As a First-Gen Latina, I have found that I will always experience many “firsts”. Meaning, the first to go to college, the first to get a corporate job, the first to travel outside of the Americas etc. Because of always being the first, it can get overwhelming trying to figure out things on your own, especially when it comes to money. As the year starts strong, many of us might have: “Get my finances together” or “Invest my money” as one of your 2023 goals. But creating a financial plan can get intimidating because our parents never taught us, so let’s break it down!
Before we get into where to put your money, I like to start with a mindset. Mindset 100% matters with money. This allows you to think about what your plans are for the year, what you want to stay consistent on or even what you want to change for the year? So, here are a few questions to start turning your wheels:
- Where do I see myself in 6 months, 1-3 years and 3-5+ years?
- What habits do I want to change with my money in order to get there?
- What do I want to stay consistent with my money that helps me achieve where I want to be?
Now, these questions help guide your financial plan for the year or even for years ahead. The intention is to give yourself the opportunity to break down what your values and goals are for your money.
Our first step is to invest in your current financial security. This helps you have a back up plan in case of job loss or even having to replace a tire on your car.
Here’s a checklist to consider:
- Do you have an emergency fund? This is an amount of money set in a savings account like a High Yield Savings account, to help pay any unexpected costs. The recommended savings amount is 3-6 months of your living expenses, but you can set your goal lower and build up!
- Do you have insurance to help in case of sicknesses or accidents? Examples are: Auto insurance, Health Insurance, Rental Insurance and/or Life Insurance.
- Do you have a sinking fund? This is another type of savings style for vacations, school or even a car you want to buy in a year. The goal is to set money aside for other things that aren’t just for emergencies.
These three items can help provide you financial security for today but obviously you want to also prepare for your future too right? This is where investing in your retirement and future gets elevated. In order to achieve wealth in our future we have to have assets that multiply in value. Our savings aren’t going to retire us unfortunately, but investing in the stock market is an option that can exponentially grow your wealth.
We have multiple accounts to consider and let me breakdown the most important:
- 401(k) or 403(b) – this is your employer sponsored retirement account. Only an employer can give you one. Now, your employer has limited investing options for you but there are many to choose from or sometimes they are auto allocated based on your goals you enter on the platform. This retirement account not only gives you the option to invest and take it out of your paycheck but it also has the option of your employer matching your $ investments by a certain %. If you don’t know if you have a 401(k) or don’t know what your employer match is, talk to your HR representative to help you get that info!
- Investment Retirement Account or IRA – Many talk about a Roth or Traditional IRA and these accounts are open to everyone even without an employer. This account is structured with your investment gains taxed now (Roth) or taxed later (Traditional). You can choose what best fits your goals. The great thing is you can also pick where to open your IRA and what investments can go inside. But, there is a cap in how much you can contribute which is $6500 per year on an IRA. Even if you have multiple accounts the total cap overall is $6500.
- Brokerage Account – is like a bank account for investing. You can take the money out as you please and choose your investments as you wish too. There is no cap on how much you put away but there are some tax rules that are to be aware of. If you sell your investments and take the money out in less than a year you will have to pay taxes at your marginal tax rate on the gains, if you sell your investments after a year you are taxed differently based on your income which you can see the breakdown here.
These are the three big accounts that can help you build wealth for your retirement and your next generation.
Now, that you’ve gotten a breakdown this is how you can open an investment account of your choosing:
- Use a RoboAdvisor: a RoboAdvisor charges a small fee in order to auto invest your money in stocks and bonds that fit your financial goals. They focus on giving you a diversified portfolio at the risk level your will to take. Some of my favorite RoboAdvisors are:
From setting up your mindset to plan your future, establishing financial security and taking the steps to building wealth, these are key things to building your financial plan for your future. You don’t have to have it all set up right now, but you can start taking a step towards creating a plan that works best for yourself and your family. Go at your own pace but the goal is to stay consistent so you can build your wealth in 2023 and beyond.