is significant because I've talked before about how saving a small amount of money isn't much, but it is. I saved up a little bit for years and then invested it in something that will grow at a more accelerated pace as I move towards retirement. It all goes back to what I've said about how saving is not only important but necessary.
Going back to Goal #1, it's important and necessary to build up an emergency fund as well. Even if you have to save $5.00 for each one every paycheck, you're still putting your money to good use. If you won't miss $5.00, chances are you won't really miss $10.00 either. If you haven't started saving money yet, start with your next paycheck. I recommend opening an online account that has automatic savings, like Capital One 360, as you can set your online account to automatically withdraw money each paycheck from your regular bank. When you open the online account, open up both a checking and a savings account. Designate one as your Emergency Fund and the other as your Retirement Fund and start those automatic withdrawals of $5.00/paycheck for each one. Of course, save more than that if you can.
You can turn around and use your retirement fund to open up an account with a place like Vanguard or Fidelity. Make sure to read up on your employers retirement plan as well and take advantage of it if you can.
Disclaimer: I'm no money expert, but I am a woman who's had to learn to live below her means and save for future goals on a small, paycheck-to-paycheck existence. I've learned a few other things along the way, and you can find my basic money advice in my Basic Financial Fitness series. Questions? Comment below.