3 Smart Money Moves for Newly Employees | Smart Change: Personal Finance
If you’ve recently been employed—whether it’s your first job after graduation or a new one—one of the things you should start doing is put your financial plan in place.
Your goal should be to secure your future, and there are a few things you can do now to ensure that happens. Here are three smart financial moves for newly hired employees.
1. Make a matching 401(k) employer your base line
A 401(k) plan is one of the greatest savings and investing tools for retirement. Beyond making pre-tax contributions and lowering taxable income, one of the greatest perks you can get is employer matching. Oftentimes, employers will match a certain percentage of your contributions. Whatever the employer wishes to match, it should be the least you can contribute.
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If your employer matches 3%, your minimum should be 3%; if it is 5%, the minimum should be 5%; Whatever the case may be, you should not contribute less than what your employer would like to achieve. Otherwise, you are leaving free money on the table because the employer match is a foolproof way to get 100% returns no matter the amount.
If you make $100,000 a year and your employer matches 5% of your contributions, that’s an extra $5,000 a year if you’re at least contributing that much. The maximum 401(k) contribution is $20,500 ($27,000 if you’re 50 or older), so you’re not likely to get that match unless you’re close to the top 1% of earners, but employer matching can help. It represents a lot of money in your account.
2. Use a Roth IRA if you qualify
One of the main drawbacks to a Roth IRA is the income limit for contribution eligibility. If you are single and earn less than $129,000, you can contribute the full $6,000 ($7,000 if you are 50 or older). If you are married and file, you can contribute the full amount if your income is less than $204,000. If your income is $144,000 or more ($214,000 or more if you are married and joint), you are not eligible to contribute at all.
The benefit of your investment being tax deductible cannot be overstated. If you put $6000 in a file Standard & Poor’s 500 In a Roth IRA that returned 10% annually for 30 years, you would have over $104,000 without contributing another currency. If this happens to a regular brokerage account, you will owe taxes on that amount when you sell your shares. But since it’s in a Roth IRA, the full amount will be yours. Take advantage of the benefits as much as possible.
3. Set up automatic transfers
You can never go wrong by doing things that make your life easier. In investing, one way to reduce the burden is to get some work out of it. This is why it is useful to automatically transfer funds to your investment account, whether it is a brokerage or an IRA.
If you have an automatic transfer set up, not only does it take a step for you, but it also becomes easier to get used to living without that money because you don’t have it for long in your bank account.
If you have the means, you should at least aim for the maximum IRA contributions allowed. For example, if your plan is to maximize your Roth IRA, you might set it to transfer $250 every two weeks from your salary. Or, if you only get paid once a month, you can set it to transfer $500 each time. How often you do it is not very important; What is important is that you invest and work towards your financial security in the future.
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