5 answers
Brandon
Student
South Euclid, Ohio
1
Question
Asked
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How do you live on your own?
I am a young adult looking for answers on what funds to build, what saving accounts to make, 401k's? Retirement funds, I just want answers to basic adult questions. #money #technology
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5 answers
Arnab Hazari
Engineer
1
Answer
Hillside, OR
Updated
Arnab’s Answer
Hi Brandon, that's a really great question. Living on your own is definitely not easy and requires some careful planning. I will keep this answer focused on money. Here are some funds to build and I highly recommend starting as early as possible,
For Retirement:
1. 401K, or 403B: these are popular retirement accounts that are opened using your employer. Most employers do support these but some don't. In the next few points, I will cover what to do if your employer does not have these funds. The advantage of these funds is that they are tax-advantaged. That means when you put money in the account, that money is tax-deductible. You can also choose Roth versions of these funds. In these types of accounts, when you take the money out, it is not taxed. The traditional and Roth versions, both allow tax-free growth as well. There's a lot of reasons people like these funds compared to other retirement funds. The max allowed annual limit is 19,500 USD and higher for people closer to retirement.
But remember, just because you put money in these accounts, does not mean it will grow with great returns. For that, you will need to invest the money in the retirement account. Investing does sound very complex but it's really not. The basics of investing and how to get average returns from the stock market are quite simple. There are a lot of good books and articles out there. Even if you simply read the investment choices in your account and learn the different metrics from Google searches, you will be good to go. Writing about Investment 101 will be a whole different topic.
2. IRAs: The structure of IRAs is extremely similar to 401Ks with few key differences. First, the one I think is most important, the maximum money you can put into IRAs is 6,000 USD compared to 19,500 USD for 401Ks. Second, you don't need an employer for this. Anyone can open an IRA. Other than that they are very similar. Also has a Roth option.
3. HSAs: Although this stands for Health Savings Account, surprisingly a lot of investors and retirement planning experts suggest this account for retirement funds. This one also has some rules for eligibility and is not as open as IRAs. There are several advantages to an HSA compared to an IRA. The biggest one I would mention is, if you need money for healthcare, you can take it out of your HSA without any penalty. For IRA or 401K, early withdrawal has a penalty. And if you are healthy and do not need that money, you can use it for retirement savings.
There's a lot more to all these accounts and personal finance is truly personal. Google these and see what fits you the best.
For Emergencies:
The general advice here is to keep enough saved for 6 months of expenses not 6 months of income. Keep the money in a Money Market account or a simple savings account, not a checking account. Make sure you don't invest this money. You want to access this money as easily as possible. Although a lot of people suggest investing this money, I recommend you do not. This is more of insurance than investment. If you want to invest this money, use a simple brokerage account with 0 fees like Fidelity offers. Also invest in fairly stable accounts, like Bonds. The idea is, if you need to sell this fund and get the money out asap, you won't lose much and it will be a fairly fast process.
Hope this helps to get you started.
For Retirement:
1. 401K, or 403B: these are popular retirement accounts that are opened using your employer. Most employers do support these but some don't. In the next few points, I will cover what to do if your employer does not have these funds. The advantage of these funds is that they are tax-advantaged. That means when you put money in the account, that money is tax-deductible. You can also choose Roth versions of these funds. In these types of accounts, when you take the money out, it is not taxed. The traditional and Roth versions, both allow tax-free growth as well. There's a lot of reasons people like these funds compared to other retirement funds. The max allowed annual limit is 19,500 USD and higher for people closer to retirement.
But remember, just because you put money in these accounts, does not mean it will grow with great returns. For that, you will need to invest the money in the retirement account. Investing does sound very complex but it's really not. The basics of investing and how to get average returns from the stock market are quite simple. There are a lot of good books and articles out there. Even if you simply read the investment choices in your account and learn the different metrics from Google searches, you will be good to go. Writing about Investment 101 will be a whole different topic.
2. IRAs: The structure of IRAs is extremely similar to 401Ks with few key differences. First, the one I think is most important, the maximum money you can put into IRAs is 6,000 USD compared to 19,500 USD for 401Ks. Second, you don't need an employer for this. Anyone can open an IRA. Other than that they are very similar. Also has a Roth option.
3. HSAs: Although this stands for Health Savings Account, surprisingly a lot of investors and retirement planning experts suggest this account for retirement funds. This one also has some rules for eligibility and is not as open as IRAs. There are several advantages to an HSA compared to an IRA. The biggest one I would mention is, if you need money for healthcare, you can take it out of your HSA without any penalty. For IRA or 401K, early withdrawal has a penalty. And if you are healthy and do not need that money, you can use it for retirement savings.
There's a lot more to all these accounts and personal finance is truly personal. Google these and see what fits you the best.
For Emergencies:
The general advice here is to keep enough saved for 6 months of expenses not 6 months of income. Keep the money in a Money Market account or a simple savings account, not a checking account. Make sure you don't invest this money. You want to access this money as easily as possible. Although a lot of people suggest investing this money, I recommend you do not. This is more of insurance than investment. If you want to invest this money, use a simple brokerage account with 0 fees like Fidelity offers. Also invest in fairly stable accounts, like Bonds. The idea is, if you need to sell this fund and get the money out asap, you won't lose much and it will be a fairly fast process.
Hope this helps to get you started.
Carly Pavlinik
Process Engineer
1
Answer
Mission Viejo, California
Updated
Carly’s Answer
First, make sure you all read Arnab's response. It is beautifully written and clear with regards to savings/ retirement. However, I think we need to have a direct conversation about BUDGETING. Before you can live on your own there are a few things you need to get straight.
1) What is my gross vs net income. Your gross income is what you earn, but your net income is what you actually take home. These can be wildly different numbers depending on various factors (taxes, SSD, medical insurance, HSA, 401k, etc). For instance, I gross $5,500 on my paycheck. But, I only receive $3,700. Make sure you understand the different and budget accordingly.
2) SAVE EARLY. The first opportunity you have to open a savings account, 401k - do it. In some cases, companies will even match your 401k contributions. For instance, every $1 I put in to my 401k, my employer matches - up to 6% of my income. Max out any matching opportunities. Make every attempt to put at least 10% of your earnings into savings each month.
3) Avoid debt. Credit cards/ lines of credit are actually required to build credit. If you open an account or loan, pay the FULL balance every month. Avoid late fees and interest rates.
4) Be realistic. Let's say you're receiving $1000/week in take home pay (net). $4,000 a month. You want to make every effort to put at least 10% in to savings and up to 10% more into retirement. This means you now only have $3,200 a month to work with. The general rule is that 30% of your income can go to rent (+insurance). This does vary a bit geographically. Cities like San Fran, LA and NYC are much higher. But, we will go with 30%. In this scenario - you could spend no more than $1,200 a month on rent. Leaving you $2000 for everything else. Transportation (all inclusive, car payment, gas, insurance) should be 10-15% of your income. I'll go with 15% here - $600. Leaving you $1,400/month for all utilities, entertainment, cell phone, clothes, repairs, medical. There are a lot of hidden costs in life. Internet, streaming services, groceries, gym memberships, home maintenance, car maintenance, prescriptions. Always start the budget with savings & living expenses.
5) Know who you are - if you know you are someone who wants to travel, that is a separate budget. Don't pull from savings. If you know you like fancy clothes - separate budget. Fast cars, separate budget. Your life is meant to be enjoyed -- so budget for it.
Best of luck!
1) What is my gross vs net income. Your gross income is what you earn, but your net income is what you actually take home. These can be wildly different numbers depending on various factors (taxes, SSD, medical insurance, HSA, 401k, etc). For instance, I gross $5,500 on my paycheck. But, I only receive $3,700. Make sure you understand the different and budget accordingly.
2) SAVE EARLY. The first opportunity you have to open a savings account, 401k - do it. In some cases, companies will even match your 401k contributions. For instance, every $1 I put in to my 401k, my employer matches - up to 6% of my income. Max out any matching opportunities. Make every attempt to put at least 10% of your earnings into savings each month.
3) Avoid debt. Credit cards/ lines of credit are actually required to build credit. If you open an account or loan, pay the FULL balance every month. Avoid late fees and interest rates.
4) Be realistic. Let's say you're receiving $1000/week in take home pay (net). $4,000 a month. You want to make every effort to put at least 10% in to savings and up to 10% more into retirement. This means you now only have $3,200 a month to work with. The general rule is that 30% of your income can go to rent (+insurance). This does vary a bit geographically. Cities like San Fran, LA and NYC are much higher. But, we will go with 30%. In this scenario - you could spend no more than $1,200 a month on rent. Leaving you $2000 for everything else. Transportation (all inclusive, car payment, gas, insurance) should be 10-15% of your income. I'll go with 15% here - $600. Leaving you $1,400/month for all utilities, entertainment, cell phone, clothes, repairs, medical. There are a lot of hidden costs in life. Internet, streaming services, groceries, gym memberships, home maintenance, car maintenance, prescriptions. Always start the budget with savings & living expenses.
5) Know who you are - if you know you are someone who wants to travel, that is a separate budget. Don't pull from savings. If you know you like fancy clothes - separate budget. Fast cars, separate budget. Your life is meant to be enjoyed -- so budget for it.
Best of luck!
Paul Goetzinger MPA
Academic and Career Consultant and Freelance Writer
751
Answers
Seattle, Washington
Updated
Paul’s Answer
Hi Brandon:
I am semi-retired at the moment, and I can possibly lend some advice to the questions you might have in regards to your future savings or retirement. Since most private and public sector entities have eliminated pension plans, it has become a little more difficult to attain a lifetime benefit, so you will need to go out and establish your own, if you are going to have a comfortable standard of living in the future.
I have done a variation of things, including 401k's, annuities, savings plan, bond programs and other savings techniques. Some have worked out moderately well, depending on the current economy. But one thing I started to realize is that I needed to develop two kinds of philosophies, a philosophy on savings, and a philosophy on investing.
Basically, I always saved ten percent of each paycheck that I received. So I lived on 90%, to pay bills, purchase food, and other requirements, and saved the other 10% to invest in something. This usually varied (and you should vary your investments), but ultimately, I started to make more investments in the stock market. It is normally pretty easy to establish an account with one of the major brokerage firms, where you can deposit some savings into an account and make stock purchases. From what I observed, the various individual stocks, that I invested in, outperformed all the 401k's, bonds, annuities, and other investments that I had. I discovered that it is best to not be a day trader, when it came to stocks, but to choose stocks that sold products, which the public needed, and invest for the long term (not taking the money out for any reason other than retirement). This was my philosophy on saving and preparing for retirement and the future, but I would do your own research on the various market choices, and other plans, which will maximize your future investments. I hope this has been helpful in answering your question.
Research the various brokerage firms and determine which one will best fit your needs
Develop a personal savings philosophy and investment philosophy, which will enable you to invest in your future and pay living expenses
Try and maximize investments in areas and companies, which sell and have products the American people need.
Contact an investment advisor and research the opportunities available to you
I am semi-retired at the moment, and I can possibly lend some advice to the questions you might have in regards to your future savings or retirement. Since most private and public sector entities have eliminated pension plans, it has become a little more difficult to attain a lifetime benefit, so you will need to go out and establish your own, if you are going to have a comfortable standard of living in the future.
I have done a variation of things, including 401k's, annuities, savings plan, bond programs and other savings techniques. Some have worked out moderately well, depending on the current economy. But one thing I started to realize is that I needed to develop two kinds of philosophies, a philosophy on savings, and a philosophy on investing.
Basically, I always saved ten percent of each paycheck that I received. So I lived on 90%, to pay bills, purchase food, and other requirements, and saved the other 10% to invest in something. This usually varied (and you should vary your investments), but ultimately, I started to make more investments in the stock market. It is normally pretty easy to establish an account with one of the major brokerage firms, where you can deposit some savings into an account and make stock purchases. From what I observed, the various individual stocks, that I invested in, outperformed all the 401k's, bonds, annuities, and other investments that I had. I discovered that it is best to not be a day trader, when it came to stocks, but to choose stocks that sold products, which the public needed, and invest for the long term (not taking the money out for any reason other than retirement). This was my philosophy on saving and preparing for retirement and the future, but I would do your own research on the various market choices, and other plans, which will maximize your future investments. I hope this has been helpful in answering your question.
Paul recommends the following next steps:
Brandon Snow
Program Manager
2
Answers
Woodinville, Washington
Updated
Brandon’s Answer
Building on the prior answers the most important thing is to only spend a portion of your income. Decide how much you want to save first and then determine how the remainder will be spent each month.
For the portion that will be saved retirement is a top priority. Saving for a down payment on a house is another example if that is something you want. It is also important to keep a fund on hand for life's emergences as something will always come up when you don't expect it. It may seem overwhelming at first to save for the future when you read headlines about how much money you will need. However time and consistent savings will get you there faster than you expect. The important thing is to start with a plan to save some of your income and get used to not spending it. Life will be full of temptations to spend like renting a fancy apartment, buying a nice car with a big loan, friends going on trips, eating at expensive restaurants, buying expensive cloths and many more things. Stick with the plan to save a set amount for future needs and the rest can be used on the "fun" items. When you look back in 20 years you will be happy about taking the steps to save for the future when you did.
For the portion that will be saved retirement is a top priority. Saving for a down payment on a house is another example if that is something you want. It is also important to keep a fund on hand for life's emergences as something will always come up when you don't expect it. It may seem overwhelming at first to save for the future when you read headlines about how much money you will need. However time and consistent savings will get you there faster than you expect. The important thing is to start with a plan to save some of your income and get used to not spending it. Life will be full of temptations to spend like renting a fancy apartment, buying a nice car with a big loan, friends going on trips, eating at expensive restaurants, buying expensive cloths and many more things. Stick with the plan to save a set amount for future needs and the rest can be used on the "fun" items. When you look back in 20 years you will be happy about taking the steps to save for the future when you did.
Peregrin Gilman
Product Owner
44
Answers
Reston, Virginia
Updated
Peregrin’s Answer
Carly and Arnab's answers are great and give you a lot of practical advice. I would add on to Carly's in the following way.
With your budget, makes sure you can live within it. It may not be as much fun as going out with friends to the latest concert or eating out all the time, but living within your means is really the key to having long term financial freedom, and it is an area, particularly with the cost of school or home or healthcare all being pretty high.
If you enjoy sharing space with people, renting a room or sharing an rental with someone is a great way to limit some of the costs. If you can get an internship or job with a company that would provide money towards school, that can defray another big area.
The key to this discipline is the other unstated part of becoming an adult, taking responsibility for your choices. Hopefully you have had some freedom as a young person to learn from mistakes. As you get older, you will still make mistakes and you will definitely learn from them, but you become more and more responsible for those for you and, if you start a family, for them as well.
Hopefully this helped, best of luck with your future.
With your budget, makes sure you can live within it. It may not be as much fun as going out with friends to the latest concert or eating out all the time, but living within your means is really the key to having long term financial freedom, and it is an area, particularly with the cost of school or home or healthcare all being pretty high.
If you enjoy sharing space with people, renting a room or sharing an rental with someone is a great way to limit some of the costs. If you can get an internship or job with a company that would provide money towards school, that can defray another big area.
The key to this discipline is the other unstated part of becoming an adult, taking responsibility for your choices. Hopefully you have had some freedom as a young person to learn from mistakes. As you get older, you will still make mistakes and you will definitely learn from them, but you become more and more responsible for those for you and, if you start a family, for them as well.
Hopefully this helped, best of luck with your future.