Simplify your investments

I’ve tried out a ton of different apps or tools to manage my investments, from change round-ups to bank monitoring services, from individual stock investing to various fund investments, and the biggest lesson I’ve learned is to keep everything SIMPLE, for ease of maintenance and to keep your own sanity.

I’ve devised this ladder of how I handle my money.  Nothing Earth-shattering here, but I think it’s important to start with this for the investing category.

1. First and foremost, you must contribute to your company’s 401k program to at least the percentage that is matched by your employer.  That matching is free money and a great multiplier on your own investments.  For example, if their match is up to 3% and you contribute that 3%, you are getting an automatic 100% return on your investment right away, which you will not get anywhere else.
2. Next, you’ll want to ensure you have around 3-6 month’s worth of expenses in an emergency fund of either cash or less-risky investments that you can sell quickly if needed.  A wise uncle once told me that with a proper cash cushion you’ll be more comfortable taking risks at work which can help catapult your career.
3. Once you have those two basics done, next you should prioritize paying off all credit card debt that has an interest rate higher than 5%.  Reason being is that you’re not guaranteed more returns than that (or anything really) in any other investing options.  In other words, if you do steps 4-6 before this one, you’ll be earning less than you’re paying in credit card interest, so you’re actually losing money overall.
4. With no looming debt over your head, now’s the time to take the money you were paying towards credit cards and increase your 401k contribution by 1-3%.  You could start with 1% more, see if you’re able to survive easily, and if so, keep upping the percentage until it starts to feel a little uncomfortable.
5. Once you’re at a good place with your 401k, or potentially even maxing it out ($19,500 per year as of this writing), the next investment you should consider is contributing to an IRA.  There are two types, a Roth IRA and a Traditional IRA.  A Roth IRA is better because the earnings grow tax-free while a Traditional IRA grows tax-deferred, meaning you pay regular income taxes at your future retirement tax rate.  There are some eligibility requirements for contributing to a Roth IRA, so check those to decide which one is right for you.  With either type of IRA, you can pocket up to an extra $6,000 per year and save on future taxes.
6. Lastly, once you’ve gotten this far, you can start looking into investing in stocks directly using a brokerage account.  This used to be hard for the average person to do, but there are lots of companies that make this easy and cheap (or free!) these days.  You can invest in individual stocks, index funds, or better yet (in my opinion), a robo-advisor, which I’ll cover in a future post.  There is no cap to the amount of stocks you can buy, so as you get pay increases or bonuses throughout your career, you can continue up this investment ladder rather than falling prey to lifestyle inflation.