The basics.

Pay our ER's, or the cat gets it!

This post is for people wetting their feet in the financial industry, trying to figure out how to become a responsible adult who’s making responsible decisions about your financial future.

See, the financial industry, as it exists today, exists for one purpose and that’s to separate you from your hard earned money. Be they mutual funds, investment advisors, hedge fund managers, financial advisors, “get rich quick/slow/moderately fast” book writers etc, they’re not here to be your friends. They’re not here to earn you equal rewards. They exist to skim some money out of your retirement accounts for themselves, and make a killing living at it. Yes they do know their stuff, but with some basic studying, so can you.

There are basically three major investments you need to focus on when you’re starting out:

• 401k
• IRA / Roth IRA
• Taxable Investment Account

There are tons of online resources available for these three investments, I’ll include some in my links page, but suffice it to say that the basics are:

• A 401k is funded with dollars you haven’t paid taxes on, but will pay taxes later on, and typically your company will pitch in (for free!) to this account for you.
• An IRA, Individual Retirement Account, is an account where the investments are either not taxed yet (traditional IRA) or already taxed and not taxed when they come out (Roth). I recommend the Roth, for many varied reasons, but do your own research and make sure you understand the consequences of each.
• You should also have some sort of savings account or cash deposit which returns good interest rates. ING direct has some excellent ones, contact me directly if you’d like to get a $25 bonus for signing up. This account is an excellent place to keep your “slush” as I call it, money that you have left over at the end of the pay period but may spend next month, and an “emergency” fund if you need / want one. More on that fund in future posts.

In order to get a good start at investing, you should fund the investments listed above in the order presented. Meaning, contribute to your 401k as much as your company will match, contribute to your Roth at a rate of $415 a month which will fund you up to the maximum this year, and if you have any left over, keep that in your taxable.

If you haven't graduated yet, or you were a Fine Arts / Business major and are currently working at Burger King (I kid), then this may all be a bit presumptive for you. But being aware of these options, and maybe pitching in just $1000 / yr into your Roth, will pay off in the long run big time.

More tomorrow about monthly cash flow.