Hey!
So it's been about 30 seconds since my first post, but that was more of an intro, so that doesn't count, right? Anyway, the reason I even started this today was to share (what I see as) my first milestone!
Today, November 2nd, 2019, I have reached my first $10,000 in my retirement account. And I am pumped! I made it happen faster than it would have, normally, but I couldn't help it, it was too close to resist.
In September of 2018, I started a Roth IRA (Individual Retirement Account) to begin my retirement savings. I decided to use a Roth IRA because the designed tax advantage is better suited for my current income and tax burden. I started late in the year and was fortunate to receive a generous gift from my grandparents to help kick off and make my 2018 match without completely depleting my emergency savings. But since 2019, I have been on track to max out this year as well. Every month I deposit $500 to my account straight into the index fund I am currently investing in VTSAX (Vanguard Total Stock Market Index Fund). This deposit is automated, so I don't need to even think about it. I do, however, need to make sure there is enough in my checking account. Today I opened my app to check my various accounts. For this, I use my regular banking app, USAA, and a net worth tracker called Personal Capital. I saw that I was less than $300 away from reaching my first 10k. My auto-deposit happens at the end of the month, and I just couldn't wait another 25 days till then. It also helped that I was paid a little extra in my last paycheck for an event I worked last month. What I find most exciting about this is that in total, I have only contributed $9,100 to date, which means the remaining $937.30 is growth! (That's 10%!) I know that this percentage will fluctuate over time, and at some point in time, it may be negative, but I am not worried about those times. I have been taught, by my various resources (a great one being Jim Collins book, "A Simple Path to Wealth"), that the market always goes up. As long as you can endure the recessions, your investments will grow.
Let me talk a little bit about the Roth IRA and why I chose it. One of the benefits I lost when changing jobs was my retirement benefit. My current employer does not offer any type of retirement benefit, so I have minimal options for this now. Retirement accounts are different than regular savings accounts because your money is put into investments, and those investments (ideally) grow over time. Retirement accounts are so useful because of their tax advantages, and they usually give you access to goal-specific retirement funds. There are two different ways of contributing to retirement accounts, pre-tax (traditional), and post-tax (Roth). There are also many kinds of retirement accounts, 401k, SEP-IRA, Simple IRA, IRA, to name a few. Employer offered accounts like the 401k, or Simple IRA will usually offer higher contribution limits (401k being $19,000, Simple IRA is $13,000 as of 2019). Individually, we have access to IRAs, which stands for Individual Retirement Account, but contributions are limited to $6,000. Bummer... I mentioned that these accounts are tax-advantaged. I won't get into that too much because there are articles that explain everything WAY better than I can (trust me, I tried while drafting that and it didn't make it here so... yea). All you need to know is that they are only taxed on one side, contributions of withdrawals. A traditional account: money goes in tax-free, grows, your withdrawal gets added to current taxable income (if you are truly not working, then is your only taxable income). A Roth account: taxed contributions, grows tax-free, withdrawn tax-free. A regular, taxable investment account would be taxed on both ends, taxed contributions, taxed withdrawal (to put it loosely). It might not seem like a big deal, but if we are talking about 30+ years of savings, it could be a difference of hundreds of thousands paid or not paid in taxes.
I chose the Roth IRA because I am in a relatively low tax bracket, and I believe my cost of living will go up in retirement, so not having to pay taxes on my withdrawals will be a massive benefit to me. I also am still working on an adequate emergency savings account. One awesome perk about a Roth IRA is that you can withdraw contributions without any kind of penalty. I can withdraw the whole $9,100 I contributed if I had some sort of crisis and needed it. I just can't touch any growth, so the $937 is stuck there till I'm an old lady. As long as the market is steady or positive, I can access what I contribute. So it doubles as a type of super emergency fund. I would not rely on this as your only emergency fund, because if the market drops, so will your fund. Also, once you remove the money, you cannot put it back, you are still limited to the yearly limits. If I were to remove the $9,100 I have contributed, even if I want to put it all back, I am still limited to the $6,000 and can miss out on potential growth.
Regardless of what kind of account you have access to, or decide to open (IRAs), make sure you are contributing! If you save a little now, it will grow so much more than if you try to play catch up later. If I started my account today, contributing $500 a month till I retire, I would potentially have an account worth $690,000 when I am 60. If I start when I am 35, I will only have $400,000. That is a $290,000 difference, with a contribution difference of only $42,000. Time is money. If you are young like me, just saving an extra 5 bucks a day could mean a couple hundred thousand dollars in 30 years. Damn.
Woo, okay, now I am starting to ramble more incoherently than I already have. I hope you can make sense of this mess. It'll get better, maybe.
-R
So it's been about 30 seconds since my first post, but that was more of an intro, so that doesn't count, right? Anyway, the reason I even started this today was to share (what I see as) my first milestone!
Today, November 2nd, 2019, I have reached my first $10,000 in my retirement account. And I am pumped! I made it happen faster than it would have, normally, but I couldn't help it, it was too close to resist.In September of 2018, I started a Roth IRA (Individual Retirement Account) to begin my retirement savings. I decided to use a Roth IRA because the designed tax advantage is better suited for my current income and tax burden. I started late in the year and was fortunate to receive a generous gift from my grandparents to help kick off and make my 2018 match without completely depleting my emergency savings. But since 2019, I have been on track to max out this year as well. Every month I deposit $500 to my account straight into the index fund I am currently investing in VTSAX (Vanguard Total Stock Market Index Fund). This deposit is automated, so I don't need to even think about it. I do, however, need to make sure there is enough in my checking account. Today I opened my app to check my various accounts. For this, I use my regular banking app, USAA, and a net worth tracker called Personal Capital. I saw that I was less than $300 away from reaching my first 10k. My auto-deposit happens at the end of the month, and I just couldn't wait another 25 days till then. It also helped that I was paid a little extra in my last paycheck for an event I worked last month. What I find most exciting about this is that in total, I have only contributed $9,100 to date, which means the remaining $937.30 is growth! (That's 10%!) I know that this percentage will fluctuate over time, and at some point in time, it may be negative, but I am not worried about those times. I have been taught, by my various resources (a great one being Jim Collins book, "A Simple Path to Wealth"), that the market always goes up. As long as you can endure the recessions, your investments will grow.
Let me talk a little bit about the Roth IRA and why I chose it. One of the benefits I lost when changing jobs was my retirement benefit. My current employer does not offer any type of retirement benefit, so I have minimal options for this now. Retirement accounts are different than regular savings accounts because your money is put into investments, and those investments (ideally) grow over time. Retirement accounts are so useful because of their tax advantages, and they usually give you access to goal-specific retirement funds. There are two different ways of contributing to retirement accounts, pre-tax (traditional), and post-tax (Roth). There are also many kinds of retirement accounts, 401k, SEP-IRA, Simple IRA, IRA, to name a few. Employer offered accounts like the 401k, or Simple IRA will usually offer higher contribution limits (401k being $19,000, Simple IRA is $13,000 as of 2019). Individually, we have access to IRAs, which stands for Individual Retirement Account, but contributions are limited to $6,000. Bummer... I mentioned that these accounts are tax-advantaged. I won't get into that too much because there are articles that explain everything WAY better than I can (trust me, I tried while drafting that and it didn't make it here so... yea). All you need to know is that they are only taxed on one side, contributions of withdrawals. A traditional account: money goes in tax-free, grows, your withdrawal gets added to current taxable income (if you are truly not working, then is your only taxable income). A Roth account: taxed contributions, grows tax-free, withdrawn tax-free. A regular, taxable investment account would be taxed on both ends, taxed contributions, taxed withdrawal (to put it loosely). It might not seem like a big deal, but if we are talking about 30+ years of savings, it could be a difference of hundreds of thousands paid or not paid in taxes.
I chose the Roth IRA because I am in a relatively low tax bracket, and I believe my cost of living will go up in retirement, so not having to pay taxes on my withdrawals will be a massive benefit to me. I also am still working on an adequate emergency savings account. One awesome perk about a Roth IRA is that you can withdraw contributions without any kind of penalty. I can withdraw the whole $9,100 I contributed if I had some sort of crisis and needed it. I just can't touch any growth, so the $937 is stuck there till I'm an old lady. As long as the market is steady or positive, I can access what I contribute. So it doubles as a type of super emergency fund. I would not rely on this as your only emergency fund, because if the market drops, so will your fund. Also, once you remove the money, you cannot put it back, you are still limited to the yearly limits. If I were to remove the $9,100 I have contributed, even if I want to put it all back, I am still limited to the $6,000 and can miss out on potential growth.
Regardless of what kind of account you have access to, or decide to open (IRAs), make sure you are contributing! If you save a little now, it will grow so much more than if you try to play catch up later. If I started my account today, contributing $500 a month till I retire, I would potentially have an account worth $690,000 when I am 60. If I start when I am 35, I will only have $400,000. That is a $290,000 difference, with a contribution difference of only $42,000. Time is money. If you are young like me, just saving an extra 5 bucks a day could mean a couple hundred thousand dollars in 30 years. Damn.
Woo, okay, now I am starting to ramble more incoherently than I already have. I hope you can make sense of this mess. It'll get better, maybe.
-R
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