Welcome back to 12 months to get good with money, a series of bite-sized steps to take over each of the 12 months of the year to get good with money slowly.
In January, you made a budget.
In February, you made savings goals.
In April, you made a plan for your taxes.
For June, the goal is to actually create your investing plan, open an account, and start contributing.
If you’re just joining us for the first time, go back and watch the videos (linked in the description). Because these are small steps, there is still much time to catch up to where we are, or to start with goal #1 this month and do goal #2 next month.
How to create your investing plan:
- Determine how investing fits into your debt & savings goals. Prioritize:
- Saving for a fully funded emergency fund (3-6 months of expenses) while making sure you are meeting your monthly debt minimums
- Paying off all debt that is 8% or more in interest
- Then investing.
- If you haven’t saved your EF or finished paying off your high interest debt, make a plan for that first. Based on your monthly savings rate and payments, you can figure out what your timeline for starting investing will look like
- Once you have your EF and high interest debt paid off, determine how much money you can start investing out of your monthly budget. Maybe this amount will replace your savings/debt payoff. For example, if you were paying $500/month toward your high interest debt, you can start investing that $500 each month.
Common investing questions
What’s a good amount to invest?
- Whatever you can! If you can only free up $50/month in your budget, that’s where you start.
- For those of you who can spare it, 15% of your income is a good rule of thumb if you’re seeking to retire around typical retirement age.
- If you’re pursuing FIRE, I’ll link a calculator down below that you can use to play around with numbers and determine a goal amount to invest monthly.
What if I can’t invest as much as I want/need to?
You’re in a completely normal spot. Money management is only one part of the equation– at a certain point, you may need to find a way to increase your income. The key is to get started anyway and not let this derail you right now. You know what’s worse than not investing enough? Not investing at all.
What type of accounts should I use?
This is something you should have started researching as part of last month’s goal, but the short answer is:
- You can use an account with your employer if they offer one (401k, or 403b/457b for teachers). This is a great option if you a) receive an employer match or b) prefer the money to be taken out of your paycheck before it even hits your account. You can invest up to $19,500 per year into these types of accounts.
- You can open an Individual Retirement Account (IRA) instead of or in addition to your employer plan. This is great if you have money from side hustles or another employer. You can invest up to $6,000 into an IRA per year.
Where can I open an IRA?
- If you want to manage your own IRA and choose which funds to invest in, you can use a company like Vanguard or Fidelity.
- If you’d rather invest using a roboadviser (a more hands-off approach and what I personally choose to do), you can use a company like Betterment or SoFi. These are my favorites because they have the lowest rates at the time I’m writing this.
- Either way, make sure you compare companies using a website like NerdWallet. Pay attention to the features that are important to you, and prioritize low fees.
Once you’ve made your plan for how investing fits into your savings and debt goals, and you’ve determined which type of account is right for you, take the leap and open your account this month, if you’re ready. If you still feel lost or confused, take the rest of the month to do more research. You should feel confident and prepared before you take action. But either way, make a plan and hold yourself accountable. Investing is one of the greatest opportunities we have to grow our wealth, and so putting it off forever will not serve you.
Let me know in the comments what your plan for investing is!
If you want more guidance with goal setting, mindset shifting, and budget brainstorming, you can purchase my Money Map Workbook for just $9 –> Get Your Money Map Workbook