A couple months ago my sister came to me with a request: could I help her open up an IRA? Like myself, my younger sister is self-employed, which means she’s entirely on the hook for preparing for retirement. (Her self-employment is way cooler as she works in film and even had a short she co-wrote and directed premier at TriBeCa film festival!). But due to other short-term financial goals and variable income, she didn’t have a huge lump sum to put into an investment account. Instead, she opted to open one and be able to make modest monthly contributions. She asked me if it was even possible to do that or would she need to save up a bunch of money just to get started?
Investing isn’t just for the wealthy
It’s a huge misconception that investing is something only the wealthy can afford to or have the knowledge to do. Part of the reason that belief exists though, isn’t completely unfounded. Initial minimum investments used to be a big barrier to entry for a rookie investor. Sounding just like the name, an initial minimum investing, was the bare minimum amount you needed in order to gain access to investing in a certain fund. But sometimes those minimums are $1,000 or $3,000 or $10,000. That’s a lot of money and certainly not a sum all rookies have available to put into an investment in one go. It’s part of what made my sister feel as if she wasn’t ready to start contributing to an IRA. Fortunately, there are some options out there for funds with no minimum initial investments, which can help you get started with a more modest sum.
The 401(k) and 403(b) are typically plans offered by an employer. Often the 401(k) are offered by for-profit companies while the 403(b) is utilized by non-profits. These plans usually come with the incentive of an employer match. There is a solo 401(k) option for the self-employed. The individual retirement arrangement (IRA) is another way you can be investing for retirement on your own accord without the backing of an employer.
A fee you pay which helps cover the operational costs the brokerage incurs to run the mutual fund. It’s important to remember each dollar you pay in fees is a dollar less that’s growing for future you, so you should compare costs of expense ratios and make sure you know exactly what you’re being charged. Expense ratios are generally expressed as a percentage, e.g. 0.04%. An expense ratio of 0.04% means you’re paying $4.00 in fees for every $10,000 invested.
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In my paycheck-to-paycheck days, I used to dread going grocery shopping. If I needed to go to the store right before pay day, there was a distinct possibility that my checking account wouldn’t cover all of the items on my shopping list. As I walked up and down the store aisles and tossed things into my cart, I nervously added up the costs. I frequently checked my account balance in the store to make sure I had enough funds to cover the bill. I was petrified that I would miscalculate and have my debit card declined at the checkout counter. Fortunately, that never happened.
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However, there were many shopping trips where things had to be put back because I was just cutting it too close. The non-essentials, like snacks, were the first things to get cut. I also had to amend meal plans and recipes on the fly, putting back some of the needed ingredients because I couldn’t afford all of them in that shopping trip. It was a lousy feeling. Granted, I have been extremely fortunate in my life and I have never gone hungry. But in my broke days, it was frustrating to have to worry about what I now consider a really small amount of money. The thing is when you don’t actually have it, it feels like a ton.
Over the last several years, my financial picture has really improved. I have broken out of the paycheck to paycheck cycle and now carry a cushion in my checking account. The cycle wasn’t easy to break out of and it wasn’t a quick fix. Over time, I increased my income, better tracked my spending and paid off some credit cards. My financial health is an ongoing process!
Even though being able to cover my grocery list is no longer a concern, I still advocate for keeping food costs under control. Even though I’m no longer a Broke Millennial, I still try to be a prudent consumer. I shop with a list, but sale items and try to keep the splurges as treats, rather than the norm. I’ve learned that managing costs is a cornerstone of personal finance and one I try to follow. It is nice to have enough money to ignore the rules sometimes, though.
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