Roth, Budget, & HYSA

So you know you need to get your financials in order, or maybe someone told you to, but where should you start. Investing, saving, brokerage, budgets, renting vs buying, day trading, 401K, 529, etc. All these are different areas of finance falling under the same umbrella and while they might have the same fundamentals, they can require different skill sets. Also, there’s an educational and terminology barrier you need to overcome in order to fully grasp your financials.

Here is my best tip

Use social media. Type into the search bar the following words: Budget, Investing, Roth, IRA, HYSA, MMF, Investing, 401K, Saving, and Frugal. You don’t need to watch any videos that day, but it will let your algorithm know you’re interested and start to give you videos on that subject. Watch the videos and if a video doesn’t make sense, skip it, but try engage by liking and unliking it so you keep getting more content on the same subject and refresh your searches every few days. This is one of the best ways to gain a fundamental understanding of the essentials, with better visuals than I can currently provide, without making you feel overwhelmed. Eventually, you’ll find a creator you like, you’ll watch all their videos, find more creators, and you’ll be ready to go.

Reading

However, let’s say you don’t have social media, and you want to read what to do instead. Financial Feminist by Tori Dunlop was one of the best beginner financial books I’ve read and it was the book that finally helped me understand the fundamentals. Also, Psychology of Money by Morgan House was an easy read that shifted my perspective on savings, investing, and more.

My pathway

However, if you’ve input the searches into your social media and hit your limit for the day and both books are currently on hold. Here is my suggested approach, which does not follow the standard approach, as I am not an advisor, but this is unofficial advice from my struggles to get my finances and fundamentals in order.

Step 1 – Open a Roth IRA. Don’t look at your budget yet, just open a Roth IRA. If you have a 401K, open it there, and if you don’t have a 401K, open it with Fidelity. I use fidelity, my family uses fidelity, and I find that it’s current, has great 24 hr customer service, and it’s easy to navigate.

Roth – A savings account where you can input pre-tax money up to a limit, currently $7,500/year. You must invest it, I suggest the S&P 500. Google what the S&P 500 name is (I used ChatGPT because google kept misunderstanding my question) for the company you’re using.

IRA – Individual Retirement account. This an account that you open for retirement so it has certain tax advantages.

401K – This is a special tax-advantage account, which has mostly replaced the pension, which your employer opens for you. Your employer will often match a certain percentage of your contribution and your contribution is taken directly from your paycheck. There’s limits on how much you can contribute (not your employer) based on age ($24,500 for under 50 and $32,500 for over 50).

If you are feeling overwhelmed, I recommend just starting with opening a Roth IRA. That’s it. I read Financial Feminist over 9 months (I borrowed it 3 times) so don’t feel like you need to get this all done today. Go watch some social media.

Step 2 – Link the Roth to your bank. Set up a recurring action to buy 25 cents of S&P 500 stocks to be transferred on your payday. You can invest more if you can, but you don’t want to overextend yourself accidentally. If you’re feeling overwhelmed, you can call your Roth company and they’ll walk you through it, I’ve called Fidelity at almost every stage of my journey and they’ve walked me through it.

Step 3 – Leave your Roth IRA alone until your next paycheck and now log back in, it should have gone up a little, by at least 25 cents. If not, call for help. Also, if it doesn’t say Roth on the account call for help. Congratulations, you’ve just started paying yourself first.

Step 4 – Sit down and look at your budget. See if there’s any areas with room to shrink so you can grow your investments. This is important. The earlier you can invest, the sooner you can retire. I have given up most meat, I rarely go out to eat, and I do my own car’s maintenance. This gives me enough to max out my Roth at $288/paycheck. It’s hard but your efforts will compound and grow. You can look at your budget through 4 common avenues and I’ve included my experience with each. Please feel free to do whichever works best for your or improvise your own.

• Financial advisor/family member who’s used a budget before. This is how I started and it was great. My sister helped me make up a budget and has reviewed it with me each year.
• Tracking each expenditure as you spend money. This is a common suggestion in financial books. Personally, I found this one to work great in the short-term but not in the long-term.
• Spreadsheets and statements. Once a month or once a week, download all your statements and input all your expenses. I liked this approach and I stuck with it for a couple of months. However, I first tried to make my own spreadsheet and that didn’t work, so I bought one off etsy which didn’t end up giving me the information and flexibility I wanted. So eventually I stopped that approach as well.
• Budgeting app. This is what I’m currently using. I tried YNAB, Monarch, and Quicken, and I chose Quicken because of the lower price, the mobile to desktop flexibility, the simplicity, my dad uses it, and the badges. Quicken makes budgeting feel simple, which it should be. It’s able to operate almost entirely without my input and it looks back 6 months all the time. When you’re setting up your budget, you’ll put $100 down for a category and Quicken will tell you that actually, on average, historically, you spend $600 per month on that category. It’s very harsh and eye opening without a lot of heavy lifting from you. I’ll probably keep it for another year.

However you choose to go about getting a budget, pencil it out.

Step 5 – Open a HYSA or a money market fund account and set up a one-time transfer for the amount you’re allocated in your budget towards your Roth into the HYSA or MMF. Also, set up a recurring transfer of $1 or more per paycheck.

Roth’s are not normal accounts, once the money is in there you can get it back but it can be a bit of a hassle (I believe). So instead, pretend and put it in a HYSA which has much easier withdrawal options if you were too optimistic. See if you can survive on what you’ve allocated and transfer what’s in the HYSA at the next paycheck to the Roth. Then lower the transfer on the HYSA to a smaller number and increase the 25 recurring transfer to whatever amount you can do.

HYSA – High Yield Savings Account. These are savings account, like your debit card account, but instead of a ridiculously low savings rate of about 0.01%/year, it’s more like 3-5% per year. They function like venmo in that money transfers take 3 days but otherwise, they’re user friendly, typically customizable, and easy to use. Typically you’ll hear recommendations to build up an emergency fund for 3-6 months in a HYSA because you’ll reach your goal faster at a higher interest rate than a typical savings account.

MMF – Money Market Account. These are a type of HYSA, but often associated with your Roth company. They are cash savings account, so they’re easier to access, but also take 3 days to do anything. Unlike HYSA, MMF are actually ‘invested’ in the stock market, in government debt and bonds so they’ll return slightly higher rates than a HYSA on average. I have a Fidelity MMF because t it’s slightly higher than all the HYSA accounts and because I can call Fidelity and they can help with all my money accounts in one phone call instead of 2-3.

Congratulations. You’ve set up a Roth IRA, a budget, and a HYSA. Those were huge steps. Tweak your budget as needed and give it a couple of paychecks to see how your Roth and HYSA are working. There’s more to come, including 401K’s, brokerage accounts, and more. But with these steps you’ve set yourself up for success and the next steps will be easier.