I was recently talking to a friend about investing early and planning for the future. I realized that although many people are aware that starting early is better for compound returns and that time is valuable, they are hesitant to make that first attempt at investing. A survey by Ally Financial shows that 61% of adults in the US find investing to be “scary or intimidating,” with data showing Millennials feel significantly more intimidated than previous generations. Over half of Americans (52%) agree that someday they will invest or invest more in the stock market, “but not right now.” Fear of making the wrong decisions and risk losing their hard-earned money can be overwhelming, but we are here to help!
One of the first steps you can take is to start building an emergency fund in a high-yield savings account. An emergency fund is some money that you put aside in case you lose your job or anything unexpected happens. It should be equivalent to three to six months of expenses including rent, utilities, groceries, and anything else that is essential. This will give you some room to maintain yourself while you find a new job or figure out what to do. Consider putting this money aside in a high-yield savings account so it is liquid in case you need it but is making more than it would just sitting in your checking account.
Once you have built your emergency fund, you can begin to focus on your goals. Do you want to buy a car, a home, or save for graduate school? Setting these goals, both short and long term will help create your investment plan. Platforms like Betterment, an automated investing technology, can help set goals and recommend risk levels of investments based on time horizon and amount of money. Risk is the amount of uncertainty that a specific investment has, which can give you higher rewards, but also has the potential for higher loss. The Betterment app will choose a portfolio made up of ETF’s and will periodically rebalance it for you.
If you haven’t started contributing to your employer sponsored retirement plan, start now! You can invest money in a retirement plan, such as a 401k, and if your employer matches a percentage of your contribution, it’s like free money! If you are already maxing out employer plans, think about opening an IRA as well. Talk with a financial planner if making pre-tax or Roth contributions would be better for your situation. Pre-tax contributions are invested before getting taxed, grow tax-free, and you pay taxes on them after withdrawing. On the other hand, Roth contributions are invested after tax, and you don’t need to pay taxes on them when you withdraw.
A financial planner is a great tool to take that next step in organizing your finances and keeping yourself accountable. Sometimes it’s easy to put off taking the next step for your finances, but having a planner will help you make the best decisions for your future.
Katerina Logrono is a Paraplanner at Willow Planning Group, LLC. She is primarily responsible for supporting you in reaching your personal financial goals. Katerina loves exploring new places while helping you live your adventure too!