You can just sit there and hope to have enough money to be retired one day. Social security might not last, no one else is going to save you. Get yourself in gear and ensure your financial future. Once you get the basics down, instead of retiring at 65, there’s no reason you can’t retire in your 30s if you start out early.
1). Get Your Basic Retirement Accounts In Order: 401k and IRA
Make sure you’re at least contributing up to your 401k match. It’s free money! If you can, contribute up to the maximum. For 2018, the maximum is $18,500 if you’re under 50. For every dollar you contribute, it reduces your taxable income. Paying taxes way later in life is much better than paying them today! If you’ve run out of room in your corporate 401k? Start a side hustle and put up to $54,500 in there.
Once you’re done contributing to your 401k, open up an IRA to fund $5,500 each year. For IRAs, you need to pay taxes up front, but there won’t be any taxes later down the road. You can open an IRA with Vanguard easily. If you’re over the MAGI limits for a Roth IRA, which is $135,000 for a single person and $199,000 for a married couple, you can always do a backdoor Roth. A fellow blogger, Physician on Fire, explains how to do it here in great detail.
2). Get 3-6 Months Worth of Expenses in an Emergency Fund in a High Yield Savings Account
Everyone needs an emergency fund. Things happen. 2008 happened. Firms lay off people all the time. People get appendicitis, break an arm or leg, get into a car accident, or some other serious health condition — it’s nobodies fault, it’s just random. What happens if your car breaks down and there’s an expensive part? Where’s your emergency fund? Get one!
So where do you store your emergency fund? In the highest-yielding savings account! What does your current savings account return? If you’re like most Americans, it returns almost $0 because the national average return for savings accounts is .06%. Nope, not a typo, that’s 6/100s of a percent. Tired of getting underpaid on your savings account? I was. I currently get paid 1.55% interest on my savings account with CIT bank. Tired of the overdraft fees/monthly minimums and other nonsense with your bank? Go with CIT.
CIT Bank offers 1.55% interest, which has a higher interest rate for a savings account than any other bank. It offers a savings rate that is 26 times the national average. CIT bank doesn’t have any fees, and the minimum to open an account is only $100. Get your butt in gear and get that emergency fund in place this year.
Marcus by GS and Barclays both offer 1.5%, and Synchrony Bank and Amex both offer 1.45%. None beat CIT bank. Yes, I spent a few hours checking because it’s worth it to me to get the best return possible.
3). Fund your HSA
Certain insurance plans that are classified as High Deductible Health Plans (HDHP) are allowed a Health Savings Account (HSA). They are arguably the best kind of tax-advantaged retirement accounts because they are triple tax-advantaged. You put in money pre-tax, it grows pre-tax, and when you take the money out once retired, it is also is not taxed if used for medical purposes. The contribution limits for a single person are $3,450 per year and for families they are $6,900 a year.
Note: The best way to utilize this is to save all your receipts and get them reimbursed when you retire. That way you can have your HSA fund grow tax-free for decades and get that compound interest!
4). Track Your Financial Life
You need to track your financial life if you want to retire early or be wealthy. You may not realize what you’re spending your money on and where it goes. How much does that coffee cost you? All the clothes you buy? How much can you save by cooking your own food instead of eating out all the time? There are so many ways to optimize your spending and saving, but if you’re not tracking and analyzing it, then you’re just guessing and hoping.
Personal Capital: I use this to track my Net Worth and expenses. It makes it easy to link up all your assets and liabilities. No more spreadsheets, Personal Capital has automated all that for you! They also have a cool early retirement calculator that you can play with!
Credit Karma or Credit Sesame: Get free credit scores. I use this to track what happens when I open new credit cards for travel hacking and it’s a great place to see if someone has stolen your identity. Stop paying for those credit reports and just get it free!
Pros only for Credit Karma:
- Shows both TransUnion and Equifax scores, Sesame only shows TransUnion
Pros only for Credit Sesame:
- $50,000 of identity left insurance free (with all the online hacks recently, this is something I absolutely love)
- Free searching of unclaimed money in government databases
There’s pros for both — I have both since they’re free.
5). Get An Investment Plan
You can get a free investment plan here with Ellevest. Click the “Get Started” and once you enter all your information, which takes less than 3 minutes, your investment plan comes out for free, and you can play around with the goal planner calculator. The calculator is perfect for early retirement calculations and it saves your info.
You can easily calculate the below:
- Amount you need to save monthly for a down payment on a house
- How much you need for an emergency fund
- How much you need for maternity/paternity leave of 9 months
- How much you need to save per month for early retirement
- Much more
For my friends who aren’t as into spreadsheets, logging into Ellevest makes it easier to plan for their financial future.
So, that’s it! Get your financial life in order in these 5 easy steps.
Subscribe to get access to FREE spreadsheets to save money and the entire resource pack!
Olivia worked in finance and wants you to learn the secrets of financial independence. She’s on track to reach financial independence before 30, and she wants to teach you how you can retire in less than a decade as well.
She thinks everyone needs an emergency savings fund and uses CIT Bank . They have the highest yielding rate at 1.55% and only require a minimum of $100. No monthly fees or charges like other big banks!
Her favorite free investment plan is from Ellevest. Go to Ellvest and click “Get Started” to get yours.
Her favorite personal finance tool is Personal Capital, which allows her to track her spending, historical net worth, and monitor her credit cards. It’s an upgraded version of Mint, in her opinon.