Retirement:

– First thing is to see if you can get into 401(k) through your employer. If you can, try to put in at least as much as the company is matching too. That’s just free money from your company. There’s tons of books on compounding returns and the effect that not getting into 401(k)s early enough costs people millions down the road. Watch out for your investments in 401(k), especially mutual funds that have fees (they can steal 25% of your income. Places like Betterment, Morningstar, and Bloom websites can help you out in figuring out where you stand on fees.

– Depending on your income, it might not bad to open an IRA and put some money in there. The major difference there is in an IRA you can invest in individual stocks. Sometimes limiting the number of stock, say 5 can help you out long term and limit the amount of homework you need to do. This account can be a little more activity managed than your 401k. Again there are some IRS limits on income might not allow a tax deferral. 

– I have some serious concerns with overinvesting in your 401(k), while I love the compounding factor, that money is tax deferred until you turn 65. Will you make it to 65? What will your health be to use at 65 if you don’t treat yourself right now (i.e. stress caused by money concerns since you put all your money in tax deferred assets)? Will the government ever raise that age higher? Will you have massive debt still to pay from mortgages, credit cards, etc.?

Savings

– Don’t just have a cash account for retirement. Your cash loses value against inflation. We are too young to just have money sitting on the sidelines in cash. If you need to have cash in savings, it should be thought of as short term and only needed for a known short term payment no more than 3 months out such as a down payment on a house, car, etc.

– Typically people will say to figure out exactly what you would need worse case for 3 months to pay bills (rent, phone), in case of job loss, your employer going out of business, etc. That should be kept in a cash account like Capital One Savings would be my suggestion as the rate is ok and ATM’s are hard to find. This is an emergency fund and should be thought to only be used once or twice in your life, especially since this emergency fund is just losing money to inflation. Weighing the pros and cons of having only this account vs. not having investing is a topic for further discussion.  

– After that, a small savings account that could be used for flux-actions in bills. I have one for like $1k. Basically I use it for when I have a big credit card bill due (X-mas, a trip, etc.) to avoid using my line of credit and the hassle of paying that back.

– 529 plans. Be thoughtful on these. Do you really understand what is happening with your child’s money? The tax savings in IL on contributions is only 4.95% thus not much of a tax savings. Plus the investments don’t allow as much buying as owning individual stocks. Putting too much money in here can be a big mistake. What if your kid doesn’t go to college, what if your kid gets a full ride, what if you move to Europe, etc.? You can only spend the money on qualified educational expenses, thus the money is trapped as a one use fund. One could only put a little money in a 529 plan and let it grow just in case. The rest put in a regular investing account, as many 529 plans only allow investing in expensive mutual funds, thus you have a chance at a higher return with less fees. Also there is currently no time limit you need to keep the money in a 529 plan.

– 529 part 2 – Pay yourself first, 401k, investing accounts, savings, credit card debts, are much more important than a 529 plan. Yes college is expensive, but think about why you are paying for your kid’s college vs. everything else in life (your retirement, housing costs, mortgage costs, etc.). Maybe deposit things like extra money from a bonus in here every year, just to have a start.

Housing

– If you own a home, get a home equity line on your home. Most places charge little or no fees. You’ll just spend a little time getting some W2’s and other paperwork together though. We use first Midwest and they’ve been a joke, but local banks usually have lower rates than the large banks like Chase.  The home equity line is great, because you don’t have to borrow on it. Interest rates can be low at like 5%, thus a huge advantage compared to credit cards at 20 plus %. The interest is tax deduction (up to certain income limits) and must will even give you a checkbook to make the use of the line very easy. This line can be used for anything to pay off things like credit cards around the holidays, tax payments, and even great for an escrow payments for a new home. Really this could replace that 3 months of the emergency fund I mentioned above, because if you ever lost your job, just borrow on this. This seems like a no brainer to have if you own a home, as again you never need to use it, but it’s a free line of credit (basically free, as some due charge a few small fees) so why not get it just in case. 

Spending

– Make sure you pay off your credit cards on time & in full every month. Having 2 – 5 credit cards helps build up your credit rating. Credit cards are great because it’s basically 45 days of free money. Just don’t get interest charges.  If you are behind, sign up for a new card and do a balance transfer. Helps buy you some time. I honestly was carrying $10k of credit card debt and would do balance transfers every couple of years to a card that offers 0% interest for a few years. I didn’t pay interest on these cards and every 2 years pay a balance transfer fee of $100. (That’s like 1% vs. 26% that a credit card interest would be).

– If you have student loans check the rates on those. There can be ways to refinance and income limits on deductions are pretty low. There also is some talk of the government helping to pay these off, but I think this will be very income limited (like 50k and under).

Investing

– I could give you hours and hours of discussion points about how important investing is (and hope I do through this website) but just know this is the way to early retirement, multiple homes, cars, vacations, generational wealth and never worrying about money again. Ideally you should find a way so that 10% to 20% of income goes right into saving (do an automatic savings plan so that you never even see the money thus it’s really not “lost”). Average returns for the past 70 years have been 7%, inflation is 3% and bank gives you .5%. Basically a savings account is allowing the bank to make 7% on your money and you lose money due to inflation and get back.5%.

If you are ready to invest in stocks, you can do the following:

– Open an account with Schwab, Fidelity or anything that has no monthly fees & trading costs are like $10 a trade. 

– After doing some homework, find your stocks and don’t invest but rather and for 1 month or so watch the change daily (There’s some sites that do paper trading). Do this so you can handle the ups and downs of it.  It sucks when it’s real money, but at our age, we need to be long term investors.

– For short term investing, some say you can do it, but it’s not easy, and there are some tax issues and most people lose it all or at least lose against the market.

– For long term investing, there’s a lot of different things to look at your portfolio, but I’m very Peter Lynch type investor. Pick things you know. I made huge profits on Lululemon. You know why, because my wife buys a ton of their crap and every time I go in the store, it’s packed, nothing is on sale & their goods are expensive.  Their stock lost some of its value 9 months ago because they had a supply issue. But supply issues are usually a short term thing, I stuck with it and the price went up even higher than before the “supply issue”. Similar story with Ford, their stock was like $3 when bought it, because I owned a Ford, every time I took it to the dealer it was packed and every construction site has F150.  It’s up to $12, I sold a bunch and now have the ability to buy any wrestling figure without regret.

– Once you get over the 1 month hump of checking prices every day, pick that first stock and invest in that company. Congrats you are now the long term owner of the company. Don’t worry about short term news or drops. I check daily, but honestly it’s not a great strategy and I need to get over this disease. Just check every couple of weeks. One of my stocks is Disney, it goes down all the time on random media crap, but the company is never going out of business, plus it pays a dividend. Plus they have Star Wars coming out and should make a billion dollars. Short term sucks to see it go down, but long term will be a nice stock. Plus if you reinvest the dividends, you’re actually hoping it goes down so you get more shares from the reinvestment. This doesn’t mean it’s a for sure thing, but I understand the company, their financials and ignore the day traders impacting the long term investment of the company I own. If you are long term there are 2 different type of stocks to pick from: Growth stocks (think Twitter, Lulu, WWE, Amazon) and Equity/Value (think Bank of America, Disney; companies that aren’t going out of business but still growing).   As we get older, shifting some of your portfolio to  bonds and companies that are equity but don’t grow (Think a construction company that only does government contracts, that is probably not going to grow, but probably not going out of business. to help withdrawal your cash to offset the fact your aren’t getting W2 income anymore.

– You might wander whether to get an investment advisors or not. Honestly I’m not the biggest fan of them. They barely beat the S&P 500 before fees and you lose out then on the fees. If you’re scare of the market, you can start out by investing in indexes, like the S&P 500 index. For smaller investors like us, investment advisors don’t care or spend time to think through things to your situation. The good thing the advisor can do is they have access to companies you might not have time to look up or learn about (like energy stocks – which is a hot market, but I couldn’t tell you a thing about one). 

– However to make investing successful you need to do your homework and I can educate you on how to do that. Think of how much time you might spend on something as silly as a fantasy football league that has a $50 buy in. You have the ability to make real growth by being thoughtful and doing some easy homework.

As you can see a lot of these ideas will be flushed out in more details shortly as they are in progress or coming soon on the site. Let me know any questions/comments/suggestions or follow-ups. We’re just starting here!