It's easy to see the importance of a healthy emergency fund, especially in this uncertain time as the corona virus pandemic continues. But where should you start?
Let’s break it down.
What exactly is an emergency fund?
I’ll give you my definition, but I think it’s also important for you to create a definition of your own.
An emergency fund is money that you have saved and set aside specifically for emergencies. This should be held in cash for liquidity reasons, and easy to access if it’s needed on short notice. Now, I don’t mean in literal stacks of cash tucked under your mattress, I just mean it shouldn't be invested in stocks or real estate, and it’s not in some weird, faraway account that will take 7 days and your first-born child to transfer into your checking account. The best place for your emergency fund is a savings account or a high-yield savings account.
But… what constitutes an emergency? This is something you get to decide, and I suggest you know what emergencies look like for you so you can both:
a). Have self-discipline and not dip into your savings unnecessarily for stuff that isn’t actually an emergency
b). Not be hard on yourself when you DO have to dip into your emergency fund...
Are you hearing a lot of what you "should" be doing with the current market climate, but actually have no idea of how you even start investing? Look no further for a simplified breakdown of how to open your first investment account.
The 5 Steps to Start Investing
If you’re reading this, chances are you are feeling slightly overwhelmed about your current, nonexistent investment portfolio. The fancy financial verbiage probably makes you want to cover your ears and carry on with life, not worrying about the state of your future retirement years.
I get it, I’ve been there. Up until age 25, I thought I had plenty of time before thinking about retirement. Surely I don’t have to start thinking about that until I’m 50 or so. I knew I should be saving and chipping away at my student loans, but retirement?! Not even on my radar.
That is, until I got a job in the financial industry, and was face-to-face with its importance on a daily basis. I quickly learned that retirement isn’t something you should wait to save for, in fact, the opposite is true. The earlier you start investing for your future, the easier it is to become a millionaire. Or a multi-millionaire.
But then running the numbers of waiting until you’re older and in your 40’s and 50’s? You’ll need to put a LOT more money away to reach a million.
Okay, you get it- it’s important. BUT HOW DO YOU START?!
No need to yell! I’ll show you right now, in 5, easy steps.
What should you be doing when everyone is panicking about the market going down?
Your ability to stick it out through market swings will vary, depending on where you are in life. If you are retired and currently living off of your investments, you will have a different course of action for down markets. But if you are currently investing for a goal that is years or decades away, like retirement is for Gen X-er's, Millennials, and Zoomers, a down market is a G R E A T time to be socking away money and growing your investment portfolio!
So, should you be putting your money into the stock market when everything is down, and people are in a frenzy?
Financial goals that you can achieve in 20 minutes or less that will have you feeling good for the rest of the year.
The start of a new year is always exciting, full of rejuvenation, goal-setting, and what feels like an opportunity for big changes that are much-needed in your chaotic life…
...and then the champagne wears off, and January 1st starts with a hangover instead of a gym session. Or you might have found yourself in the mindset of being completely over failed resolutions, that you didn’t even bother setting any goals for yourself this year.
And hey, that’s okay. But, just because we are into the second week of January doesn’t mean you can’t make some small adjustments to your life that can set this decade up for success. Nobody is perfect, and creating longstanding habits is hard. The trick is to implement small, easy tweaks that will stick, not giant, life-changing goals.
Another goal-setting tip is to avoid vague resolutions that won’t really get you anywhere. Instead of “I’m going to be better with my money in 2020” or “I’m going to save more”, try resolutions that are specific and actionable, and ones that will help you throughout the year with little to no ongoing effort. The following three goals are just that- things that are easy to implement yet will leave you feeling good about yourself all year long.
How you should tackle getting your own insurance when it isn't offered through your work.
Health Insurance in the United States has not only been a topic of hot debate in recent years, but it is a huge source of stress for many. Whether you have coverage from your employer, but it’s taking a huge amount of your paycheck, or you’re self-employed or working for a small company that doesn’t provide healthcare benefits and you’re trying to navigate the complicated insurance system on your own, we can all agree that it isn’t fun.
Even as someone who holds an insurance license, it’s still complicated, and still frustrating. But, since health insurance is one of those things we really should have, we’re going to break it down and try to make the process of finding your own health insurance suck a little less.
Taxes are a stressful topic for most, but to make tax time a little easier this year check out the top three mistakes made on tax returns- and how you can avoid them!
Did you wrinkle your nose at that word? Get a shiver down your spine? For most people, taxes are a serious pain point in their adult lives.
For the sake of life-long learning, and expanding the advice available on Friend of Finance, I’m currently enrolled in an Income Tax Course, and one-third of the way to becoming an Enrolled Agent (a tax advisor who is allowed to represent people on tax matters before the IRS). What does that mean? That I’m learning a heck of a lot about taxes.
And unlike other areas I’ve studied (cough, insurance, cough) the more I learn about taxes, the better I feel. Our system in the U.S can be frustrating at times, but these weird, tricky little math rules that taxes are, are actually set up to help us in a lot of ways, not to try and hurt us. How our tax money is used is a completely different topic that I’m not getting into, but the system behind the Internal Revenue Service collecting our money is constantly evolving because people are trying to improve it.
There are a TON of rules when it comes to taxes. But, a lot of these rules are there to protect taxpayers, give credits and deductions to people who need them, and try to make our system as efficient as possible.
With that being said, it’s easy to make mistakes and get stressed come tax time. In my last class, I asked my instructor what her top 3 mistakes she saw in her years of experience preparing returns, and to be honest, I was a little surprised with her answers!
What are the retirement account contributions for 2019, and how can maxing out your retirement accounts help you long-term?
Saving for retirement is important, and more people are becoming aware of the importance with the growing FIRE movement (Financial Independence, Retire Early). One of the key ingredients to a successful retirement, especially if you plan on retiring early, is maxing out your retirement accounts. If your plan is to retire early, it’s important to note that early withdrawals (money taken out before you are age 59 ½) from the qualified retirement accounts listed below could be subject to a 10% penalty. For this reason, saving and investing in regular brokerage accounts or taxable accounts is also recommended.
Every so often the IRS will announce adjustments to cost of living expenses, which will increase the contribution to retirement accounts and pension plans. 2019 was a year that saw an increase for contribution limits, for the first time since 2013. This increase means you can put more away compared to previous years.
Keeping on top of the limit increases is important for anyone actively trying to max out their retirement accounts, or for those who are doing future planning forecasts prior to retirement. The longer you have before retirement, the more these increases are actually worth because of time and compounding interest. I’ll show you what I mean after we go over the new increases.
Investing is a great tool for building wealth, but there are some financial milestones you should consider before you start investing.
Investing has a stigma for being complicated, or something that is only for people that have a lot of money. While there is a learning curve when you first start investing, it’s important to know that anyone can invest, and you don’t need a huge sum of money to begin.
1. Have an emergency fund.
The money you plan on investing should be money you are comfortable not touching for a long period of time. It is not an extension of your checking or savings account, and ideally shouldn’t be taken out until you’ve hit the goal or time that money was designated for.
So before you invest your money, make sure you have an adequate emergency fund to reduce the need to dip into your investments. An emergency fund should have 3-6 months of living expenses set aside.
Making the switch to a high-yield savings account is one of the easiest ways to grow your savings. Not only can you earn a higher interest rate, but you can better protect your future purchasing power too.
A few years ago, I never put much thought into my savings account. I thought simply having one, and one that had some money in it, was a financially responsible move.
In fact, before I went on my year-long trip backpacking around Australia, the only consideration I gave my savings account was to have enough for 15 months of student loan payments to be auto-deducted. All I worried about was having enough for those payments, I wasn't concerned about the interest that was being earned, or the service fees being charged.
The learning curve of investing may seem overwhelming, but it doesn't have to be. Learn about the three things that can make you a more confident investor!
Investing. It can be an intimidating word if you aren't doing it. But, if you are, and if you understand your investment process, that intimidating feeling shifts to empowerment.
If you are currently intimidated, here are the three things you should know before you start investing.
Hi, I'm Alicia- this blog is a way for me to share all of the helpful things I've learned from working in the finance industry, important money things that I probably wouldn't have learned otherwise, and things everyone should know about.