Investing and Savings: How to Start?

I have personally spoken with many individuals who are interested in improving their financial health pertaining to Investing and Savings, but have not considered why they want to do so (besides the very wide reaching “I would like more money” because who wouldn’t right?)

These questions can highlight and guide the next steps in a financial journey and to define where in the personal financial journey and independence path you are! Let’s talk about Investing and Savings!

Are you planning for something specific and actionable for investing and savings? Some examples include:

• Retirement
• Mortgage down payment
• Personal savings and peace of mind

Budgeting and planning?

• Do you know how much you make and your spending habits well enough to budget?
• Are there set percentages you delegate for specific use?

Savings

• Do you have six months worth of personal expenses in a high yield savings account (HYSA)?
  • Six to twelve months of monthly expenses is the landmark to cover any emergency that can occur without financial burden and without relying on credit or loan for the expense.
  • These funds are specifically for emergencies only.

Debt*

• Do you have high interest debt (greater than 10%)
  • Examples: credit cards, payday loans, or other high interest loans
• Do you have medium interest debt (between 5-10%)
  • Examples: Student Loans, Car loans
• Do you have low interest debt? (5% and lower)
  • Example: Mortgages are often considered low interest or lower priority debt as it will take some time to payoff but is an asset which usually builds equity over time.

*A general rule of thumb is to prioritize high interest debt payoff first over medium interest debt, and medium interest debt over low interest debt. There are some schools of thought which prioritize investment over low interest debt depending on the value of returns of investments.

However, it is important to keep in mind paying off debt is a guaranteed way to increase the funds you have available to you as they no longer drain monthly income with payments, where investment returns are subject to year to year fluctuations. But it is a subject of contention amongst the financially savvy for investing and savings.

Investment

• Do you already have an investment account? For what reason do you invest?
  • Examples: 401k, 403b, IRA, Roth IRA, HSA, Taxable brokerage account, etc.
• Automation
  • Are your investment and savings goals automated? How much input or attention does it require from you? Can you set it up and (mostly) forget about it?

There are two common schools of prioritization: The “Debt snowball” or “Debt Avalanche”

Payoff of lowest balance loans first (Snowball)

The debt snowball prioritizes paying off smaller debts quickly regardless of interest rate. This allows psychological wins of accounts being closed by paying them off fast early and taking the funds put towards those accounts towards higher balance debt once paid. This focuses on human psychology to maintain a financial plan, but does end up costing a bit more in interest payments over time.

Payoff of highest interest loans first (Avalanche)

The debt avalanche prioritizes paying off high interest loans first, regardless of the total amount owed. This may take some time to pay off loans (you pay the minimum on all loans except for the highest interest) but will save money on interest payments in the long run as the interest rate on the outstanding decreases. This focuses on financial wins and will pay less money in the long run, but may be harder to stick to if your highest interest rate loan is also one of the largest.

Neither method is incorrect. Both have their merits. Either form of debt payoff is completely acceptable. Just understand the benefits you are earning through all the work to pay them off for the sake of your investing and savings journey!

In addition, for those of you who may be in the early stages of financial planning and personal finance development, do some research on budgeting, HYSA, and investment accounts prior to taking the word of random thoughts of others – having some baseline knowledge will aid in critical thinking skills on the types of investments or plans which might be proposed.

Some useful definitions may include:

• Asset: positive valued owned commodity.
• Equity: value built on an asset over time.
• Liquidity: access to your money when you want it.

An account with a financial institution. This account often has an interest rate which trends the cost of inflation. It is not designed to make money, but to diminish the loss of value due to inflation, while still allowing liquidity 

Tax sheltered accounts include 401k, 403b, IRA/Roth IRA, and HSA, among other examples.

A quick summary of each account:

401k

Employer sponsored retirement account. It must be offered by a place of work to contribute. Traditional 401ks allow one to contribute non-taxed funds into the account to withdraw later in retirement. (The option for a Roth 401k also exists and has similar stipulations to Roth IRAs for tax treatment)

This account often defaults to investment in a dated TRP (Thomas Rowe Price or T. Rowe Price – the company who designed the funds) fund delineated by an estimated year of retirement. These funds’ assets will be adjusted to be less risky as time passes and moves closer to the year of retirement dictated by the fund. For example, if an estimated year of retirement is 2060, a TRP 2060 would slowly reduce risk in a fund over the years of work until 2060, when the goal of retirees is often to maintain their investments and less about growing them due to higher risk.

However, funds in the 401k can also be managed by yourself if you wish, into other assets and funds. Taxes are due on the funds and growth when withdrawn and treated as income.

403b

Essentially a 401k, but provided by nonprofit organizations instead. There are some restrictions on the types of investments that are not allowed for this type of account.

Traditional IRA

Individual Retirement Account. Unlike the previous examples, this account is specific to an individual and does not require an employer to sponsor for contribution. However, you can only contribute with earned income with respect to investing and savings. A traditional IRA tax implications are similar to a traditional 401k – taxes are assessed when the funds are withdrawn.

Roth IRA

Roth IRAs are a little different from Traditional IRAs. Funds are taxed when they are put into the account. However, no taxes are assessed when they are withdrawn. This includes any investment gains made throughout the lifetime of the account, assuming the account has been owned for five years or more.

Please see my previous post on IRAs here for more information about these powerful investment accounts!

HSA

Health Savings Account. This account requires a special integrated High Deductible Health Plan plus Health Savings Account (HDHP/HSA) to be offered by your employer. 

It is exactly as it says – the health insurance carries a very high deductible for extra services that are not preventative and is generally for those who have predictable, lower cost, or routine healthcare visits.

However, in exchange, you are able to contribute to the HSA account for every year you are enrolled into the HDHP. The HSA is an account to be spent on anything pertaining to health care, prescriptions, treatment, procedures, operations, dental, or optical expenses. There are many listings and examples of what are included under the umbrella of HSA eligible purchases and these can also be found very easily online.

There are multiple benefits to this account usually referred to as the “triple tax benefit”:

• Tax free contributions
• Tax free when spent on qualifying expenses
• Tax free growth on investments for compound interest

Lastly, reimbursements from this account can occur at any time, given you retain copies of receipts and expense reports for any out of pocket costs paid. Many individuals will pay out of pocket for the first few decades of the fund’s life and then reimburse themselves in a lump sum after compound interest has accrued.

For example, say you have eligible expenses tallying $10,000 and your fund has exactly that amount to pay the expense, but instead you pay it out of pocket and let the fund accrue interest for 30 years before your retire. 

$10,000 which accrues 6% interest for 30 years, with no additional contributions on funds, will grow to $57,434 over 30 years.

At this point, you reimburse yourself $10,000 for your earlier expense and retain $47,434 in the account. By delaying the withdrawal, you have gained the interest and still allow yourself the reimbursement of funds later. Kinda cool, right?

As a note about all these account types – there are different limitations on the amount that can be contributed each year to each account. These amounts are very clearly stipulated and easy to find by searching for them on the IRS website.

Initially, it is recommended to budget your monthly expenses for three months to understand where your biggest expenses are located. This allows you to truncate some of your biggest expenses if they are discretionary expenses such as travel, eating out at restaurants, or leisure activities, or to identify your biggest loan payments to pay down first and save some monthly income.

While you are budgeting for these three months, begin establishing an emergency fund in a HYSA – with a goal of $1,000 dollars to start. This is to establish a savings on a schedule, prove to yourself investing and savings is possible no matter how difficult, and to allow a cushion to prevent straying from the financial plan should life happen while you are pursuing your plan (which it will!).

For perspective, 59% of individuals in the United States do not have enough savings to cover a $1,000 emergency expense. That’s over 200 million people.

This is an amount you contribute to your retirement fund as a percentage of your income (often in low single digits such as 6%) in exchange for a “match” from your employer. This match is the employer giving you an amount into your retirement fund based on the amount you contribute. This is essentially free money from your employer just for contributing your money to a 401k. These funds from your employer become yours after they “vest” – the waiting period for the funds to become yours. Any contributions or growth on the funds you personally add, are always yours.

Company Match Example

For simplicity of an example, say you make $100,000 per year and you contribute 6% to your 401k. Your employer matches you for 1% for every 1% you contribute up to 6% (meaning if you contribute 6%, they will “match” your 6%), and it vests over three years.

This means you contribute $6,000 per year to your retirement and you gain an additional $6,000 from your employer from this match. For a total of $12,000 per year into your 401k. The employer vesting schedule is three years, so after working for the company for three years, all the funds contributed by the employer match, are yours.

Decide whether to focus on the highest interest loans or smallest balance loans first – Debt Avalanche or Debt Snowball – and stick to it. 

This is often the hardest step to begin and will test your dedication and resilience. However, once you pay off the first big debt, it will be a massive step forward in your personal finance journey and oftentimes accelerate the desire to forward the financial independence faster.

Increase your emergency fund amount to cover for a longer period of time. This will allow a more selective and independent lifestyle given any emergency circumstances such as job loss, emergency healthcare expense, or living cost increase such as unintended tax increases, mortgage insurance or property taxes, HOA adjustments, or even a broken washing machine!

Organize your debts based on the payoff method chosen and keep hammering away at them. This is often the step that will take the longest but will also feel the most rewarding on completion.

Many individuals will decide to establish this individual retirement account concurrently with medium debt payoff to begin contributing yearly. There is a limitation on the amount you can contribute per year and it applies to ALL IRA accounts of any type (both IRA and Roth IRA are additive).

Adjust your investment and savings to a rate of roughly 15% of pre tax income across all accounts. More if you have it to spare is perfectly acceptable, but 15% is a good threshold. Unless you are a very high income earner, this will not hit the thresholds for maximum contributions to all retirement accounts.

For perspective, the average savings rate of an individual in the United States in 2025 is only 5%.

A Taxable Brokerage Account is used for investing and savings into assets with money that is not earmarked specifically for retirement age. These accounts can be opened like a bank account and are organized by a brokerage on behalf of an individual or who opens it.

The funds can be accessed prior to retirement age (at any time) assuming the relevant taxes are paid when they are retrieved from an asset investment and also when withdrawn from the investment account.

Tax Implications For Taxable Brokerage Accounts

The funds are subject to capital gains taxes, income taxes, and dividends taxes, all of which will be reported to the IRS when filed per year.

Asset allocation becomes important for these funds to lower tax implications with regards to investing and savings. This is an entirely different conversation which I have discussed previously in this post here

If you are eligible for a Health Savings Account (HSA) through a High Deductible Health Plan (HDHP) at your place of work, contribute the maximum amount.

This is the dream place to be and is a very stable financial situation. If you can make it to this step, first of all, congratulations for how hard you have worked to get here! Some example choices you can debate include:

• 529 plan – For education savings for your children
• Early mortgage payoff
• Immediate savings goals (less than five years)
  • Vacations
  • Home renovations
  • New vehicles
• Early retirement – maximize contributions
  • 401k/403b
  • Roth/Traditional IRA

Utilize a Taxable Brokerage Account for any additional funds.

This is a fancy way of saying how long are you planning on saving or investing?

The general rule of thumb is to save for under five years and to invest if over five years. This is to give the market the chance to capitalize on a longer term average growth rather than depending on year to year growth with the potential to lose uncorrected by the averaging of many years of investment. However, this is ultimately a decision for the individual.

This is often the most difficult question to answer, especially when first starting out. It is not an easily accessible concept.

Risk is uncertainty. In the case of financial risk, often it stems from market fluctuations, debt and credit defaults, or operational failures.

There are layers of risk that relate to layers of operational debt and credit structures, which will be a future post.

Risk tolerance is asking, how likely are you to stick to your financial plan given all of the risk in your plan? Can you handle watching the market drop 30% one day to recoup over the next year and ultimately grow? Or are you someone who prefers to watch things slowly grow with less loss, but therefore less likelihood to grow over time?

Risk tolerance is an individualized experience.

Risk tolerance has both logical and emotional and needs to be evaluated multiple times over the course of a personal investment and savings journey.

Risk tolerance and potential for market gains, often have some sort of correlational relationship. As risk increases, the potential for market gains SHOULD increase. This is a wise investment practice to watch for a correlation between the two. Identifying your risk tolerance is key to understanding the right financial plan for you.

These are the few questions I tend to ask new individuals looking to optimize their current finances or to initiate new investment plans and a example financial plan for someone looking for a way to get started on their journey!

From my mind to yours!

~Jay

I enjoy sharing what I have learned through my own personal finance journey!

The post Investing and Savings: How to Start? appeared first on MonroeMind.

I have discovered that many people have different ways of identifying their personal financial success and it is often very personal – close to their heart and mind.

By what metric

Some of the examples I have heard people judge their financial success from are:

Savings

Are you seeing the numbers of your accounts go up or go down? Do you have more liquid cash available for situations in which it is necessary? Do you have the ability to make money off of the money you’ve saved?

Goals

Some people have imagined a life goal for themselves – an education, a perfect home, or even a nice car. How about paying off a significant debt? Retiring at a certain time in their life? Establishing a new life skill? How about start a business? These goals are a huge motivation for some people to increase their finances to be able to afford them.

Networth

Does your overall net worth (your positive-worth assets like bank accounts, retirement, or home equity subtract all your debts such as student loans or credit cards) trend upwards?

Value

Never underestimate the value of yourself in the midst of making money. I will continue to say that financial journeys are a psychology as much as a science. 

Do you have enough peace of mind in your budget to leave a job which treats you unfairly? Can you take time off when necessary for life events? Sometimes, the goal is simply to allow life to happen without de-railing the financial journey.

These are just some of the examples that have come up in conversation. There are many more. What do you think?

Comparison 

I like to bring this important idea up at the beginning of financial discussions with others.

Financial Wellness is a psychology as much as a science. So we must consider our reactions to the metrics we set (or lack thereof) as much as we consider the metrics we choose.

The example I hear a lot is something like this:

Often we see individuals with idealistic lifestyles that are enviable – they own the nice house, car, clothes, or etc. which we wish we had.

I want to pause here for a moment and think about metrics again. 

• Why are we desiring this thing we see? 
• If someone has these things, how have their metrics changed? 
• Has their situation increased or decreased their savings or net worth? 
• Does a purchase aid them in their career, future, or personal life?

The picture of someone else’s public presentation is not always the picture of their financial success.

If we compare ourselves to what we see and not true metrics, then we are losing the value of our personal sanity – where the comparison we are making may not even be justified. The situation we are idealizing may not even be what we truly see. 

Therefore, the next time you see yourself compared to someone else, I challenge you to think if it is truly making progress for you. If it isn’t, comparison is the thief of joy. Think about how far you have personally come instead. Try to remember this is a personal financial journey and it is just that – personal. Start from the goals you have set and realize how far you have come.

Financial Success Metrics

Some questions I tend to ask when first discussing finances to get everyone on the same page:

What are your goals?

Some frequent examples are:

• Are you planning on a home downpayment?
• Retirement? Early retirement?
• Do you want to save for university for your children?
• Save for healthcare expenses; now or later?

What is your time horizon?

Meaning how much time can you invest or save before your goal will be acted upon?

• Days? Months? Years?

What is your risk tolerance?

Can you watch your finances fluctuate year to year or do you favor stability over potential for increases? (These terms are usually used for investment portfolios)

• Highly Aggressive
• Aggressive
• Moderate
• Low

These financial success metrics are often used as a baseline conversation to help develop plans for financial success. It is not a metric, so much as the information surrounding a person’s planning – and takes into account the individuality of a person’s investment tolerance too. Savings is a psychology as much as a science.

For those of you interested in reading more – see my post on Financial Planning!

Hope this helps you think about how to measure your goals in a more objective way. Keep up the amazing work towards your goals!

From my mind to yours!

~Jay

I enjoy sharing what I have learned through my own personal finance journey!

The post Financial Success appeared first on MonroeMind.

This is the Will Working Want Monthly Budgeting tracker. I’ve spoken previously on Will Working and Want being categories of spending based on Desired Goals, Current Obligations, or Impulse Desires. Having it color coded helps to see where funds are going and how to prioritize better on where money you make can make the biggest difference.

And don’t worry, I’ve included this spreadsheet at the end of the post!

The previous total column allows you to put what your last expense cost was for the month. You can take this from any bill or statement form the last month to compare to current costs for this month.

The budgeted column reflects what was actually available for this category of spending for the month. The actual column reflects what was actually spent on this category. If these two columns differ, that is okay. In fact, it’d be best to have the actual amount be lower than the budgeted amount so you can save the rest!

Lastly, the change column is meant to represent the change between the previous total and the actual amount paid for the current month. This will help reflect on where spending is increasing or decreasing.

The entire purpose of a financial journey is to create an awareness and an ability to masterfully manipulate money. I am a very visual person, so a colorful spreadsheet helps me visualize what my next steps should be and to help stay on track. Hopefully this helps you too!

Like I said, here is a copy of the spreadsheet for your personal use! Use it wisely and take your financial journey to the next step!

From my mind to yours!

~Jay

I enjoy sharing what I have learned through my own personal finance journey!

The post Monthly Budgeting to keep your money! appeared first on MonroeMind.

What is Compound Interest?

If there is one top 7 question topic you take away from reading here today, please let it be the idea of compound interest. With regards to saving and investing, it is the most important thing.

Compound interest is the idea of money earning money.

When an investment is allocated, it is started with a certain amount of funds. Those funds begin earning interest and the interest is paid. The interest can be compounded with different timings ranging from annually, to quarterly, daily, or even continuously.

When the interest is paid, the new amount in the account becomes the starting funds, plus the interest. 

Over the next interest period, the funds then begin to earn interest based on this new amount – the funds plus the interest. In other words, the interest then begins to earn interest.

This is the power of compound interest.

In the form of investments, the idea is the same, it is just called compounding or compounding returns.

Why is this so important? The earlier you understand this concept, the sooner you will begin investing.

Over time, money can earn returns on itself. Starting earlier means there is more time for the interest to be compound. Which often means more money.

To give an example, here is an investment returns calculator from www.calculator.net

This example shows a starting initial investment of $20,000 earning the average return of the S&P 500 of 6%, every year for 30 years, with no additional contributions, and compounded daily. The ending result, simply for having started 30 years early and investing nothing else, is an ending balance of over $120,000. 

This is the power of compounding returns over time. Learn this concept as it will serve very well to know it.

Save Money or Invest Money?

These goals go hand in hand and are not mutually exclusive.

Start with an emergency fund with a short term goal of $1000.

Then you can consider investing whilst balancing a 

longer term goal of 3-6 months of monthly expenses.

Aim to invest money in tax sheltered accounts such as a company 401k or Roth IRA to save on income taxes.

The amount you invest does not have to be large and will likely vary from person to person, but the sooner you start and more importantly the sooner you make this process automatic, the sooner you can capitalize on compound interest and reliable savings!

Where do I save?

Try a High Yield Savings Account (HYSA).

If you’ve heard of a certificate of deposit (CD) a HYSA is similar.

A CD offers a set interest rate in exchange for a set time frame to maintain the money with a financial institution.

A HYSA does not offer a set interest rate, but instead allows funds to be withdrawn without a penalty when necessary.

These accounts have fluctuating interest rates that are significantly higher than traditional checking or savings accounts. Interest rates trend the market but have been as high as 4.0% or more in 2025.

This is a good place to keep an emergency fund. You can withdraw it when an emergency happens without penalty but the interest rate will hopefully allow the money to trend inflation so it does not lose it’s value by sitting in an account.

Where do I invest?

Long term investments for retirement are often in tax sheltered accounts such as the 401k or 403b, Roth IRA, or HSA.

Individual taxable brokerage accounts can also be opened at any time, however they are subject to taxes and rules for investment.

Some popular investment companies include: 

• Fidelity 
• Vanguard
• Goldman Sachs
• Edward Jones
• Charles Schwab

Each company comes with pros and cons and this is not an exhaustive list. It is worth it to do your research prior to deciding a company to invest with.

Some common things to look for are:

1. Are some investments available or not only at a specific company?
2. Do I know a company that is affiliated with one of these companies that I trust?
3. Is my company sponsored retirement account already affiliated with one of these companies and do I want to keep everything at one place?

It is not necessary to be rich to start investing. Start small, but start, and remember, investing inherently has risk. Only invest what you can afford to possibly lose.

How do I save for retirement?

As mentioned previously, aim for a tax sheltered account such as a company sponsored 401k or Roth IRA. This can aid lowering taxable income.

If an employer offers a 401k match (which is an amount an employer puts into a 401k on behalf of the employee) contribute the amount necessary to gain the match*. 

*As a note, company match often has a vesting schedule. 

This means there is a time frame for how long until the money is officially the employee’s. The money will sit in the employee’s 401k account regardless of if it is fully vested or not. However, after this time frame, the money officially belongs to the employee. 

A vesting schedule will be included with the description of a company 401k match plan.

Roth IRA are tax sheltered accounts which are owned by individuals. There are yearly contribution limitations. The interest and investment gains from this account are withdrawn tax free after maintaining the account for 5 years (as in the first year of your first contribution to the account, to the fifth year), and you reach 59 ½ years of age.

Please see the Roth IRA page for more information

Payoff Debt or Save Money?

Very individualized question. However the answer is rarely often one or the other, it is usually a combination of both and psychology is a very powerful influencer for individuals’ money choices.

Initially there is a price to be put on peace of mind. Saving a small emergency fund in order to alleviate the month-to-month money stress of paycheck in and paycheck out. 

When you have $1000 put away to be covered the next time your washing machine breaks down, psychology can take a little bit of a step back.

Next, it may be wise to look at the compounding interest rate in versus the compounding interest out.

Does your 4% HYSA savings make sense if you are paying a 22% interest on credit card payment?

Does the compound interest on your investment exceed the compound debt that you have? If the answer is no, it may be worth reevaluating current planning.

Buy vs Rent

This example pertains to a home, but the rationale can be applied to other large purchase items.

Whether renting or buying, most people consider monthly payments should not be over roughly 30% of your gross monthly income.

Renting is a very good short term option. It allows an individual the flexibility of location and movement. If an individual is uncertain of where they wish to live, or what type of living space they wish (be it townhome, condominium, or family home etc.) renting can give insight into these situations and allow for wiser choices. However, price is also not controlled by the individual when renting. It is the largest cost of most peoples’ expenses, and it would be out of the control of the budgeter.

However, very savvy individuals will also consider the final price of the home. 

How much will you pay over the lifetime of your mortgage?
Will a 15 year mortgage be more money or less than a 30 year mortgage in the long run?

As a rule of thumb, usually if the monthly payment is lower, the amount paid over the lifetime of a loan is higher. There are exceptions to this, for example – if the interest rate is reduced.

As an example:  
Say there is a $450,000 home with mortgages offered over 15 and 30 years both with 20% downpayment, and a 6% interest rate.

Monthly Payments:
15 year: $3037.88
30 year: $2158.38

Total paid:
15 year: $546,819.22  (interest paid: $186,819.22)
30 year: $777,017.48  (interest paid: $417,017.48)

This is a gross oversimplification as usually lower term loans will have lower interest rates, no HOA is included, and a 20% downpayment also alleviates the requirement of mortgage insurance. But, it is wise to consider not only monthly payment, but total cost. The cost of interest over time, is compounding interest. We’ve talked about how it can benefit you, but this can also benefit businesses who give out loans too!

Whether to rent or own is a very complex topic and is an extremely individual choice to make. But now we have more tools to consider when we make the next decision.

Hopefully this helped you! Do your research, learn something new, and start your financial journey today! 

From my mind to yours!

~Jay

I enjoy sharing what I have learned through my own personal finance journey!

The post Top 7 Questions on Saving and Investing appeared first on MonroeMind.

Six Steps to Financial Health

People do not often know how to begin on their financial journey. Money is a tool. Managing and learning to use it takes practice. For me personally, I started with a checklist to set me on the right track and to try and figure out where I was on the timeline of financial health.

1. Budgeting
2. Emergency Fund
3. Start Retirement Investment (401k Match)
4. Debt Payoff
5. Refining Investment (IRA, HSA, Taxable)
6. Personal Financial Goals

Budgeting

This is the beginning step. It’s also the step most people tend to skip. Do not skip this step it is so important!

The goal is to get solid information for your general spending habits as well. You can either gather the most recent three months of your financial information or begin RIGHT NOW and write everything down for the next three months. 

The things which should be tallied are things such as: 

Any income you make.
Any amounts you spend.

We do this to track the amounts we are spending. Most people have difficulty sticking to a specific budget, so this is to see what you spend and where. The goal is only to see what you are doing and understand where every dollar you have is going.

Is anything particularly high which could be lower? Are you ordering food really commonly because you are tired after work? Are you spending a large amount on a car you might not need? Is your home within your budget or stretching you too thin? It is so challenging to answer these questions without seeing a collection of your own personal information right in front of you to prove it to yourself. If you feel this helpful to continue doing, continue to do it. If not, then start doing it for a baseline so you know your big ticket items and understand where you stand currently. Setting up a three month budget and really take a look at how you are spending.

If this seems tedious to you, after three months you can set categories of finances instead of playing with spreadsheets forever. I personally love spreadsheets and seeing how I grow from month to month, but it is not the only way. 

After three months you can try categories instead:

What do I need?
What do I save?
What can I spend?

These categories will help separate finances to help save money in different places and prepare for investment!

Okay! Now the hardest part is over. The progress starts now!

Emergency Fund

An emergency fund is savings earmarked for emergencies. Your car broke down. Your laundry machines need to be replaced. The roof is leaking. You have to move RIGHT NOW because your landlord is raising rent. An emergency room visit. You leave a job and have to look for a new one. This account is not for impulse shopping, pizza delivery, or ice cream/movie night.

The emergency fund should be in a savings account, often a High Yield Savings Account (HYSA). A High Yield Savings Account pays small interest on the funds in the account for keeping money in the account – more than a traditional savings account. The purpose of this interest is to keep up with inflation so your money stays as valuable as it was when you put it away, not necessarily to make money.

The purpose of this is to keep it liquid – to keep it available readily and accessible if needed when emergencies happen. My account is at a separate institution than my main checking account, but is still able to be accessed by transfer within one to three days.

This emergency fund can start small but the most important thing about it is it should be automatic. 

Take a small portion of your paycheck, even if it’s $20, and auto allocate it through direct deposit into your savings account.

Focus on the initial goal of $1000. This is enough to solve most home appliance troubles and small car issues.

Your final goal for this account should be 3-6 months of all of your monthly expenses in this savings account. Some people have more, all the way up to a year’s worth expenses, but 3-6 months gives a lot of breathing room for most emergencies.

Start Retirement Investment

Okay. First thing with investments – many people do not invest because they are afraid of a market crashing. I want to address this concern first and right now.

The United States S&P 500 has an average rate of return of 6-7% per year when adjusted for inflation.

What does this mean? Over the time of the entire stock exchange gains on money in the top 500 companies in the country gain a value of 6-7% on the money per year. This is an average, meaning one year you may lose money but the next year your money will gain significantly. It will average out as a gain.

Waiting to invest because of fear of losing money does not trend with the entire history of the U.S. exchange. Even during the lowest points, the money recovers. Stick with it. It is more important to invest for long periods of time than to gain quickly. Quick gains usually require much hiring risk, similar sometimes to gambling. Long term gains are an investment.

*steps off of the soap box* Now that’s out of the way!

The first investment that should be considered is guaranteed return investments. These are very rare and the most common one that most people know of are workplace retirement plans.

401k or 403b

These plans are so similar. The difference is what kind of company offers them. 401ks are more common for private sector employers. 403bs are only for government or non-profit employers.

If you have a retirement account with your workplace – usually a 401k or 403b, contribute the percentage of your yearly salary that your employer will match you. It is a 100% gain on your money simply for participating in the fund. Each company has a different contribution amount based on how much you are putting into the account and will be available information to you during open enrollment usually around november for the new fiscal year at a company.

Example: 6% of your income contribution with a 6% match from the company vested over three years.

Vested is a fancy term that means the company contributions become available to you in the time frame specified. In the example, the amount the company matches is yours after three years. You work for the company for three years and you own your entire 401k account permanently. Some companies vest immediately, but many do not.

This is the most basic form of investment. These plans are managed by the employer you have it with, but you are able to change where the money is placed if you wish to later. At the beginning, the plan will choose a fund which is marked for the year that you are going to retire based on age. The fund will be adjusted by the company fund owners to adjust the risk to lessen as you get older.

Debt Payoff

Okay, the hardest part for most people. We are not just saving, we are also needing to live somewhere. Go to school. Have expenses that surprise us. Therefore we have debt. Credit card debt, Student loans, Car loans – the type of debt is irrelevant. Let’s talk about debt payoff.

For the sake of debt payoff, we are excluding Mortgage payments because this is considered lower interest debt or long term debt which gains value. We are focusing on debt which is exclusively earning interest and therefore is only costing additional  money in the long run.

There are two common ways of looking at debt payoff.

The Debt Avalanche Method

The first is looking at debt by interest rate. This is commonly referred to as the debt avalanche method.

Sort your debt from highest interest rate to lowest interest rate.

This is the financially beneficial route if you are looking to pay the least over the shortest time. The goal is consistency! Pay the minimum amount to all debts, and pay any additional funds (after your emergency fund savings) towards the highest debt you have. In our example it would be the credit card debt at 26% (HIGH) interest. Even if it’s $5 more per payment. This is to pay off sooner than the current schedule of the loan.

As an interesting note: Most minimum payments on credit cards assume someone will be paying off the loan in ten years time, accumulating the interest for ten years.

The Debt Snowball Method

The second is looking at debt by the current amount owed. This is commonly referred to as the debt snowball method.

Sort your debt from the lowest total amount owed to the largest total amount owed.

The goal of this is to trigger our psychological wins with a dopamine rich brain! While this will end up being slightly more money than the other method, it is still a way to keep on track if the idea of paying by interest rate will deter you from sticking to the plan! Remember, the goal is consistency!

After you finish the first loan, take the amount you were allocating to the first loan and apply it to the next loan on the list. Eventually this will build a large payment towards the last debt using the previous debts money which you are already used to paying from your budget.

Refining Investment Accounts

With an emergency fund established, 401k match established, and debt payoff methods planned and underway, the considerations for more investment opportunities can begin!

There are multiple different accounts which can be used for this. Some are tax advantaged and others are not. These can be opened with a brokerage company online. Popular ones include Fidelity, Vanguard, and Charles Schwab.

Investment accounts allow you to save money for a later age. They are unique in that you can control how to invest your money. There are many different kinds:

1. IRA
   1. Individual Retirement Agreement. An investment retirement account which is linked to an individual. The funds can be invested. There is a set amount that can be contributed to this account per year. I’ve written in detail about these accounts in another post. More about this account type can be read here
2. HSA
   1. This is a Health Savings Account. You contribute funds to this account yourself. These funds are investable but the funds are only able to be used on Health adjacent items such as hospital visits, PCP visits, medications and prescriptions, among many other things. A complete list can be found online. This account requires enrollment into a High Deductible Health Plan (HDHP). This is a specific type of health plan which can be offered by employers (not always) but must fit set parameters for deductibles as described by the IRS.
3. Brokerage
   1. No tax benefits, but completely available for withdrawal and investment at any time depending. Taxes on gains are assessed based on withdrawal from the fund invested into, not the account itself.

The most passive and basic type of investment is called “index funds”. These funds are collections created by brokerages which charge a very small percentage of the investment amount per year in order to maintain the investment in the account.

There is an S&P 500 index fund affiliated with most brokerages, at this time I know of one at both Fidelity and Vanguard. These funds trend the top 500 companies in the United States stock exchange and are manipulated by the brokerages as the companies in the top 500 change. This is what the small cost per year is for – to maintain the fund accuracy per the S&P 500 and to pay the individual managing it.

This is the most basic and passive sort of investment. I will cover more detail in further blog posts.

Personal Financial Goals

This is the time to start setting up your personal financial goals with additional savings accounts or retirement accounts.

Are you saving for a home down payment? Or a second home even?
Are you planning on having a child?
Are you going to get married?

This is the time to think on what comes next so the next time you have a big expense, you can pay cash for it 

Interesting note: “Pay for it in cash” implies you have the money to pay for a big ticket item in an account before you buy it. It does not mean pay using only physical cash. Savvy individuals will use credit to pay for big ticket items on a credit card, and then immediately pay for that credit card the same month, prior to the next statement coming due. This prevents any interest from accruing, and allows you to accumulate the points on a good credit card for a vacation trip!

Hope something included here was informative and useful to you!

From my mind to yours!

~Jay

I enjoy sharing what I have learned through my own personal finance journey!

The post Financial Plan appeared first on MonroeMind.

IRAs can come in two flavors: “Traditional” IRA and “ROTH” IRA

Traditional Individual Retirement Arrangement accounts have similarities to a 401k but they are very different. Unlike a 401k, which must be offered by the place you work in order to enroll, a Traditional IRA can be opened with a broker.

1. Income taxes are deferred, meaning you can write them off for the year you contribute money into the account.
2. The taxes will only be assessed at the time of withdrawal.
3. Required Minimum Distributions (RMD), that is, a percentage amount you must take out of your account, begin at age 73.
4. There is no income limitation to contribute to a Traditional IRA, BUT there is an income limitation to take tax breaks on contributions.

Roth Individual Retirement Arrangement accounts are named after Willam Roth, a U.S. senator who played a large role in creating the account type in 1997.

1. Income taxes are assessed at the time of contribution, meaning your money is taxed when you put it into the account.
2. No taxes are taken when you withdraw money in retirement assuming you meet appropriate distribution rules such as:
   • The account has been open for five years.
   • You are 59 and a half at time of withdrawal.
3. ROTH IRAs do not have required distributions for the account holder at any time during their life. Only beneficiaries on ROTH IRAs are required to take distributions.
4. There are income limitations which can restrict contribution to a ROTH IRA.
   • For 2025 they are as follows
     • Single: $150,000
     • Joint: $236,000

If you make above these amounts, check the range for the year of contribution. It may mean you are eligible for reduced contribution amounts OR none at all.

If your spouse is able to contribute to an IRA and you are not, you may contribute to an IRA up to the married limit for the year.

Regardless of how many IRA accounts you hold or the type of IRA they are, the maximum amount you can contribute to all of them collectively per year is defined by the IRS.

For the year 2025 the total limit for all IRA contributions was $7000

There is a catch up contribution for anyone aged 50 or older, which allows slightly more than the total limitation for IRAs to accommodate for less time to contribute prior to retirement. This amount is also defined by the IRS.

There are some exceptions to the early withdrawal rules which allow you to withdraw up to certain amounts for certain exceptions. The most common exceptions are:

• First time home purchase ($10,000)
• Birth/Adoption expenses ($5,000)
• Death, disability, terminal illness
• Qualified educational expense
• Certain specific medical expenses
• Health insurance (given you are unemployed)

Lastly, contributions for the previous year’s IRA may be made until tax day of the following year. 

Example: Say it is December 31st, 2025 and you wish to max out your Roth contributions, but you will be $500 short prior to the end of the calendar year. You can make this contribution for 2025 until taxes are filed in 2026 without penalty.

Since ROTH IRA distributions are not taxed at the time of withdrawal, they are not counted as income when they are withdrawn assuming you meet the requirements.

Since it is not counted as income, you can use the ROTH IRA to adjust tax liability when you retire. An image is a better representation of this:

The amount of an RMD from traditional accounts can put you above tax brackets which can increase what you owe. Instead, proportional withdrawals from multiple accounts will reduce liability below thresholds. The far right illustrates that the ROTH withdrawal prevents us from hitting the last bracket where the traditional and savings account, taken individually or together, would be liable.

If you want some more reading on these topics here are a few links to Fidelity, Vanguard, and the IRS. Keep in mind both Fidelity and Vanguard are brokerages so they want relationships with individuals with funds. The IRS has less biased information but has much more complex language.

https://www.fidelity.com/retirement-ira/ira-early-withdrawal

https://www.fidelity.com/viewpoints/retirement/tax-savvy-withdrawals

https://investor.vanguard.com/accounts-plans/iras

https://www.irs.gov/retirement-plans/individual-retirement-arrangements-iras

As always, good luck on your finance journey!
From my mind to yours!

~Jay

I enjoy sharing what I have learned through my own personal finance journey!

The post Individual Retirement Arrangements IRA appeared first on MonroeMind.