Dating Your Money: It's a Good Investment
By Katie Mayer
Achieving financial literacy is knowing where your hard earned money is going and getting the best use of it. Start by understanding the basics of budgeting, saving and investing. At the end of the day, you choose how to spend your money. But are there choices that are better than others, and are there ways to make your money go further?
All throughout elementary school, middle school, and high school, we were taught hundreds of courses on math, english, history and science. I cannot recall one single class I have taken that has taught me how to be financially literate. I was lucky enough to receive a financial education from my parents, and it is an imperative skill that not many people are afforded.
To start, set some time aside and figure out your goals. Try to think both long-term and short-term. Do you want to travel next year? Do you want to retire early? Maybe you want to save five thousand dollars in six months. Write these goals down, make them achievable, actionable and specific. For example, saving one million dollars in a year might not be the most achievable, but opening an investment account or saving a hundred dollars a month is.
Next, set a budget. Figure out your monthly income and expenses, and decide what you are willing to sacrifice. Do you need that extra subscription? Is there a way for you to eat out less? Remember, you are doing this for a reason, refer back to your goals! It is also important to remember that getting an iced coffee or a sweet treat every once in a while is not the reason why you are broke, make sure you are still enjoying your life!
Next, you will want to make sure that you have a savings account, more specifically a high-yield savings account. A high-yield savings account will allow you to store money for a rainy day, while also making interest on your money while it sits. Make sure you have money saved for an emergency, like car repairs, unexpected vet bills or any other surprise.
Remember those long-term goals? It is time to think about retirement. Simply saving money over the course of one's life will not be enough money to sustain oneself for approximately 30 years. We overcome this by retirement accounts.
There are multiple different options for retirement accounts. The most common one being a 401k or 403(b) account. You are offered these through your employer. If you work for the government, you will have a 403(b). If not, you will have a 401k. Sometimes, employers will offer a match. A match is a percentage of your salary that you contribute to your account, that your employer will match.
Other popular retirement accounts are Individual Retirement Accounts (IRAs). There are two types, a Traditional IRA and a Roth IRA. They differ based on when you get taxed. In a Traditional IRA, you get taxed when you pull money out when you retire. For a Roth IRA, you pay the taxes on the money when you put money in the account.
These are great options for making your money grow, especially since these accounts have compound interest. To simplify it, let’s say you put $100 in your account and you get 10% interest, you will then have $110. In the next period, you will make interest on your $100, and the other $10 you made in interest, so in total you will have $121.
IRA accounts are great, but make sure you do not just let your money sit. The account is simply the vehicle, you still need gas. The gas being either bonds or stocks. With bonds, you are loaning money, either to a company or government with a fixed interest rate to be paid back in a certain amount of time. With stocks, you will own a portion of a company, and make money when they make money.
These are all fairly simple ways to make your money work for you. Obviously, this is just scratching the surface, but it is a great way to get started. Do not let your fear of starting hold you back from growing your wealth. Financial literacy is of utmost importance to financial freedom. Time is on your side, so make use of it!