Millennial(ish) Money
I kind of borrowed this title from the CNBC Make It series: Millennial Money. If you haven’t watched their videos, I recommend checking them out. The gist of those videos is to break down people’s income and explain how they allocate and invest their money.
I got inspired to talk about personal finances after watching countless youtube videos about finances and investments. I started out watching many videos from this YouTuber named Graham Stephan. Graham is a prominent personal finance YouTuber. He does an excellent job of discussing the basics of investing in stocks and real estate investments. Personally, I find his contents very interesting, but his video thumbnails tend to be very clickbait and borderline cringey. But I get it, youtube is his business, and he’s got to generate revenue somehow. From there, I started to learn more about the world of credit cards. Apparently, there is a whole community of YouTubers dedicated to discussing the so-called credit card game. So I began to dive deeper into this rabbit hole and found The Credit Shifu, Waller’s Wallet, Brian Jung, and many other channels. I basically spent most of my time in quarantine binge-watching videos about credit scores, credit cards, saving money, and investing. I don’t know how or why I got so obsessed with personal finances lately, but I’m glad I did.
Certified Idiot
Personal finance is hard, and apparently so is cooking pasta
I’m generalizing here, but most people in their early 20s don’t really know what they’re doing with their personal finances. I’m definitely one of those people. I got lucky and learned about building my credit score from an early age through my parents. I started working when I was 14, and I had my own checking account set up. That helped me understand what it’s like to generate income and how to navigate banking basics. At that time, my parents also made me an authorized user for one of their credit cards. Having a long history of credit line to my name has undoubtedly helped my credit score journey. Even with an early start, I still didn’t understand how to budget and manage my money efficiently. Growing up, my parents always told me to save money and live below my means. Sure I heard those words all the time, but I didn’t know what to do.
It honestly wasn’t until I graduated from college and began working full time did I started to take personal finances seriously. I mean, I had to do a lot of research on things like traditional vs. Roth 401K / Individual Retirement Account (IRA). I hear people throw out these terms as if I understood what it meant. After some tedious research, it’s surprisingly not too complicated. To simply put it, both of these programs allow you to invest money towards your retirement. For example, let’s take a look at the IRA. You can either have a traditional IRA or a Roth IRA. With a Roth IRA, you contribute after-tax dollars. Your money grows tax-free, and you can generally make a tax- and penalty-free withdrawals after age 59½. With a Traditional IRA, you contribute pre- or after-tax dollars. Your money grows tax-deferred, and withdrawals are taxed as current income after age 59½. You can start Roth IRA at any time, earlier the better. You can contribute up to $6000 per year if you’re under 50 years of age. With a Roth IRA, you can also use that account as a brokerage account used towards investing in index funds and stocks. Check out Vanguard if you’re interested in an IRA.
Retire Like a Boss
Consider starting a Roth IRA now
Similar can be said for a 401K. In most cases, your employer or company provides a 401K package and potentially matches your contribution. If the employer matches your contributions toward your 401K, it would be very smart to max out the match rate. It’s basically free money! How does it all work, you ask. You first select how much of your paycheck you want to contribute towards the 401K each month, whether it is 2% or 5%. If your employer matches up to 5% of your contribution, you bet your ass that you will contribute 5% of your paycheck towards the 401K. Again, it’s free money. The difference in the contribution depends on whether you choose a traditional or a Roth 401K. Traditional 401K means that you will contribute money from your paycheck before tax deduction. Roth 401K means contributing money from your paycheck after tax has been deducted from your paycheck. Which one you choose will depend on how much you make. If you are at a higher tax bracket now, it might be useful to go with the traditional 401K. This allows you to contribute more money to your retirement. Your money will be taxed later on when you take that money out, but you will likely be at a much lower tax bracket. As a result, you have more money towards retirement and pay less tax on that money. Disclaimer: I am not a financial expert, nor am I an accountant, so take my words with a grain of salt.
Don’t Spend, Invest
Let your money make you money
Having a checking account is great and all, but why let your money just sit there. Consider a high yield savings account! When you deposit money in a high yield savings account, you earn interest. Yes! Your money is making you money. I personally like using the American Express high yield savings account. The interest rate is competitive, and there are no fees or minimums for the account. Checking accounts either have no APY or very low APY, so don’t let your money just sit there. Obviously, there is so much that goes into personal finances. Still, these are definitely some of the things to consider now.
From the wise words of Graham Stephan: Smash the like button and subscribe!
Until next time!