Despite vastly available information and generations of adults becoming more and more tech savvy, it seems that many people are still at a loss when it comes to money management, pun intended. If you feel like you are one of those people lacking the knowledge, or even if you are an expert simply looking for more ideas, I have put together a step by step list of safe, effective things you can do to manage your money intelligently.
If you follow the steps below, you will ensure your money is safe and even providing annual returns for you. The best part is, none of these steps require that you make a six-figure salary. Anyone with a job can follow these simple steps. After you finish reading through the steps, I have also provided a real-world example for further realization.
Please take the 10 minutes necessary to read through all 10 of these steps. These 10 minutes could make a 10x difference in your future net worth.
- Open an Interest Checking Account
- At a bare minimum, everyone should have a checking account to deposit your income into, unless you are trying to avoid taxes or you earn money illegally, but those are issues for others to deal with.
- If you’re going to get a checking account, you might as well make some free money while doing it. The days of brick-and-mortar banks are fading, while online banks are becoming the modern norm. Because online banks do not have the overhead of a physical location, they can offer benefits such as annual interest on your balance. Who does not want free money? And, you do not have to worry about the security of your money because these online banks are FDIC insured.
- Here is some information on some of the best online high-yield interest checking accounts:
- My personal choice is the Aspiration 1% Annual Interest Checking Account, because of their high rate, no ATM fees, no minimum balance, no hidden fees, and no other hoops to jump through to get the 1% rate.
- Open an Interest Savings Account
- The second thing you should set up is a Savings Account. And again, you should make free money if you can. Luckily, just as there are high interest online checking accounts, there are also high interest online savings accounts.
- Your savings account is where you will keep money for emergencies and your safest returns. Because the money will mostly just sit in your account, and the balance should grow over time, the interest will likely accrue more than your checking account. The goal is to have this is a safe-holding for regular monthly savings deposits. A plan for that will be detailed below.
- Here is some information on the best online high-yield interest savings accounts:
- My personal choice is the Ally Bank 1% Annual Interest Savings Account, because of the high rate, superior online/mobile access, no minimum deposit, no hidden fees or hidden rules, and great customer support.
- Get a Flat Rate % Back on Everything Credit Card
- If you follow all of these steps and are disciplined with your spending and payments, you can do like I do, which is to get a rewards credit card and pay for everything possible with it. This is a way to earn cash back on money you are going to spend anyway. Think of it is free return on things like groceries and gas.
- I prefer the flat rate % back on everything cards, because they seem to have the least rules and often back out to the highest money returns.
- The % back you get on your total spending and the credit limit you get will depend on your credit score. Here are a few options to look into:
- Depending on your credit score and spending habits, certain cards may be better for you. But, either way, if you can get between 1% and 2% or more cash back on your total spending, then it is good free return.
- Contribute to a 401(k) and/or IRA Retirement Account
- Now that you have your banking accounts set up and a rewards credit card to spend your money with, it is time to start thinking about saving some money, specifically for retirement.
- Your potential retirement account options are, 401(k) (employer sponsored), IRA (individual, pre-tax), or Roth IRA (post-tax).
- If you have a full-time job, chances are that your employer provides 401(k) retirement plan options. If you do not have a full-time job or your employer does not provide retirement plan options, you can still set up individual retirement accounts (IRA) through a bank or other services (listed below).
- One benefit to 401(k) and traditional IRA accounts is that the money is saved pre-tax. In other words, you are putting the money into a growth account before the government has a chance to take a percentage of your hard-earned working dollars. This could provide higher growth in the long run, but you could be taxed at higher level in the future when you make withdrawals.
- A Roth IRA account is taxed now, so that future withdrawals are tax-free. This may provide less money growth, but could be good if you think you are in a lower tax bracket now than you will be when you retire.
- Many people wonder how much of their paycheck they should put into a retirement account. The usual rule of thumb is 10% of your paycheck, but it depends on your situation and your retirement savings should not leave you without immediate emergency funds. We will cover emergency funds and savings more in a couple of steps below. So, figure out what you can comfortably put into a retirement account each month, while still having some money left over for savings and other investments. It may help to keep reading this full article before you decide on a percentage/amount.
- If your employer offers 401(k) plans with any company match, you should try to put in at least as much as they will match. For example, some employers will match your 401(k) contributions up to 3% of your paycheck. In this case, you should aim to contribute 3% of your paychecks to your 401(k) plan if you can, because your employer will then also contribute 3%. Where else can you get a guaranteed free 3% in money? Nowhere.
- If your employer does NOT offer 401(k) plans with any company match, you could consider opening an IRA or Roth IRA account, or both (to “tax diversify”). But, at this point, you are not guaranteed any free return, since there is no employer to match your contributions, so it may be a better idea to wait until you have read through the rest of the steps do decide on a full plan.
- Keep in mind that an online high-yield interest savings account is usually guaranteeing about 1% for free, depending on the account, while an IRA account is never guaranteed return, and is usually similar to a mutual fund, where the money is put into a variety of assets, or is very low return, depending on the account. There are also maximums to how much an individual can contribute to an IRA account during a year.
- Betterment Retirement Plan Calculator: This calculator helps your decide whether to invest in a 401(k), IRA, or both.
- Always Have Some Immediate Emergency Funds in Your Savings Account
- Once you have a savings account set up, the goal is to eventually put money in it to sit, accrue interest, and be there for emergencies and eventual big purchases or retirement.
- The usual expert recommended minimum is 3-6 months worth of regular expenses (rent, utilities, etc..) should be set aside in a savings account for emergency funds. However, for many this may seem like a high number, and many people do not already have this money available to put into a savings account.
- But, nevertheless, you should always strive to have SOME immediate emergency funds set aside. If you can follow the next few steps below, you should definitely see your savings account grow over time.
- Daily Budget App – Target 25% Savings
- GET THE DAILY BUDGET APP. IF YOU DON’T DO ANYTHING ELSE ON THIS LIST, AT LEAST GET THIS APP. IT ONLY TAKES 5 MINUTES AND WILL CHANGE YOUR SPENDING PERSPECTIVE.
- For this app to work, you manually input your regular income (monthly pay), your regular expenses (rent, utilities, loan payments, etc…), and a target savings (I aim for 25%). With this information it backs into a DAILY SPEND BUDGET. Think about that for a second. Everyday you know exactly how much you need to spend (on average) to meet your savings goal!
- Once you have a daily budget set, you manually input expenses as you spend money on things like coffee, lunch, a haircut, getting your oil changed, etc…
- To make things even better, if you finish the day under your spend budget, then those extra dollars roll over to the next day, so you can see your cumulative savings each day. This acts like positive reinforcement, further encouraging you to keep saving even more. As you go, you know exactly the total amount you’ve saved.
- Once you’ve saved enough, you can use those savings to pay for a vacation, or a nice treat-yo-self gift, or stash in your 1% interest savings account, or even a NEW INVESTMENT (my personal favorite).
- I would recommend setting aside a portion of your savings into your interest savings account at the end of each month. It puts some money in a safe place where it will only grow with interest at no risk, and will be there for emergency costs or future big purchases.
- Betterment – Set it and forget it.
- Now that you are generating savings, it is time to invest some of those savings wisely.
- If your employer does not offer 401(k) matching and you need a retirement plan / investment alternative, such as a traditional IRA, a Roth IRA, or something like a mutual fund portfolio, this is where Betterment comes into play.
- The days of paying a financial advisor to manage a mutual fund or any other investment portfolio are fading. With computers, algorithms, and automation, investing is becoming easier than ever. Because Betterment uses time-tested, automated, investing algorithms, much of the usual human costs of investing are minimized. It is seriously easy and cheap! This kind of investment is good for those who want to set it and forget it.
- To get started, simply set up a Betterment account, connect your checking or savings account to your Betterment account, and auto-deposit a comfortable amount of money every month. You can auto-deposit or use their SmartDeposit system.
- Betterment will allow you to choose how risky/conservative you want your investments to be. You can adjust how much you want invested in stocks (riskier but higher rewards) versus bonds (safer but lower rewards). You can also set up an IRA account through Betterment if you want to!
- Other cool features of Betterment are automated tax-harvesting (making sure you get the most money possible), no withdrawal fees, and expert advice. But most of all, you will likely see better-than-market returns (over the long-term)!
- Set up a Betterment account today! It is super quick and easy! Use my referral code and get your first 6 months for FREE!! Zero fees for 6 months! https://www.betterment.com/invite/johnroach/
- Motif – Invest in many stocks without many fees. (RISKIER & OPTIONAL)
- Betterment is good if you want to set it and forget it, but what if you want to be a little more active, such as investing in certain stocks? Let me introduce you to Motif Investing.
- With Motif Investing you can build packages of stocks you want to invest in, centered around some theme or idea. For example, if you want to invest in all stocks that are involved in virtual reality technology, simply put together a list of those stocks, create a Motif that includes those stocks, and buy it through the Motif system.
- The only fee is $9.95 per buy or sell of your Motif package.
- Consider this: if you wanted to buy every individual stock involved in some technology you would have to provide a lot of up front money. Imagine trying to buy shares of Apple, Google, Microsoft, Facebook, and Amazon, all of which have high price tags ($60-$800 per share)! But, now with Motif Investing you can package those stocks into a single Motif, buy fractions of shares, and only pay a $9.95 fee to buy (plus whatever dollar amount you want to invest).
- Here are some example Motifs I put together:
- Internet of Things (IoT) (16% return to date)
- Virtual Reality (21% return to date)
- Online Streaming (27% return to date)
- Investing in Motifs is riskier than investing in a service like Betterment, because you are investing in individual stocks (or packages of stocks). But, the return can also be much higher! My motifs have 16%-27% returns to date, which is much higher than the market or what I will likely get from Betterment!
- Set up a Motif Investing account today! Use my referral code and get their Motif Blue service FREE for 3 months! https://www.motifinvesting.com/offers/raf-friend
- Robinhood – Zero fee stock trading. (RISKIEST & OPTIONAL)
- If you are still wanting to invest in individual stocks and you have the money to afford buying stocks of all prices per share, then Robinhood is a no-brainer for you. With Robinhood you can buy almost any stock with NO TRADING FEES!
- This is even riskier than Motif Investing because your money is invested in individual stocks, rather than diversified across dozens of stocks, but nowhere else offers zero trading fees.
- The Robinhood platform is currently mobile only, and sometimes can fail when flooded with too much traffic, but if you are not day trading very often, then it should not be too much of an issue.
- The Robinhood platform also does NOT support any advanced trading, such as Options or Futures strategies.
- Open a Robinhood account now and start trading stocks with ZERO FEES!
- Scottrade – Advanced Investing (RISKIEST & OPTIONAL)
- If you are even still wanting to do more advanced investment strategies, such as Options or Futures trading, then I would recommend Scottrade.
- It has only $7 trading fees, but the Options/Futures strategies involved are too advanced for this article.
- If all you want to do is simply buy/sell stocks, stick with Robinhood!
Let’s recap those 10 steps as a summary:
1. Open an Online Interest Checking Account
2. Open an Online Interest Savings Account
3. Get a Flat Rate % Back Credit Card
4. If your employer offers a 401(k) plan with employer match, contribute up to the % they match, then consider getting a traditional IRA or Roth IRA for any other retirement contributions. If your employer does NOT offer a 401(k) plan, then consider setting up a traditional IRA or Roth IRA through Betterment with some of your savings (from the next step).
5. Always have some emergency funds in your Savings Account. Step 6 will help you save for this.
6. GET THE DAILY BUDGET APP. Figure out your daily budget number!
7. Set up a Betterment account! Set it and forget it. You can use this to set up an IRA account with some of your savings from step 6.
8. Set up a Motif Investing account. Invest in packages of stocks with only a $9.95 trading fee. Your risk is spread across dozens of stocks, you can purchase fractions of stocks, and you do not need all the upfront money to buy expensive stocks. (RISKIER & OPTIONAL)
9. Set up a Robinhood account. Invest in individual stocks with ZERO TRADING FEES! (RISKIEST & OPTIONAL)
10. Set up a Scottrade account. For advanced investing strategies such as Options and Futures trading with a flat $7 trading fee. If all you want to do is simply buy/sell stocks, stick with Robinhood! (RISKIEST & OPTIONAL)
Let’s walk through a real world example for 1 year:
ANNUAL SALARY is $85,000/yr
We put in 3% pre-tax into a 401(k) and our employer matches with 3% – $5100 (6%)
TAKE HOME SALARY (after taxes) is $60,000/yr
Rent is -$22,800/yr
Student Loan Payments -$5280/yr
Verizon Bill -$1800/yr
Transportation -$1398/yr
Electricity -$1200/yr
Gym -$660/yr
Internet -$324/yr
Spotify -$120/yr
LEFTOVER TO SPEND OR INVEST: $26,418/yr
USING THE DAILY BUDGET APP WE SAVE 25% FOR INVESTING ($6604.50)
Average Daily Checking Account Balance $2500 – Returns $25 (1%)
Average Daily Savings Account Balance $4000 – Returns $40 (1%)
1.5% Back Credit Card on All of Our Other Spend ($26,418 minus $6604.50) – Returns $297.20 (1.5%)
INVEST LOW RISK FIRST TO HIGH RISK LAST
Betterment Account $1200/yr – Returns $60 (5%)
Motif Account $1000 – Returns $200 (20%)
Robinhood Account $400 – We invest $400 in oil stock (USO) and it tanks, losing us $200.
TOTAL INVESTED/SAVED: $11,700 | TOTAL RETURN: $422 | PERCENT RETURN: 3.6%
While this may not seem like a ton of return, our money was never really at high risk (except for small portions in Motif and Robinhood), and if we compound 3.6% over 10-30 years with the same base $11,700 saved/invested each year, and every year we get a little bit better/smarter with our investments (5% better for example), then it could mean MILLIONS by the time we retire!
| Year | Savings/Invested | Return | %Return |
| 1 | 11700 | 422 | 3.6% |
| 2 | 23822 | 859 | 3.8% |
| 3 | 36381 | 1378 | 4.0% |
| 4 | 49459 | 1967 | 4.2% |
| 5 | 63126 | 2636 | 4.4% |
| 6 | 77462 | 3396 | 4.6% |
| 7 | 92558 | 4261 | 4.8% |
| 8 | 108518 | 5245 | 5.1% |
| 9 | 125464 | 6368 | 5.3% |
| 10 | 143531 | 7649 | 5.6% |
| 11 | 162880 | 9114 | 5.9% |
| 12 | 183693 | 10792 | 6.2% |
| 13 | 206186 | 12719 | 6.5% |
| 14 | 230605 | 14937 | 6.8% |
| 15 | 257242 | 17496 | 7.1% |
| 16 | 286438 | 20455 | 7.5% |
| 17 | 318593 | 23889 | 7.9% |
| 18 | 354183 | 27886 | 8.3% |
| 19 | 393768 | 32553 | 8.7% |
| 20 | 438021 | 38021 | 9.1% |
| 21 | 487742 | 44454 | 9.6% |
| 22 | 543897 | 52051 | 10.0% |
| 23 | 607648 | 61060 | 10.6% |
| 24 | 680407 | 71789 | 11.1% |
| 25 | 763897 | 84628 | 11.6% |
| 26 | 860225 | 100065 | 12.2% |
| 27 | 971990 | 118719 | 12.8% |
| 28 | 1102409 | 141381 | 13.5% |
| 29 | 1255490 | 169064 | 14.1% |
| 30 | 1436254 | 203076 | 14.8% |
***DISCLOSURE: INVESTING IN STOCKS IS RISKY AND YOU COULD LOSE SIGNIFICANT AMOUNTS OF MONEY. ALL OF THE SUGGESTIONS IN THIS ARTICLE ARE BASED ON MY EXPERIENCE ALONE AND SHOULD NOT BE TAKEN AS EVIDENCE OF GUARANTEED FUTURE PERFORMANCE. INVEST AT YOUR OWN RISK!***
Thank you for taking the time to read my post and stay tuned for more investing ramblings to come.
-JPR