Oh The Places Your Money Will Go!

Congratulations! You’ve just entered the world of financial independence (and responsibility!).

Your paycheck has so many places it could go.

But as with any journey, it’s important to make sure it visits the right destinations.

Checking Account, Savings Account, 401(k)s/IRAs, Brokerage Accounts – we’ve all heard of them:

How do we actually use them?

Get this right and you’ll be set up for financial stability and success.
Let’s talk about how...

Checking Account

Our money starts in the busy checking account. This is your primary account for everyday spending. It’s where:

• Your employer will deposit your paycheck
• Rent gets taken out
• Your debit card pulls from
• Your credit card gets paid from

Checking accounts are great for everyday spending, but not a place for long-term growth. Checking Accounts earn little to no interest. Because of that, keep enough money in here for regular spending but not too much more than that.

Savings Account

The checking account is great, but our money needs more on its journey. A great next stop is the savings account.

Despite the name, savings accounts are not the account you’ll use to get rich. Instead, they are best used for emergency funds and short-term savings.

If you lost your job, how much money would you need until you found a new job? If your dog got sick, would you have money ready to pay the vet bills? Life happens and this retreat is the perfect place to be ready when it does.

It’s also a great place for short-term savings. If you’ll soon be going on vacation or buying a car, you want that money in a relatively accessible and stable place.

Savings accounts can be found at traditional banks, credit unions, and online banks. They carry a small fee, but most are waived if you meet certain requirements.

Debt

We all want our money to have an exciting journey, but unfortunately some of our money's adventure is slowed down by debt.

Whether it’s student loans, credit cards, or medical – debt is very common nowadays. Regardless of how you got the debt, it’s important to get out of it as quickly as possible.

After you build your emergency fund, throw as much money as you (reasonably) can at your debt.

It may be painful in the short term, but I’ve yet to meet someone who regrets how quickly they’ve gotten out of debt.

Retirement

Though you and your money are years away from retirement, it’s important for your money to visit a 401(k) and IRA.

The beauty of a 401(k) is that money gets deposited before your paycheck even hits your checking account.

This makes it easy to ‘set and forget’:  A great hack for consistently saving.

If your company doesn’t offer a 401(k) or you want to save even more, consider an IRA (Independent Retirement Account). You can open this and get more details at any of the big brokerage firms (Fidelity, Schwab, Vanguard, etc.).

Brokerage Accounts

Retirement savings are great, but what about purchases before then?

Cars, Homes, Vacations, College for our kids, etc.

We know we want those eventually but aren’t sure when or how much money we’ll need saved up.

Enter, the brokerage account. This account is one of the most powerful stops your money will make. It is also the one that requires the most initial leg work.

Stick with me though, it’s worth it.

Brokerage accounts give you access to the stock market – again, stick with me.

“Stock Market” may cause your eyes to glaze over or fill you fear – that’s okay.

A good conversation with a Certified Financial Planner (CFP) or Registered Investment Advisor (RIA) can calm a lot of fears here.

This post isn’t about investing, so my ask of you is this:

1. Contact a brokerage firm like Fidelity, Schwab, Vanguard, etc.
2. Discuss, in-person or over the phone, any financial goals (broad ones like “being rich one day” is a perfectly acceptable answer – you don’t have to have detailed goals when starting out)
3. Ask them about low-cost ETFs and index funds
4. When they give you a recommendation, ask them about fees (Fees on their recommendations should be under 0.2%, yes 0.2%)
5. Ask how to Automate your contributions to the brokerage account (Automation is always your friend with saving. The less you have to think about it, the better)

Investing carries risk, but well-diversified portfolios over the long term have a high potential of growing into a sizeable nest egg.

This part takes the most time (probably an hour to work with customer service to create the account and set up investments) but is a phenomenal, tried and true way to build slow, steady long-term wealth to use on purchases later in life.

Conclusion

Your money is constantly moving, whether you're directing it or not.

Hopefully seeing the many places your money can go inspires you take charge and send it to places that matter the most to you.

It will take time to set its course. Financial freedom is a journey and you'll make adjustments along the way.

But take the time, do the initial legwork, and you’ll be in a great spot.

Enjoy the journey!